1.12 Provisions , Contingent Liabilities and Contingent assets
Provisions are recognized when the Company has a present obligation (legal or constructive) as
a result of a past event, it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. The expense relating to a provision is presented in the statement of profit and loss net
of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre
tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is
used, the increase in the provision due to the passage of time is recognized as a finance cost.
Contingent liabilities
Contingent liabilities are disclosed when there is a possible obligation arising from past events,
the existence of which will be confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the Company or a present obligation that
arises from past events where it is either not probable that an outflow of resources will be required
to settle the obligation or a reliable estimate of the amount cannot be made.
Contingent assets
Contingent assets are disclosed in the notes to the financial statements when the inflow of
economic benefits is probable, but not virtually certain.
1.13 Employee benefits
(i) Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits that are expected to be
settled wholly within 12 months after the end of the period in which the employees render the
related service are recognised in respect of employees' services up to the end of the reporting
period and are measured at the amounts expected to be paid when the liabilities are settled.
No actuarial valuation is required. The liabilities are presented as current employee benefit
obligations in the balance sheet.
(ii) Post-employment obligations
The group operates the following post-employment schemes:
(a) Defined benefit plans such as gratuity, pension, post-employment medical plans; and
(b) Defined contribution plans such as provident fund.
Defined benefit plans
The liability or asset recognised in the balance sheet in respect of defined benefit pension and
gratuity plans is the present value of the defined benefit obligation at the end of the reporting
period less the fair value of plan assets. The defined benefit obligation is calculated annually by
actuaries using the projected unit credit method.
The present value of the defined benefit obligation denominated in INR is determined by discounting
the estimated future cash outflows by reference to market yields at the end of the reporting period
on government bonds that have terms approximating to the terms of the related obligation. The
benefits which are denominated in currency other than INR, the cash flows are discounted using
market yields determined by reference to high-quality corporate bonds that are denominated in
the currency in which the benefits will be paid, and that have terms approximating to the terms
of the related obligation.
The net interest cost is calculated by applying the discount rate to the net balance of the defined
benefit obligation and the fair value of plan assets. This cost is included in employee benefit
expense in the statement of profit and loss.
Remeasurement gains and losses arising from experience adjustments and changes in actuarial
assumptions are recognised in the period in which they occur, directly in other comprehensive
income. They are included in retained earnings in the statement of changes in equity and in the
balance sheet.
Changes in the present value of the defined benefit obligation resulting from plan amendments or
curtailments are recognised immediately in profit or loss as past service cost.
Defined contribution plans
The group pays provident fund contributions to publicly administered provident funds as per local
regulations. The group has no further payment obligations once the contributions have been paid.
The contributions are accounted for as defined contribution plans and the contributions are
recognised as employee benefit expense when they are due. Prepaid contributions are recognised
as an asset to the extent that a cash refund or a reduction in the future payments is available.
1.14 Financial Instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to
the contractual provisions of the instruments.
(A) Financial Assets
(i) Classification
The company classifies its financial assets in the following measurement categories:
• those to be measured subsequently at fair value (either through other comprehensive
income, or through profit or loss), and
• those measured at amortised cost.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or
other comprehensive income. For investments in debt instruments, this will depend on the business
model in which the investment is held. For investments in equity instruments, this will depend on
whether the company has made an irrevocable election at the time of initial recognition to account
for the equity investment at fair value through other comprehensive income.
