Note [2] - Material Accounting Policies
1. Basis of preparation of Financial Statements
a) Statement of Compliance:
The financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as notified by Ministry of Corporate Affairs under the Companies (Indian Accounting Standards) Rules, 2015 and subsequent amendments thereof as well as with the additional requirements applicable to financial statements as set forth in Companies Act, 2013 and amended thereof.
b) Basis of measurement
The financial statements have been prepared on a going concern basis and on an accrual method of accounting. Historical cost is used in preparation of the financial statements except as otherwise mentioned in the policy.
c) Functional and presentation currency
The financial statements are prepared in INR, which is the Company's functional currency.
d) Use of Estimates and Judgments
The preparation of the financial statements in conformity with Ind AS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.
Critical estimates and judgements in applying accounting policies
Estimates and judgements made in applying accounting policies that have significant effect on the amounts
recognized in the financial statements are as follows:
i) Revenue
The Company uses input method based on cost approach in accounting for the revenue in respect of construction contracts. Use of input method requires the Company to estimate its costs relative to the total expected costs in the satisfaction of its performance obligation. The estimates are assessed continually during the term of the contract and the company remeasures its progress towards complete satisfaction of its performance obligations satisfied over time at the end of each reporting period.
Company updates its estimated transaction price at each reporting period, to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period.
ii) Property, plant and equipment
The charge in respect of periodic depreciation is derived after estimating the asset's expected useful life and the expected residual value at the end of its life. The depreciation method, useful lives and residual values of Company's assets are estimated by management at the time the asset is acquired and reviewed during each financial year.
iii) Employee Benefit Plans
Employee defined benefit plans and long term benefit plans are measured on the basis of actuarial assumptions. However, any changes in these assumptions may have impact on the reported amount of obligation and expenses.
iv) Provisions and contingencies
Assessments undertaken in recognising provisions and contingencies have been made as per the best judgement of the management based on the current available information.
2. Property Plant & Equipment (PPE)
Property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs on Eligible Assets if the recognition criteria are met.
When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and
equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred.
Significant components with different useful lives are accounted for and depreciated separately.
Depreciation on property, plant and equipment (other than those used abroad under contract) is charged on straight-line method as per the useful life prescribed in Schedule II of the Companies Act, 2013, except in the following items where estimated useful life is based on technically assessed estimated useful life: -
Depreciation methods, useful lives and residual values are reviewed in each financial year and changes, if any, are accounted for prospectively.
Property Plant & Equipment costing 110,000/- or less and those whose written down value as at the beginning of the year is 110,000/- or less, are depreciated fully.
At erection / project sites: The cost of roads, bridges and culverts is fully amortized over the tenure of the contract, while sheds, railway sidings, electrical installations and other similar enabling works (other than temporary structures) are depreciated over the tenure of the contract after retaining residual value, if any.
Assets used outside India pursuant to long term contracts are depreciated over the duration of the initial contract.
Temporary structures are fully depreciated in the year of construction.
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 statement of profit and loss when the asset is derecognised.
i. Leases
At the inception of an arrangement, the Company determines whether such an arrangement is or contains a lease.
a. Right-of-use assets
Right-of-use assets are amortised over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.
b. Lease liabilities
Upon initial recognition, assets taken on lease are capitalized under right-of-use assets at cost which comprises initial measurement of lease liability at present value, initial lease payments less incentives, initial direct costs and estimated cost of dismantling and removing the underlying assets, if any.
Lease payments made under leases are apportioned between the finance expense and the reduction of the outstanding lease liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
c. Short term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straightline basis over the lease term.
d. For Assets given on finance lease, the Company recognizes finance income over the lease term using effective interest rate method. Initial direct costs incurred are included in the initial measurement of the finance lease receivable and reduce the amount of income recognized over the lease term.
Lease income arising from operating lease is recognized as income over the lease period on a straight-line basis except where the periodic increase in lease rentals is in line with expected general inflation.
4. Intangible assets
Intangible items costing more than 110000/- are evaluated for capitalization and are carried at cost less accumulated amortization and accumulated impairment, if any.
