NOTE 2 - MATERIAL ACCOUNTING POLICIES
a) Statement of Compliance:
The Company's financial statements have been prepared in accordance with the provisions of the Companies Act, 2013 and the Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 and amendments thereof issued by Ministry of Corporate Affairs in exercise of the powers conferred by section 133 of the Companies Act, 2013. In addition, the guidance notes/announcements issued by the Institute of Chartered Accountants of India (ICAI) are also applied except where compliance with other statutory promulgations require a different treatment. These financials statements have been approved for issuance by the Board of Directors of the Company on April 23, 2024.
b) Basis of Preparation:
These financial statements have been prepared on a historical cost basis and are presented in Indian Rupees (INR). All values are rounded to the nearest crores, except when otherwise indicated.
c) Presentation of Financial Statement:
The Company presents its balance sheet in order of liquidity in compliance with the Division III of the Schedule III to the Companies Act, 2013. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in Note 36.
d) Revenue recognition
Revenue is recognised when the promised goods and services are transferred to the customer i.e. when performance obligations are satisfied. Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties.
The Company applies the five-step approach for the recognition of revenue as prescribed by Ind AS 115.
i. Identification of contracts with the customers: A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met.
ii. Identification of the separate performance obligation in the contract: A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer.
iii. Determination of transaction price: The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
iv. Allocation of transaction price to separate performance obligation: For a contract that has more than one performance obligation, the Company allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Company expects to be entitled in exchange for satisfying each performance obligation.
v. Recognition of revenue when (or as) each performance obligation is satisfied.
The following is a description of principal activities from which the Company generates its revenue.
Fees and commission income: Fees from services provided are recognised at a point in time when the service obligations are completed and when the terms of contracts are fulfilled.
Lending / Investments related Income:
- Interest income on investments and loans is accrued on a time basis by reference to the principal outstanding and the effective interest rate including interest on investments that may be classified as fair value through profit or loss or fair value through other comprehensive income.
- Dividend income is accounted in the period in which the right to receive the same is established.
Others: Revenue is recognised over time when the outcome of a transaction can be estimated reliably by reference to the stage of completion of the transaction.
Property, plant and equipment Measurement at recognition:
An item of property, plant and equipment that qualifies as an asset is measured on initial recognition at cost. Following initial recognition, items of property, plant and equipment are carried at its cost less accumulated depreciation and accumulated impairment losses.
The Company identifies and determines cost of each part of an item of property, plant and equipment separately, if the part has a cost which is significant to the total cost of that item of property, plant and equipment and has useful life that is materially different from that of the remaining item. The cost of an item of property, plant and equipment comprises of its purchase price including import duties and other non-refundable purchase taxes or levies, directly attributable cost of bringing the asset to its working condition for its intended use and the initial estimate of decommissioning, restoration and similar liabilities, if
any. Any trade discounts and rebates are deducted in arriving at the purchase price. Cost includes cost of replacing a part of a plant and equipment if the recognition criteria are met. Expenses related to plans, designs and drawings of buildings or plant and machinery is capitalised under relevant heads of property, plant and equipment if the recognition criteria are met.
Capital work in progress and Capital advances:
Cost of assets not ready for intended use, as on the Balance Sheet date, is shown as capital work in progress. Advances given towards acquisition of property, plant and equipment outstanding at each Balance Sheet date are disclosed as Other Non-Financial Assets.
Depreciation:
Depreciation on each item of property, plant and equipment is provided using the Straight-Line Method based on the useful lives of the assets as estimated by the management and is charged to the Statement of Profit and Loss. Significant components of assets identified separately pursuant to the requirements under Schedule II of the Companies Act, 2013 are depreciated separately over their useful life. Freehold land is not considered as depreciable assets having regard to its infinite useful life. Individual assets/ group of similar assets costing up to Rs. 5,000 has been depreciated in full in the year of purchase. Leasehold Improvements are to be amortised over the life of asset or period of lease whichever is shorter.
measured as the difference between the net disposal proceeds and the carrying amount of the item and is recognised in the Statement of Profit and Loss when the item is derecognised.
f) Intangible assets
Measurement at recognition:
Intangible assets acquired separately are measured on initial recognition at cost. Intangible assets arising on acquisition of business are measured at fair value as at date of acquisition. Following initial recognition, intangible assets with finite useful life are carried at cost less accumulated amortisation and accumulated impairment loss, if any. Intangible assets with indefinite useful lives, that are acquired separately, are carried at cost/fair value at the date of acquisition less accumulated impairment loss, if any.
