A. CORPORATE INFORMATION:
Diamond Power Infrastructure Limited (DPIL) is public limited companies domiciled and headquarters in India & incorporated on 26 August 1992, under the provisions of Companies Act, 1956. Its Shares are listed on two stock exchanges in India. The company is engaged in manufacturing & selling of conductor, cables and transmission towers.
B. SIGNIFICANT ACCOUNTING POLICIES
B.1 BASIS OF PREPARATION & PRESENTATION
The Financial Statements have been prepared on the historical cost basis except for following assets and liabilities which have been measured at fair value amount:
i. Investment in Mutual Fund, preference share liability and financial derivatives
ii. Defined benefit plans - Plan assets
The Financial Statements of the company have_been prepared to comply with the Indian Accounting standards ('IND AS'), including the rules notified under the relevant provisions of the companies Act, 2013, except Non compliances of IND AS (As directed by NCLT order) reported in other paras of the notes of accounts, main independent audit report in Basis for Disclaimer of opinion and as reported in notes of financial statements.
We are not able to conduct our audit in accordance with the Standards on A uditing practices issued by the Institute of Chartered Accountants of India in previous financial years as detailed out as under, (we draw attention on our qualification note ) and we are not able to comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Statement is free from material misstatement due to nonavailability of accounting records, information and audit evidence as required in previous financial years and in current year opening balances of pervious FS carried forwards as it is.
Company's financial statements are presented in Indian Rupees (Rs.), which is also its functional currency.
Material information for events accrued in the company as on date:
1. On the basis of CBI FIR, the Enforcement Directorate, Ahmedabad (ED) has registered case, bearing no. ECIR/AMZO/03/2018 dated April 05, 2018 under the provision of Section 17 of the Prevention of Money-Laundering Act, 2002 and conducted search at all the places of the company on April 09, 2018 & attached properties of company & directors by provisionally attached order no. PAO No. 02/2018 dated April 24, 2018. The ED has filled ECIR sheet on December 22, 2018 with The Hon'ble Court of Principal District & Sessions Judge (Ahmedabad Rural) and Hon'ble Designated special court under the prevention of Money-Laundering Act, 2002, At Ahmedabad, the matter is under legal proceeding.
2. On the basis of CBI FIR, the Directorate of Investigation of Income Tax department has carried out search and seizure U/s 132 of the Act on 10/04/2018 and subsequently a notice U/s 153
A of the Act was issued on 25/10/2018 to file Income Tax returns, the company has filled Income tax returns U/s 139(4) and declared losses of Rs. 715.67 Crs., which was marked as defective returns by IT department. Against that, various notices were given to the company to file ITR of the company but the company has not filled Income tax returns, subsequently as required notices were served by IT department to the company and due to non-availability of information and records special audit was carried out U/s 142(2A) by the M/s Talati & Talati LLP Chartered Accountants and IT department has added various addition and Assessment order for FY 2017-18 / AY 2018-19 dated 01/07/2022 is received by the company with tax demand of Rs. 37,98,22,980.00 and addition was done for subsequent years.
The other regulators / departments like GST, Income Tax, SIFO, Serious fraud investigation department of BSE / NSES & others, over and above details give for ED and CBI have also initiated legal proceeding against the directors, employees, other persons and company, at present legal proceeding are going on and we have no details, other than reported in respective paras of this report. The Company has undergone CIRP with cutoff date being 24.08.2018 in terms of the provisions of the Code vide order dated 24.08.2018 passed by the NCLT, accordingly accounting of applicable interest on borrowed debts after cut of date i.e. 24/08/2018 have not been accounted as per applicable rules under code.
3. The Hon'ble National Company Law Tribunal, Ahmedabad ("NCLT") by an order dated 20th June 2023 has approved resolution plan submitted by RP under Section 30(6) of the IBC, 2016 and approved resolution plan submitted by M/s GSEC and consortium of Mr. Rakesh Ramanlal Shah at total offer price of Rs.2401Cr., all required necessary accounting provisions will be provided by the new management, so we have not recommended required necessary provisions in Assets and liabilities in the financial statements provided to us by RP up and new management team with suspended management up to September 2022 and afterward new management.