Intangible assets are amortised in Statement of Profit and Loss on a straight-line method over the estimated useful lives from the date that they are available for use. The estimated useful lives for the intangible assets are as follows:
Software 3 years
Others 10 years.
Intangible assets having WDV 110000/- or less at the
beginning of the year are amortized fully.
Amortization period and amortization methods are reviewed in each financial year and changes, if any, are accounted for prospectively.
Research and development expenditure
Expenditure on research activities is recognized in statement of profit and loss as incurred. Expenditure on development activities is capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the company intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalized includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and borrowing costs, if any.
Assets acquired for purposes of research and development are capitalized.
5. Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are added to the cost of such assets.
An asset that necessarily takes a substantial period of time, considered as more than twelve months, to get ready for its intended use or sale is a qualifying asset for the purpose.
All other borrowing costs are recognized in the statement of profit and loss in the period in which they are incurred.
6. Investments in Joint ventures
Investments in joint ventures are accounted at cost less impairment losses, if any.
If the intention of the management is to dispose the investment in near future, it is classified as held for sale and measured at lower of its carrying amount and fair value less costs to sell.
7. Inventories
Inventory is valued at cost or net realizable value, whichever is lower. In respect of valuation of finished goods and work-in-progress, cost means factory cost. In respect of raw material, components, loose tools, stores and spares cost means weighted average cost.
8. Revenue from contracts with customers
Revenue from contract with customers is recognized when a performance obligation is satisfied by transfer of promised goods or services to a customer.
For performance obligation satisfied over time, the revenue recognition is done by measuring the progress towards complete satisfaction of performance obligation. The progress is measured in terms of a proportion of
actual cost incurred to-date, to the total estimated cost attributable to the performance obligation. i.e input method.
The Company transfers control of a good or service over time and therefore satisfies a performance obligation and recognises revenue over a period of time if one of the following criteria is met:
(a) the customer simultaneously consumes the benefit of the Company's performance or
(b) the customer controls the asset as it is being created/ enhanced by the Company's performance or
(c) there is no alternative use of the asset and the Company has either explicit or implicit right of payment considering legal precedents,
In all other cases, performance obligation is considered as satisfied at a point in time.
The revenue is recognised to the extent of transaction price allocated to the performance obligation satisfied. Transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer excluding amounts collected on behalf of a third party.
Other Income
Dividend income is recognized in statement of profit and loss on the date on which the Company's right to receive payment is established.
Interest Income is recognized using effective interest rate method.
Claims for export incentives/ duty drawbacks, duty refunds and insurance are accounted for on accrual basis.
9. Foreign currency Translation/Transaction
Transaction in foreign currencies are initially recorded at the exchange rate prevailing on the date of the transaction first qualifies for recognition.
Foreign currency denominated monetary assets and liabilities are translated into the functional currency at exchange rates in effect at the end of each reporting period. Foreign exchange gains or losses arising from settlement and translations are recognized in the statement of profit and loss.
Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevailing at the date of transaction.
10. Employee Benefits Defined contribution plans
The Company's contribution to Pension fund including Family Pension Fund for the employees is covered under defined contribution plan and is recognized as employee
benefit expense in statement of profit and loss in the periods during which services are rendered by employees.
Defined benefit plans
The Company's gratuity scheme, provident fund scheme, travel claims on retirement and post-retirement medical facility scheme are in the nature of defined benefit plans.
The liability recognized in the balance sheet in respect of these defined benefit plan is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets, if any. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using an appropriate government bond rate that have terms to maturity approximating to the terms of the related liability.
Remeasurements comprising actuarial gains and losses as well as the difference between the return on plan assets and the amounts included in net interest on the net defined benefits liability (asset) are recognized in other comprehensive income (net of income tax).
Other expenses related to defined benefit plans are recognized in statement of profit and loss.
Long term Leave Liability
The Company measures the expected cost of accumulating compensated absences as the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the end of the reporting period. Expense on non-accumulating compensated absences is recognized in the period in which the absences occur. The Company records a liability for accumulated balance based on actuarial valuation determined using projected unit credit method. Remeasurements and other expenses related to long term benefit plans are recognized in statement of profit and loss.
|