3. Material accounting policy information
This note provides a list of the material accounting policy information adopted in the preparation of these standalone financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated.
3.1 Revenue recognition
The Company's revenue primarily consists of interest income on loans, distribution income on the sale of other financial products and services to the members.
3.1.1 Interest income
Interest income for all financial instruments which are measured at amortised cost are recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset. The calculation takes into account all contractual terms of the financial instrument and includes any fees (such as processing fee) or incremental costs that are directly attributable and are an integral part of the EIR, but not future credit losses.
The Company calculates interest income by applying the EIR to the gross carrying amount of financial assets other than credit-impaired assets. When a financial asset becomes credit impaired and
is, therefore, regarded as 'Stage 3', the Company calculates interest income by applying the effective interest rate to the net amortized cost of the financial asset. If the financial assets cures and is no longer credit impaired, the Company reverts to calculating interest income on a gross basis.
3.1.2 Fair value gain
The Company recognises gains on fair value change of financial assets measured at fair value through profit and loss (FVTPL) and realised gains on derecognition of financial asset measured at fair value through profit and loss (FVTPL) on net basis.
3.1.3 The Company also distributes insurance policies during the course of lending business. Distribution income is earned by selling such products of other entities under distribution arrangements. The income so earned is recognised on successful sales on behalf of other entities subject to there being no significant uncertainty of its recovery.
3.1.4 Income from assignment transactions
The Company considers direct Assignment or transfer of loan assets as one of the alternative mode or source of fund raising. Direct assignment policy restricts the direct assignment transaction outstanding i.e. sold balance outstanding, to be within 10% of projected Asset Under Management ('AUM'). Income from assignment transactions i.e. present value of excess interest spread is recognised when the related loan assets are de-recognised.
3.2 Finance cost
Borrowing cost on financial liabilities including towards securitisation transactions not derecognised by the Company are recognised by applying the EIR. EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial liability. The calculation takes into account all contractual terms of the financial instrument and includes any fees (such as processing fee, duty etc) and such other incremental costs that are directly attributable and are an integral part of the EIR.
3.3 Property, plant and equipment ('PPE')
Initial Recognition and measurement:
PPE are stated at cost (including incidental expenses directly attributable to bringing the asset to its working condition for its intended use) less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Subsequent expenditure related to PPE is capitalized only when it is probable that future economic benefits associated with these will flow to
the Company and the cost of item can be measured reliably. Other repairs and maintenance costs are expensed off as and when incurred.
3.4 Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses, if any.
3.5 Depreciation and amortization
3.5.1 Depreciation
Depreciation on property, plant and equipment is measured using the straight line method as per the useful lives of the assets estimated by the management. The useful life estimated by the management is as under:
Leasehold improvement is amortised on a straight line basis over the primary period of lease.
The management has estimated the useful life of servers and two-wheeler vehicles as 3 years and 8 years respectively, which are lower than those prescribed under Schedule II to the Act.
Property, plant and equipment costing less than H 5000 per unit are fully depreciated in the year of purchase.
3.5.2 Amortisation of intangible assets
Intangible assets are amortised on a straight line basis over the estimated useful economic life. The management has determined its estimate of useful economic life of computer software as five years. Customer relationship is amortised over a period of 10 years. The useful lives of intangible assets are reviewed at each financial year and adjusted if there are any such requirement.
3.5.3 Impairment of Goodwill
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses
For the purpose of impairment testing, goodwill is allocated to each of the Company's cash-generating
units or groups of cash generating units that are expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit's value may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying value of the unit, the impairment loss is allocated first to reduce the carrying value of any goodwill allocated to the unit and then to the other assets of the unit in proportion to the carrying value of each asset in the unit.
An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of profit or loss on disposal.
In the case of Company, since both Company & erstwhile subsidiary were in similar business, entire business has been treated as one Cash Generating Unit (CGU). As required under the standard, this is the lowest level at which the goodwill is monitored for internal management purposes. In view of this, Company as a whole is valued as one CGU for the purpose of assessing the impairment of goodwill.
3.6 Impairment of non-financial assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's net selling price and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining net selling price, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used.
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