4. After trigger date new management has taken over administration and management of the company and reconstituted board of directors, the above result has been adopted by the Board of Directors on May 30th, 2023 in the audit committee meeting and board of directors' meetings respectively, which was prepared by the new management.
5. During CIRP process, company has defaulted in submission of past quarterly results, half yearly and annual audited financial results of the company to stock exchanges and defaulted in all applicable Acts, Rules Regulations, Guidelines, Standards and provisions of Companies Act, 2013 for filling, conducting, submission and records maintenances etc. After trigger date the new management of the company has started compliances, as required under Companies Act, 2013. The company has not prepared consolidated financial statements in view of ongoing insolvency proceedings with the subsidiaries / associate / group companies and unavailability of the updated financial statements of such subsidiaries / associate / group companies of old management prior to trigger date.
6. In compliance with the NCLT orders, company has provided for the various investments made by old management amounting to Rs. 11.67 Crs. However, said amount was written off by giving necessary entries in books of accounts. Accordingly, there is no investment in shares of
any company. Hence, company has no subsidiary and/ or associates as on end of the year 2023 and no requirement for preparation of consolidated financial statement.
7. The Results of the Company comprise of only one segment i.e. Cables and conductors division only. However, no major operational activities during the reporting period.
8. The company has passed necessary accounting entries in compliances with NCLT approved resolutions plan via / through capital reserves for Rs. 748.55 Crs.(Net). write-off/write-back/adjustment of the creditor & liabilities amounts to bring the outstanding as per the approved resolution plan and necessary all provision entries for assets reduction passed through capital reserves, the passed accounting entries are not in compliances with Ind AS and to that, extent non-compliances to Ind AS.
9. During the period under reporting, no major production activities in the company were undertaken, so company has provided pro-rata 20 % (p.a.) of applicable depreciation rate for PPE block as per part C of Schedule II of the Companies Act, 2013 for normal wear and tear.
10. During the CIRP process and up to trigger date, various expenses incurred related to CIRP process, accounting vouchers were not signed and approved by the Resolution Professional. However, we understand that as per IBC, during CIRP, all expenses are incurred based on and after approval of CoC and due to confidentiality, the minutes of CoC / monitoring committee were not shared with us, so to that extent we give our disclaimer of opinion.
11. Previous periods figures have been re-arranged / re-grouped wherever considered necessary to confirm to the presentation of the current period.
12. No impairment test was carried out for the reporting period as per requirement of the IND AS and accordingly no provision/reserve were accounted.
13. Current legal status for advance paid to Group/associate company were not available hence total provision was made during the reporting period against the outstanding balance.
14. After the trigger date, company has written of negative balances of bank margin moneys and current accounts balances based on bank statements of old period, the necessary accounting effect given through capital reserve account, this is not in compliances with Ind AS provisions.
Approved Resolution Plan Execution:
15. In compliance with approved resolution plan, new management has infused Rs. 50 Crs. as equity share capital, the equity shares are allotted to respective shareholders, company has filled application to stock exchanges BSE and NSE for approval.
16. In compliance with approved resolution plan, company has reduced the equity share capital and has filled necessary application to BSE & NSE, company has received in principle approval from NSE on 14.03.2023. However, approval from BSE is yet to be receive.
17. In compliance with approved resolution plan, company has paid upfront amount of Rs. 72.30 Cr. to the secured financial creditors..
18. In compliances with approved resolution plan, Rs. 20 Crs. which are earmarked towards the CIRP costs with RP for CIRP expenditures, required details for expenditure yet to be receive from RP.
19. In compliance with approved resolution plan, company has to pay Rs. 1,899 Crs at end of 30 years to secured financial creditors, accordingly the company has issued unsecured bond with maturity amount of Rs. 1,899 Crs. at coupon rate 0.001 % per annum and necessary accounting entries were passed in given FS. These bonds are repurchased by Gomex Aviation Pvt. Ltd. (SPV of RA) from respective banks / FIs through repurchase agreements. In compliance with Ind AS 109, company has to discount the bond at present NPV of Rs. 25.67 Crs., however company has booked full value of bond of Rs. 1899 Crs in FS and to that, extent non compliances with IND AS.
