2.2 Summary of material accounting policies
a) Use of estimates
The preparation of the financial statements in conformity
with the principles of Ind AS requires the management to
make judgements, estimates and assumptions that effect
the reported amounts of revenues, expenses, assets and
liabilities and the disclosure of contingent liabilities, at the
end of the reporting period. Although these estimates are
based on the management's best knowledge of current
events and actions, uncertainty about these assumptions
and estimates could result in the outcomes requiring a
material adjustment to the carrying amounts of assets or
liabilities in future periods.
The estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised
if the revision affects only that period, or in the period of
the revision and future periods if the revision affects both
current and future periods.
b) Current versus non- current classification
The Company presents assets and liabilities in the financial
statement based on current/ non-current classification. An
asset is treated as current when it is:
i) Expected to be realised or intended to be sold or
consumed in normal operating cycle
ii) Held primarily for the purpose of trading
iii) It is expected to be realised within twelve months after
the reporting period, or
iv) Cash or cash equivalent unless restricted from being
exchanged or used to settle a liability for at least twelve
months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
i) It is expected to be settled in normal operating cycle
ii) Held primarily for the purpose of trading
iii) It is due to be settled within twelve months after the
reporting period, or
iv) There is no unconditional right to defer the settlement
of the liability for at least twelve months after the
reporting period.
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non¬
current assets and liabilities.
The operating cycle is the time between the acquisition of
assets for processing and their realisation in cash and cash
equivalents. The Company has identified twelve months as
its operating cycle.
c) Fair value measurement
The Company measures financial instruments at fair value at
each reporting date.
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:
i) in the principal market for the asset or liability, or
ii) in the absence of a principal market, in the most
advantageous market for the asset or liability
The principal or the most advantageous market must be
accessible by the Company.
The fair value of an asset or a liability is measured using
the assumptions that market participants would use
when pricing the asset or liability, assuming that market
participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into
account a market participant's ability to generate economic
benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the
asset in its highest and best use.
The Company uses valuation techniques that are
appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximising the use
of relevant observable inputs and minimising the use of
unobservable inputs.
All assets and liabilities for which fair value is measured
or disclosed in the financial statements are categorised
within the fair value hierarchy, described as follows, based
on the lowest level input that is significant to the fair value
measurement as a whole:
i) Level 1- Quoted (unadjusted) market prices in active
markets for identical assets or liabilities.
ii) Level 2- Valuation techniques for which the lowest level
input that is significant to the fair value measurement
is directly or indirectly observable.
iii) Level 3- Valuation techniques for which the lowest level
input that is significant to the fair value measurement
is unobservable.
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Company determines
whether transfers have occurred between levels in the
hierarchy by re-assessing categorisation (based on the lowest
level input that is significant to the fair value measurement
as a whole) at the end of each reporting period.
External valuers are involved for valuation of significant assets
and liabilities. Involvement of external valuers is decided on
the basis of nature of transaction and complexity involved.
Selection criteria include market knowledge, reputation,
independence and whether professional standards are
maintained.
At each reporting date, the finance team analyses the
movements in the values of assets and liabilities which
are required to be remeasured or re-assessed as per the
Company's accounting policies. For this analysis, the team
verifies the major inputs applied in the latest valuation by
agreeing the information in the valuation computation to
contracts and other relevant documents. A change in fair
value of assets and liabilities is also compared with relevant
external sources to determine whether the change is
reasonable.
For the purpose of fair value disclosures, the Company has
determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and
the level of the fair value hierarchy as explained above.
d) Property, plant and equipment ('PPE') and Capital work-
in-progress ('CWIP')
Property, plant and equipment ('PPE')
Property, plant and equipment ("PPE") are stated at cost, less
accumulated depreciation and accumulated impairment
loss, if any. Such cost includes the expenditure directly
attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the
manner intended by management.
Subsequent costs on a PPE are included in the asset's carrying
amount only when it is probable that future economic
benefits associated with the item will flow to the Company
and the cost of the item can be measured reliably.
The carrying amount of any component accounted for as a
separate asset is derecognised when replaced. Rest of the
subsequent costs are charged to the statement of profit and
loss in the reporting period in which they are incurred.
Depreciation on all property plant and equipment are
provided on a written down value method based on the
estimated useful life of the asset. Depreciation on the assets
purchased during the year is provided on pro-rata basis from
the date of purchase of the assets.
An item of property, plant and equipment and any significant
part initially recognised is derecognised upon disposal or
when no future economic benefits are expected from its use
or disposal. Any gain or loss arising on derecognition of the
asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included
in the income statement when the asset is derecognised.