Amortisation:
Intangible Assets with finite lives are amortised on a Straight-Line basis over the estimated useful economic life. The amortisation expense on intangible assets with finite lives is recognised in the Statement of Profit and Loss. The amortisation period and the amortisation method for an intangible asset with finite useful life is reviewed at the end of each financial year. If any of these expectations differ from previous estimates, such change is accounted for as a change in an accounting estimate.
* For these class of assets, based on internal assessment, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.
# Furniture and fixtures includes leasehold improvements, which is depreciated on a straight-line basis over the period of lease.
The useful lives, residual values of each part of an item of property, plant and equipment and the depreciation methods are reviewed at the end of each financial year. If any of these expectations differ from previous estimates, such change is accounted for as a change in an accounting estimate.
Derecognition:
The carrying amount of an item of property, plant and equipment is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of an item of property, plant and equipment is
The carrying amount of an intangible asset is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the intangible asset and is recognised in the Statement of Profit and Loss when the asset is derecognised.
g) Impairment
Assets that have an indefinite useful life, such as goodwill, are not subject to amortisation and are tested for impairment annually and whenever there is an indication that the asset may be impaired. Assets that are subject to depreciation and amortisation are reviewed for impairment, whenever events or changes in circumstances indicate that carrying amount may not be recoverable. Such circumstances include, though are not limited to, significant or sustained decline in revenues or earnings and material adverse changes in the economic environment. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit (CGU) exceeds its recoverable amount. The recoverable amount of an asset is the greater of its fair value less cost to sell and value in use. To calculate value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market rates and the risk specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable
amount is determined for the CGU to which the asset belongs. Fair value less cost to sell is the best estimate of the amount obtainable from the sale of an asset in an arm's length transaction between knowledgeable, willing parties, less the cost of disposal. Impairment losses, if any, are recognised in the Statement of Profit and Loss and included in depreciation and amortisation expenses.
Impairment losses are reversed in the Statement of Profit and Loss only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had previously been recognised.
h) Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition and measurement:
The Company recognises a financial asset in its Balance Sheet when it becomes party to the contractual provisions of the instrument. All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss (FVTPL), transaction costs that are attributable to the acquisition of the financial assets. However, trade receivables that do not contain a significant financing component are measured at transaction price.
Subsequent measurement:
For subsequent measurement, the Company classifies a financial asset in accordance with the Company's business model for managing the financial asset and the contractual cash flow characteristics of the financial asset.
Based on the above criteria, the Company is classifying its financial assets into the following categories:
i. Financial assets measured at amortised cost
ii. Financial assets measured at fair value through other comprehensive income (FVTOCI)
iii. Financial assets measured at fair value through profit or loss (FVTPL)
i. Financial assets measured at amortised cost:
A financial asset is measured at the amortised cost if both the following conditions are met:
• The Company's business model objective for managing the financial asset 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.
ii. Financial assets measured at FVTOCI:
A Debt Instrument is measured at FVTOCI if both of the following conditions are met:
The Company's business model objective for managing the financial asset is achieved both by collecting contractual cash flows and selling the financial assets, 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.
For the above category, income by way of interest and dividend, provision for impairment are recognised in the Statement of Profit and Loss and changes in fair value (other than on account of above income or expense) are recognised in other comprehensive income and accumulated in other equity. On disposal of such debt instruments at FVTOCI financial assets, the cumulative gain or loss previously accumulated in other equity is reclassified to Statement of Profit and Loss.
Equity Instrument at FVTOCI: Equity instruments are instruments that meet the definition of equity from the issuer's perspective; that is, instruments that do not contain a contractual obligation to pay and that evidence a residual interest in the issuer's net assets. On initial recognition, the Company can make an irrevocable election (on an instrument-by-instrument basis) to present the subsequent changes in fair value in other comprehensive income pertaining to investments in equity instruments. This election is not permitted if the instrument is held for trading. The cumulative gain or loss is not reclassified to the Statement of Profit and Loss on disposal of the investment.
iii. Financial assets measured at FVTPL:
A financial asset is measured at FVTPL unless it is measured at amortised cost or at FVTOCI as mentioned above. This is a residual category applied to all other investments of the Company excluding investments in associate. Such financial assets are subsequently measured at fair value at each reporting date. Fair value changes are recognised in the Statement of Profit and Loss.