20. In compliance with approved resolution plan, company has taken unsecured loan from the group companies at the interest rate of 10% p.a. to start the operation of the company but formal agreement was yet to be received. However, Board resolution for interest payment on unsecured loan are yet to be passed & adopted in board except "GSEC Ltd.".
21. In compliance with approved resolution plan, company has accounted long term borrowing liabilities of Rs.400.57 Crs. (after payment of 2nd instalment of Rs. 29.70 Cr.) payable to secured financial creditors within total period of 5 years.
22. In compliance with approved resolution plan, company had allocated to pay Rs.2.40 Crs. towards the admitted claims of workmen and employees, however, the company has not paid amount as per the claim admitted by the Resolution professional, since mistakes were found in claim admission, accordingly the company has taken stay order for the payment to the workmen and employees and the matter under legal proceedings.
23. In compliance with approved resolution plan, company has accounted operational creditors outstanding as per the revised claim admitted by RP reduced by amount paid as per the resolution plan, in the books of accounts certain creditors amount reflected as debit balance and necessary accounting entries passed as advances paid to vendors and recovery procedure has been undertaken towards the amounts due to respective vendors/operational creditors.
24. In compliance with approved resolution plan, the company has passed various accounting entries for secured financial creditors banks / FIs & other current and non-current liabilities and assets based on available records with the company and created capital reserves for Rs. 748.55 Crs. write-off/write-back/adjustment of the creditor amounts to bring the outstanding as per the approved resolution plan.
25. The reported figures in enclosed FS of current assets and non-current assets are under reconciliation & outstanding confirmation work is in progress and subject to confirmation by respective parties. The reported figures of current assets and non-current assets are the carried forward figures from FY 2017-18 onwards, as a statutory auditor of the company, we have given our disclaimer of opinion on it in current and previous audited financial statements.
26. As informed to us by the new management is in process of physical verification and revaluation of inventories. The reported figures of inventories as accounted and carried forward are from 2017 onwards, our firm has given disclaimer of opinion for audited FS of the company.
27. The new management has sent debtors balance confirmation letter to major debtors and the same is awaited as on reporting date, due to uncertainty about realizability on account of liquidated damages (LD), penalties and others deductions, accordingly full provision entries have been passed for debtor's outstanding amount which was carried forward from 2017 onwards. So based on verification and confirmation it will be accounted accordingly and necessary written off entries will be passed in future as informed by management of the company.
B.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As reported in main audit report in Basis for Disclaimer of opinion and above said para, due to non-availability of required data, information and documents, we have carried out audit based on system data only, so we have given our DISCLAIMER OF OPINION about audit and compliances with various applicable statutory laws, Company Acts, SEBI etc. and compliances with below given standards applicable under statutory Act & Rules.
a) Property, plant and equipment
Property, plant and equipment are stated at cost 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.
Asset under installation or under construction as at the Balance Sheet date are shown as capital work in progress.
Subsequent costs are included in the assets carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefit associated with the item will flow to the entity and the cost can be measured reliably.
Assets costing up to Rupees five thousand are fully depreciated in the year of purchase.
b) Depreciation
Depreciation on property, plant and equipment is provided Straight Line Method based on useful life of the assets as prescribed in Schedule II of Companies Act, 2013, which were considered reasonable by the management.
c) Leases
The Company has taken office premises at various locations under cancellable operating lease. These are recognized as operating lease. The period of such lease ranges from less than one year to four years.
d) Finance Cost
Borrowing costs are interest and other costs (including exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs) incurred by the Company in connection with the borrowings of funds. Borrowing costs directly attributable to acquisition or construction of those tangible fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalised. Other borrowing costs are recognised as an expense in the period in which they are incurred.
e) Inventories
Inventories which comprise raw materials, work-in-progress, finished goods, stock-intrade, stores and spares are carried at lower of cost and net realisable value.
Cost of inventories comprises all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The Company follows weighted average cost method for its valuation purpose.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
The net realisable value of work-in-progress is determined with reference to the selling prices of related finished products. Raw materials and other supplies held for use in production of finished products are not written down below cost except in cases where material prices have declined and it is estimated that the cost of the finished products will exceed their net realisable value.
The comparison of cost and net realisable value is made on item-by-item basis.
f) The Company assesses at each reporting date as to whether there is any indication that any property, plant and equipment and intangible assets or group of assets, called cash generating units (CGU) may be impaired. If any such indication exists the recoverable amount of an asset or CGU is estimated to determine the extent of impairment, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the CGU to which the asset belongs.