Capital work-in-progress ('CWIP')
Cost incurred for property, plant and equipment that are
not ready for their intended use as on the reporting date, is
classified under capital work-in-progress.
The cost of self-constructed assets includes the cost of
materials & direct labour, any other costs directly attributable
to bringing the assets to the location and condition necessary
for it to be capable of operating in the manner intended by
management and the borrowing costs attributable to the
acquisition or construction of qualifying asset.
Expenses directly attributable to construction of property,
plant and equipment incurred till they are ready for their
intended use are identified and allocated on a systematic
basis on the cost of related assets.
Cost plus contracts are accounted for on the basis of
statements of account received from the contractors.
Unsettled liabilities for price variation/exchange rate
variation in case of contracts are accounted for on estimated
basis as per terms of the contracts.
The Company periodically reviews its Capital work-in¬
progress and in case of abandoned works, provision for
unserviceable cost is provided for, as required, basis the
technical assessment. Further, provisions made are reviewed
at regular intervals and in case work has been subsequently
taken up, then provision earlier provided for is written back
to the extent the same is no longer required.
Net pre-commissioning income/expenditure is adjusted
directly in the cost of related assets and systems.
e) Earning per share
Basic earnings per share are calculated by dividing the
net profit and loss for the period attributable to equity
shareholders of the Company (after deducting preference
dividends and attributable taxes) by the weighted average
number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per share,
the net profit and loss for the period attributable to equity
shareholders of the Company and the weighted average
number of shares outstanding during the period are
adjusted for the effects of all dilutive potential equity shares.
f) Provisions and contingent liabilities
i) Provisions
Provisions are recognised 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 Financial 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 recognised as a
finance cost.
ii) Contingent liabilities
Contingent liability is a possible obligation that arises
from past events and the existence of which will be
confirmed only by the occurrence or non-occurrence
of one are more uncertain future events not wholly
within the control of the Company, or is a present
obligation that arises from past event but is not
recognised because either it is not probable that an
outflow of resources embodying economic benefits
will be required to settle the obligation, or a reliable
estimate of the amount of the obligation cannot be
made. Contingent liabilities are disclosed and not
recognised.
g) 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
All financial assets are recognised initially at fair value plus, in
the case of financial assets not recorded at fair value through
financial statement of profit and loss, transaction costs that
are attributable to the acquisition of the financial asset.
Purchases or sales of financial assets that require delivery
of assets within a time frame established by regulation or
convention in the market place (regular way trades) are
recognised on the trade date, i.e., the date that the Company
commits to purchase or sell the asset.
Subsequent measurements
For purposes of subsequent measurement, financial assets
are classified in two categories:
i) Financial assets carried at amortised cost
ii) Financial assets at fair value through profit or loss
(FVTPL)
Financial assets at amortised cost
A financial asset' is measured at the amortised cost if both
the following conditions are met:
i) The asset is held within a business model whose
objective is to hold assets for collecting contractual
cash flows, and
ii) Contractual terms of the asset give rise on specified
dates to cash flows that are solely payments of
principal and interest (SPPI) on the principal amount
outstanding.
After initial measurement, such financial assets are
subsequently measured at amortised cost using the effective
interest rate (EIR) method. 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 in finance income in the financial
statement of profit and loss.
Financial assets at FVTPL
FVTPL is a residual category for financial assets. Any financial
assets instrument, which does not meet the criteria for
categorization as at amortized cost or as FVTOCI, is classified
as at FVTPL.
Debt instruments included within the FVTPL category are
measured at fair value with all changes recognized in the
financial statement of profit and loss.
Equity Instruments other than Investment in Subsidiary
The Company subsequently measures all equity investments
in scope of Ind AS 109 at fair value, with net changes in fair
value recognised in the financial 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
primarily derecognised (i.e. removed from the Company's
Financial statements of assets and liabilities) when:
i) The rights to receive cash flows from the asset have
expired, or
ii) The Company has transferred its rights to receive cash
flows from the asset or has assumed an obligation to pay
the received cash flows in full without material delay to
a third party under a 'pass-through' arrangement; and
either (a) the Company has transferred substantially all
the risks and rewards of the asset, or (b) the Company
has neither transferred nor retained substantially all
the risks and rewards of the asset, but has transferred
control of the asset.