Derecognition:
A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is derecognised (i.e. removed from the Company's Balance Sheet) when any of the following occurs:
• The contractual rights to cash flows from the financial asset expires;
• The Company transfers its contractual rights to receive cash flows of the financial asset and has substantially transferred all the risks and rewards of ownership of the financial asset;
• The Company retains the contractual rights to receive cash flows but assumes a contractual obligation to pay the cash flows without material delay to one or more recipients under a 'pass-through' arrangement (thereby substantially transferring all the risks and rewards of ownership of the financial asset);
• The Company neither transfers nor retains, substantially all risk and rewards of ownership, and does not retain control over the financial asset.
On derecognition of a financial asset, (except as mentioned in ii above for financial assets measured at FVTOCI), the difference between the carrying amount and the consideration received is recognised in the Statement of Profit and Loss.
Impairment of financial assets:
The Company recognises loss allowances using the expected credit loss (ECL) model for the financial assets which are not measured at FVTPL. Expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL.
• Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between a LI contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive (i.e. all cash shortfalls), discounted at the original effective interest rate. The Company estimates cash flows by considering all contractual terms of the financial instrument (for example, prepayment, extension, call and simiLar options) through the expected Life of that financiaL instrument.
• The Company measures the Loss aLLowance on financiaL assets at an amount equaL to the Lifetime expected credit Losses if the credit risk on that financiaL instrument has increased significantLy since initiaL recognition. If the credit risk on a financiaL asset has not increased significantLy since initial recognition, the Company measures the loss allowance for that financial asset at an amount equal to 12-month expected credit losses. 12-month expected credit losses are portion of the Lifetime expected credit Losses and represent cash shortfaLLs that wiLL resuLt if defauLt occurs within the 12 months weighted by the probabiLity of defauLt after the reporting date and thus, are not cash shortfaLLs that are predicted over the next 12 months.
• When making the assessment of whether there has been a significant increase in credit risk since initiaL recognition, the Company uses the change in the risk of a defauLt occurring over the expected Life of the financiaL instrument instead of the change in the amount of expected credit losses. To make that assessment, the Company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition.
The Company follows 'simplified approach' for recognition of impairment Loss aLLowance on trade receivabLes. The appLication of simpLified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment Loss allowance based on Lifetime ECLs at each reporting date, right from its initiaL recognition. The Company uses a provision matrix to determine impairment Loss aLLowance on portfoLio of its receivabLes. The provision matrix is based on its historicaLLy observed defauLt rates over the expected Life of the receivabLes. However, if receivables contain a significant financing component, the Company chooses as its accounting policy to measure the Loss allowance by applying general approach to measure ECL.
The Company writes off a financial asset when there is information indicating that the obligor is in severe financial difficulty and there is no realistic prospect of recovery.
iv. Financial Liabilities and Equity Instruments:
Financial Instruments issued by the entity are classified are either as financial Liabilities or as equity instruments in accordance with the substance of the contractuaL arrangements and the definition of a financiaL LiabiLity and an equity. An equity instruments is any contract that evidences a residuaL interest in the assets of an entity after deducting aLL of its LiabiLities.
Initial recognition and measurement:
The Company recognises a financiaL LiabiLity in its BaLance Sheet
when it becomes party to the contractuaL provisions of the instrument. Having regards to the terms and structure of issuance, the company is cLassifying FinanciaL LiabiLitiesas foLLows:
i. recognised at amortised costs.
ii. recognised at fair vaLue through profit and Loss (FVTPL) incLuding the embedded derivative component if any, which is not separated.
iii. An embedded derivative is a component of a hybrid instrument that aLso incLudes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way simiLar to a standaLone derivative. An embedded derivative causes some or aLL of the cash flows that otherwise wouLd be required by the contract to be modified according to a specified interest rate, foreign exchange rate, or other variabLe, provided that, in the case of a non-financiaL variabLe, it is not specific to a party to the contract. Derivatives embedded in aLL other host contracts are accounted for as separate derivatives and recorded at fair vaLue if their economic characteristics and risks are not cLoseLy reLated to those of the host contracts and the host contracts are not heLd for trading or designated at fair vaLue though profit or Loss. These embedded derivatives are measured at fair vaLue with changes in fair vaLue recognised in profit or Loss, unLess designated as effective hedging instruments.
Subsequent measurement:
(i) ALL financiaL LiabiLities of the Company measured at amortised cost are subsequentLy measured using the effective interest method.