An impairment loss is recognised in the Statement of Profit and Loss to the extent, asset's carrying amount exceeds its recoverable amount. The recoverable amount is higher of an asset's fair value less cost of disposal and value in use. Value in use is based on the estimated future cash flows, discounted to their present value using pretax discount rate that reflects current market assessments of the time value of money and risk specific to the assets.
The impairment loss recognised in prior accounting period is reversed if there has been a change in the estimate of recoverable amount.
g) Provisions
A provision is recognised if as a result of a past event the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Contingent Liabilities are not recognised but are disclosed in the notes. Contingent Assets are not recognised but disclosed in the Financial Statements when economic inflow is probable
h) Employee Benefits Expense Short Term Employee Benefits:
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees are recognised as an expense during the period when the employees render the services.
Post-Employment Benefits Defined Contribution Plans
A defined contribution plan is a post-employment benefit plan under which the company pays specified contributions to a separate entity. The company makes specified monthly contributions towards Provident Fund, Superannuation Fund and Pension Scheme. The Company's contribution is recognised as an expense in the Statement of Profit and Loss during the period in which the employee renders the related service.
Defined Benefit Plans
The Company pays gratuity to the employees whoever has completed five years of service with the Company at the time of resignation/superannuation. The gratuity is paid @ 15 days salary for every completed year of service as per the Payment of Gratuity Act 1972.
The gratuity liability amount is contributed to the approved gratuity fund formed exclusively for gratuity payment to the employees. The gratuity fund has been approved by respective IT authorities.
The liability in respect of gratuity and other post-employment benefits is calculated using the projected Unit Credit Method and spread over the period during which the benefit is expected to be derived from employee's services.
Re-measurement of defined benefit plans in respect of post-employment are charged to the Other Comprehensive Income.
i) Tax Expenses
The tax expense for the period comprises current and deferred tax. Tax is recognised in Statement of Profit and Loss, except to the extent that it relates to items recognised in the comprehensive income or in equity. In which case, the tax is also recognised in other comprehensive income or equity.
Current Tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted at the Balance sheet date.
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.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The carrying amount of deferred tax liabilities and assets are reviewed at the end of each reporting period.
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax losses can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient profit will be available.
j) Foreign currencies transactions
Foreign exchange transactions are recorded into Indian rupees using the average of the opening and closing spot rates on the dates of the respective transactions.
Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date are translated into Indian rupees at the closing exchange rates on that date. The resultant exchange differences are recognised in the statement of profit and loss except that:
i. Exchange differences pertaining to long term foreign currency monetary items are accumulated in 'Foreign Currency Monetary Item Translation Difference Account' (FCMITDA), and are amortised over the balance period of the relevant foreign currency item.
ii. Exchange differences arising on other long-term foreign currency monetary items are accumulated in 'Foreign Currency Monetary Item Translation Difference Account' (FCMITDA), and are amortised over the balance period of the relevant foreign currency item.
A foreign currency monetary item is classified as long-term if it has original maturity of one year or more.
Exchange differences arising on a monetary item that, in substance, forms part of the Company's net investment in a non-integral foreign operation are accumulated in a foreign currency translation reserve until the disposal of the net investment, at which time the accumulated amount is recognised as income or expense.
The premium or discount on a forward exchange contract taken to hedge foreign currency risk of an existing asset / liability is recognised over the period of the contract. The amount so recognised in respect of forward exchange contracts which are taken to hedge long-term foreign currency monetary items is added to / deducted from the carrying amounts of depreciable assets or accumulated in FCMITDA as discussed above. In respect of other forward exchange contracts, it is recognised in the Statement of Profit and Loss.
The forward exchange contracts taken to hedge existing assets or liabilities are translated at the closing exchange rates and resultant exchange differences are recognised in the same manner as those on the underlying foreign currency asset or liability.