When the Company has transferred rights to receive cash
flows from an asset or has entered into a pass through
arrangement, it evaluates if and to what extent it has
retained the risks and rewards of ownership. When it has
neither transferred nor retained substantially all of the risks
and rewards of the asset, nor transferred control of the asset,
the Company continues to recognise the transferred asset to
the extent of the Company's continuing involvement. In that
case, the Company also recognises associated liability. The
transferred asset and the associated liability are measured
on a basis that reflects the rights and obligations that the
Company has retained.
Continuing involvement that takes the form of a guarantee
over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum
amount of consideration that the Company could be
required to repay.
Impairment of financial assets (other than at fair value)
In accordance with Ind AS 109, the Company applies
expected credit loss (ECL) model for measurement and
recognition of impairment loss on the following financial
assets and credit risk exposure:
i) Financial assets that are debt instruments, and are
measured at amortised cost e.g., loans, debt securities,
deposits and bank balance
ii) Trade receivables or any contractual right to receive
cash or another financial asset that result from
transactions that are within the scope of Ind AS 115
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 recognizes
impairment loss allowance based on lifetime ECLs at each
reporting date, right from its initial recognition.
ECLs are recognised in two stages. For credit exposures for
which there has not been a significant increase in credit risk
since initial recognition, ECLs are provided for credit losses
that result from default events that are possible within the
next 12-months (a 12-month ECL) for those credit exposures.
For which there has been a significant increase in credit risk
since initial recognition, a loss allowance is required for credit
losses expected over the remaining life of the exposure,
irrespective of the timing of the default (a lifetime ECL).
ECL is the difference between all contractual cash flows that
are due to the Company in accordance with the contract
and all the cash flows that the entity expects to receive (i.e.,
all cash shortfalls), discounted at the original ElR. When
estimating the cash flows, an entity is required to consider:
i) All contractual terms of the financial instrument
(including prepayment, extension, call and similar
options) over the expected life of the financial
instrument. However, in rare cases when the expected
life of the financial instrument cannot be estimated
reliably, then the entity is required to use the remaining
contractual term of the financial instrument.
ii) Cash flows from the sale of collateral held or other credit
enhancements that are integral to the contractual
terms.
As a practical expedient, the Company uses a provision
matrix to determine impairment loss allowance on portfolio
of its trade receivables. The provision matrix is based on its
historically observed default rates over the expected life of
the trade receivables and is adjusted for forward-looking
estimates. At every reporting date, the historical observed
default rates are updated and changes in the forward¬
looking estimates are analysed.
ECL impairment loss allowance (or reversal) recognized
during the period is recognized as income/ expense in
the Financial statement of profit and loss. This amount is
reflected under the head 'other expenses' in the Financial
statement of profit and loss.
The presentation of assets and liabilities for various financial
instruments in Financial statement is described below:
i. Financial assets which are measured as at amortised
cost, such as contractual revenue receivables: ECL
is presented as an allowance, i.e., as an integral part
of the measurement of those assets in the Financial
statements of assets and liabilities. The allowance
reduces the net carrying amount. Until the asset
meets write-off criteria, the Company does not reduce
impairment allowance from the gross carrying amount.
For assessing increase in credit risk and impairment loss,
the Company combines financial instruments on the basis
of shared credit risk characteristics with the objective of
facilitating an analysis that is designed to enable significant
increases in credit risk to be identified on a timely basis.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit and loss, loans
and borrowings, payables, as appropriate.
All financial liabilities are recognised initially at fair value and,
in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
The Company's financial liabilities include trade and other
payables, loans and borrowings.
Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
Financial liabilities at amortised cost (Loans and
borrowings)
After initial recognition, interest-bearing loans and
borrowings are subsequently measured at amortised cost
using the EIR method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised as well as
through the EIR amortisation process.
Effective interest method
The effective interest method is a method of calculating
the amortised cost of a debt instrument and of allocating
interest income over the relevant year. The effective interest
rate (EIR) is the rate that exactly discounts estimated
future cash receipts (including all fees and points paid or
received that form an integral part of the effective interest
rate, transaction costs and other premiums or discounts)
through the expected life of the debt instrument, or, where
appropriate, a shorter year, to the net carrying amount on
initial recognition.
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 borrowings.
Financial liabilities at fair value through profit and loss
Financial liabilities at fair value through profit or loss include
financial liabilities held for trading or 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.
This category also includes derivative financial instruments
entered into by the Company that are not designated as
hedging instruments in hedge relationships as defined
by Ind AS 109. Separated embedded derivatives are also
classified as held for trading unless they are designated as
effective hedging instruments.
Gains or losses on liabilities held for trading are recognised
in the statement of profit and loss.
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