(ii) ALL financiaL LiabiLities of the Company categorised at fair vaLue are subsequentLy measured at fair vaLue through profit and Loss statement.
Derecognition: A financiaL LiabiLity is derecognised when the obLigation under the LiabiLity is discharged or canceLLed or expires.
i) Fair Value
The Company measures financiaL instruments at fair vaLue in accordance with the accounting poLicies mentioned above. Fair vaLue is the price that wouLd be received to seLL an asset or paid to transfer a LiabiLity in an orderLy transaction between market participants at the measurement date. The fair vaLue measurement is based on the presumption that the transaction to seLL the asset or transfer the LiabiLity takes pLace either:
• In the principaL market for the asset or LiabiLity, or
• In the absence of a principaL market, in the most advantageous market for the asset or LiabiLity.
ALL assets and LiabiLities for which fair vaLue is measured or discLosed in the financiaL statements are categorised within the fair vaLue hierarchy that categorises into three LeveLs, described as foLLows:
The fair vaLue hierarchy gives the highest priority to quoted prices in active markets for identical assets or LiabiLities (LeveL 1 inputs) and the Lowest priority to unobservabLe inputs (LeveL 3 inputs).
Level 1 — quoted (unadjusted) market prices in active markets for identicaL assets or LiabiLities.
Level 2 — inputs other than quoted prices incLuded within LeveL 1 that are observabLe for the asset or LiabiLity, either directLy or indirectLy.
Level 3 — inputs that are unobservable for the asset or liability.
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation at the end of each reporting period and discloses the same.
j) Foreign Currency Translation
These financial statements are presented in Indian Rupees, which is the Company's functional currency.
Initial Recognition:
On initial recognition, transactions in foreign currencies entered into by the Company are recorded in the functional currency, by applying to the foreign currency amount, the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. Exchange differences arising on foreign exchange transactions settled during the year are recognised in the Statement of Profit and Loss.
Measurement of foreign currency items at reporting date: Foreign currency monetary items of the Company are translated at the closing exchange rates. Non-monetary items that are measured at historical cost in a foreign currency, are translated using the exchange rate at the date of the transaction. Nonmonetary items that are measured at fair value in a foreign currency, are translated using the exchange rates at the date when the fair value is measured.
Exchange differences arising out of these translations are recognised in the Statement of Profit and Loss.
k) Income Taxes
Tax expense is the aggregate amount included in the determination of profit or loss for the period in respect of current tax and deferred tax.
Current tax:
Current tax is the amount of income taxes payable in respect of taxable profit for a period. Taxable profit differs from 'profit before tax' as reported in the Statement of Profit and Loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible in accordance with applicable tax laws. Current tax is measured using tax rates that have been enacted or substantively enacted by the end of reporting period.
Deferred tax:
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit under Income tax Act, 1961. Deferred tax liabilities are generally recognised for all taxable temporary differences. In case of temporary differences that arise from initial recognition of assets or liabilities in a transaction (other than business combination) that affect neither the taxable profit nor the accounting profit, deferred tax liabilities are not recognised. Also, for temporary differences that arise from initial recognition of goodwill, deferred tax liabilities are not recognised.
Deferred tax assets has been recognised for all deductible temporary differences to the extent it is probable that taxable profits will be available against which those deductible temporary difference can be utilised. In case of temporary differences that arise from initial recognition of assets or liabilities in a transaction
(other than business combination) that affect neither the taxable profit nor the accounting profit, deferred tax assets are not recognised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the benefits of part or all of such deferred tax assets to be utilised.
In case of temporary differences that arise from initial recognition of assets or liabilities in a transaction (other than business combination) that affect neither the taxable profit nor the accounting profit, deferred tax assets are not recognised.
Deferred tax assets and liabilities are measured at the tax rates that have been enacted or substantively enacted by the Balance Sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Presentation of current and deferred tax:
Current and deferred tax are recognised as income or an expense in the Statement of Profit and Loss, except when they relate to items that are recognised in Other Comprehensive Income, in which case, the current and deferred tax income/expense are recognised in Other Comprehensive Income.
The Company offsets current tax assets and current tax liabilities, where it has a legally enforceable right to set off the recognised amounts and where it intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. In case of deferred tax assets and deferred tax liabilities, the same are offset if the Company has a legally enforceable right to set off corresponding current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority on the Company. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
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