Investment in Equity of Associates
The Company records the investments in Associates at cost less impairment loss, if any, as per
Ind AS 27 - Separate Financial Statements. The Company on the date of transition to Ind AS has
adopted the previous GAAP carrying amount at that date as the Deemed Cost in accordance
with the exemptions provided under Ind AS 101 First-time Adoption of Indian Accounting Standards
Financial Assets - Other than investment in associates
Financial assets other than investment in associate comprise of investments in equity (including
investments in equity oriented mutual funds) and, trade receivables, cash and cash equivalents
and other financial assets
Initial recognition and Measurement
At initial recognition, the company measures a financial asset at its fair value and in the case of
a financial asset not recorded at fair value through profit or loss, fair value plus transaction costs
that are directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at fair value through profit or loss are expensed in
profit or loss
Classification and subsequent measurement
The company classifies its financial assets in the following measurement categories:
• Financial assets measured at amortised cost and
Financial assets measured subsequently at fair value (either through other comprehensive
income, or through
• profit or loss), and
The classification depends on the entity's business model for managing the financial assets and
the contractual cash flow characteristics of the Financial Assets
• Financial assets measured at amortized cost
Financial assets held within a business model whose objective is to hold financial assets in order
to collect contractual cash flows and the contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding are measured at amortized cost using effective interest rate (EIR)method.
The EIR amortization is recognized as finance income in the statement of profit and loss.
The Company while applying above criteria has classified the following at amortized cost
(a) Trade receivable
(b) Other financial assets
Financial assets measured at Fair value through other comprehensive income (FVTOCI)
Financial assets that are held within a business model whose objective is achieved by both
collecting contractual cash flow and selling financial asset and the contractual terms of financial
assets give rise on specified dates to cash flow that are solely payments of principal and interest
on the principal amount outstanding are subsequently measured at FVTOCI. Fair value movements
in financial assets at FVTOCI are recognized in other comprehensive income.
Financial assets are measured at fair value through Profit and loss if it does not meet the criteria
for classification as measured at amortized cost or at fair value through other comprehensive income.
All fair value changes are recognized in the Statement of Profit and loss.
(vi) Investments in Equities and Equity mutual funds
Fair Value through Other Comprehensive Income (FVOCI)
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments
which are held for trading and contingent consideration recognised by an acquirer in a business
combination to which Ind AS103 applies are classified as at FVTPL.
For all other equity instruments, the Company may make an irrevocable election to present in
other comprehensive income subsequent changes in the fair value. The Company makes such
election on an instrument -by-instrument basis. The classification is made on initial recognition
and is irrevocable.
Where the management has elected to present fair value changes (gains and losses) on equity
investments in other
comprehensive income, they are measured at fair value with gains and losses arising from changes
in fair value recognized in other comprehensive income and accumulated in the ‘Fair value changes
for equity instruments through other comprehensive income'.
There is no subsequent reclassification / recycling of fair value gains and losses to Statement of
Profit or Loss even on derecognition / sale of the Investments. However, the Company may transfer
the cumulative gain or loss within equity
Dividends from such investments are recognised in profit or loss as other income when the
company's right to receive payments is established.
Impairment losses (and reversal of impairment losses) on equity investments measured at FVTOCI
are not reported separately from other changes in fair value.
Fair value through profit or loss (FVTPL)
Equity instruments held for trading are classified as FTVPL and are measured at fair value with
all changes recognised in the Statement of Profit or Loss.
(vii) De-recognition of financial assets
The Company derecognises a financial asset when the contractual rights to the cash flows from
the asset expire, or when it transfers the financial asset and substantially all the risks and rewards
of ownership of the asset to another party.
On derecognition of a financial asset in its entirety (except for equity instruments designated as
(FVTOCI), the difference between the asset's carrying amount and the sum of the consideration
received and receivable is recognised in the Statement of Profit and Loss
(viii) Impairment of financial assets
Trade receivables under IND AS 109, investments in debt instruments that are carried at amortized
cost,
--> Trade Receivables
The Company applies the expected credit loss model for recognizing impairment loss on
financial assets measured at amortised cost, trade receivables and other contractual rights
to receive cash or another financial asset.
For trade receivables or any contractual right to receive cash or another financial asset that
results from transactions that are within the scope of Ind AS 115, the Company follows
‘simplified approach' and measures the loss allowance at an amount equal to lifetime expected
credit losses. This impairment allowance is computed based on historical credit loss
experience and management assessment.
--> Other financial assets
Other financial assets are tested for impairment and expected credit losses are measured
at an amount equal to 12 month expected credit loss. If the credit risk on the financial asset
has increased significantly since initial recognition, then the expected credit losses are
measured at an amount equal to life-time expected credit loss.
B. Financial liabilities and equity instruments
(i) Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities
or as equity in accordance with the substance of the contractual arrangements and the
definitions of a financial liability and an equity instrument.
(ii) Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an
entity after deducting all of its liabilities. Equity instruments issued by the Company are
recognised at the proceeds received, net of direct issue costs.
(iii) Financial Liabilities - Initial recognition and measurement
All financial liabilities are recognized initially at fair value plus any transaction cost that are
attributable to the acquisition of financial liability except financial liabilities at fair value through
profit and loss which are initially measured at fair value.
(iv) Subsequent measurement
The financial liabilities are classified for subsequent measurement into following categories
• at amortized cost
• at fair value through profit and loss
Amortised Cost - Loans and Borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at
amortised cost using the Effective Interest Rate (EIR) method. Gains and losses are recognized
in the Statement of Profit and Loss when the liabilities are derecognised. Amortised cost is
calculated by taking into account any discount or premium on acquisition and fees or costs that
are an integral part of the EIR. The EIR amortisation is included as finance costs in the Statement
of Profit and Loss.
This category generally applies to interest-bearing loans and borrowings.
Financial liabilities at fair value through profit or loss include financial liabilities held for trading
and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of
repurchasing in the near term. Financial liabilities designated upon initial recognition at fair value
through profit or loss are designated as such at the initial date of recognition, and only if the
criteria in Ind AS 109 are satisfied. The Company has not designated any financial liability as at
fair value through profit and loss
(v) De-recognition of financial liabilities
A financial liability is derecognized when and only when, it is extinguished i.e. when the obligation
specified in the contract is discharged or cancelled or have expired
An exchange between with a lender of debt instruments with substantially different terms is
accounted for as an extinguishment of the original financial liability and the recognition of a new
financial liability.
Similarly, a substantial modification of the terms of an existing financial liability (whether or not
attributable to the financial difficulty of the debtor) is accounted for as an extinguishment of the
original financial liability and the recognition of a new financial liability.
The difference between the carrying amount of the financial liability derecognized and the
consideration paid / payable is recognized in statement of profit and loss.
Financial assets and financial liabilities are offset and the net amount presented in the balance
sheet when, and only when, the Company has a legally enforceable right to offset the amounts
and intends either to settle on a net basis or to realize the asset and settle the liability
simultaneously.
1.15 Equity and Reserves
Share Capital represents the nominal (par) value of shares that have been issued and fully paid-
up. Retained earnings include all current and previous period retained profits. Other equity includes
capital reserve, securities premium, FVTOCI reserve, and other statutory reserves as applicable.
These are classified and presented as per Schedule III of the Companies Act, 2013 and relevant
Ind AS.
1.16 Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and short¬
term deposits with an original maturity of three months or less, which are subject to an insignificant
risk of changes in value.
1.17 Cash flow statement
Cash Flow Statement is prepared segregating the cash flows from operating, investing and financing
activities. Cash flow from operating activities is reported using indirect method. Using indirect
method, the net profit is adjusted for the effects of
(i) Transactions of non-cash nature.
(ii) Any deferrals or accruals of past or future operating cash receipts or payments and
(iii) Items of income or expense associated with investing or financing cash flows.
Cash and cash equivalents (including bank balances) are reflected as such in cash flow statement.
1.18 Earnings per Share
Basic earnings per share are calculated by dividing the net profit for the year by the weighted
average number of equity shares outstanding during the year. As at the reporting date, the Company
has not issued any potential equity shares, and accordingly, the basic earnings per share and
diluted earnings per share are the same.
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