Derivative Instruments
Apart from forward exchange contracts are taken to hedge existing assets or liabilities, the Company also uses derivatives to hedge its foreign currency risk exposure relating to firm commitments and highly probable transactions. In accordance with the relevant announcement of the Institute of Chartered Accountants of India, the company provides for losses in respect of such outstanding derivative contracts at the balance sheet date by marking them to market. Net gain, if any, is not recognised. The contracts are aggregated category-wise, to determine net gain/loss.
k) Revenue recognition
Revenue from sale of goods in the course of ordinary activities is recognised when property in the goods or all significant risks and rewards of their ownership are transferred to the customer and no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods and regarding its collection. Revenue from sale of goods is measured at the fair value of
the consideration received/receivable, taking into account contractually defined terms of the payment.
Revenue from services is recognised under the proportionate completion method provided the consideration is reliably determinable and no significant uncertainty exists regarding the collection of the consideration.
The amount recognised as revenue is exclusive of sales tax, value added taxes (VAT) and service tax, and is net of returns, trade discounts and quantity discounts.
Dividend income is recognised when the right to receive payment is established.
Interest income is recognised on a time proportion basis taking into account the amount outstanding and the interest rate applicable. Discount or premium on debt securities held is accrued over the period to maturity.
l) Operating Cycle
Based on the nature of activities of the Company and the normal time between acquisition of assets and their realisation in cash or cash equivalents, the Company has determined its operating cycle as 12 months for the purpose of classification of its assets and liabilities as current and non-current.
m) 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.
i. Financial Assets
A. Initial recognition and measurement
All financial assets and liabilities are initially recognized at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities, which are not at fair value through profit or loss, are adjusted to the fair value on initial recognition. Purchase and sale of financial assets are recognised using trade date accounting.
Fair value is the price that would be received to sell an asset or settle a liability in an ordinary transaction between market participants at the measurement date. The fair value of an asset or a liability is measured using the assumption that market participants would use when pricing an asset or a liability acting in their best economic interest. The Company used valuation techniques, which were appropriate in circumstances and for which sufficient data were available considering the expected loss/ profit in case of financial assets or liabilities.
B. Subsequent measurement
i. A financial asset is measured at amortised cost if it is held within a business model whose objective is to hold the asset 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.
Such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method. The losses arising from impairment are recognised in the profit or loss. This category generally applies to trade and other receivables.
ii. A financial asset is measured at FVTOCI if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling 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.
iii. A financial asset which is not classified in any of the above categories are measured at FVTPL.
C. Investment in subsidiaries and Associates
The Company has accounted for its investments in subsidiaries and associates at cost.
D. Other Equity Investments
All other equity investments are measured at fair value, with value changes recognised in Statement of Profit and Loss, except for those equity investments for which the Company has elected to present the value changes in 'Other Comprehensive Income'
E. Impairment of financial assets
In accordance with IND AS 109, the Company uses 'Expected Credit Loss' (ECL) model, for evaluating impairment of financial assets other than those measured at fair value through profit and loss (FVTPL).
Expected credit losses are measured through a loss allowance at an amount equal to:
> The 12-months expected credit losses (expected credit losses that result from those default events on the financial instrument that are possible within 12 months after the reporting date); or
> Full lifetime expected credit losses (expected credit losses that result from all possible default events over the life of the financial instrument)
For trade receivables Company applies 'simplified approach' which requires expected lifetime losses to be recognised from initial recognition of the receivables. The Company uses historical default rates to determine impairment loss on the portfolio of trade receivables. At every reporting date these historical default rates are reviewed and changes in the forward looking estimates are analysed.
For other assets, the Company uses 12 month Expected Credit Loss to provide for impairment loss where there is no significant increase in credit risk. If there is significant increase in credit risk full lifetime ECL is used.
F. Derecognition of financial assets
A financial asset is primarily derecognised when the rights to receive cash flows from the asset have expired or the Company has transferred its rights to receive cash flows from the asset.
ii. Financial Liabilities
A. Initial recognition and measurement
All financial liabilities are recognized at fair value and in case of loans, net of directly attributable cost. Fees of recurring nature are directly recognised in the Statement of Profit and Loss as finance cost.
B. Subsequent measurement
Financial liabilities are carried at amortized cost using the effective interest method. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
iii. The Company uses various derivative financial instruments such as interest rate swaps, currency swaps, forwards & options and commodity contracts to mitigate the risk of changes in interest rates, exchange rates and commodity prices. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are also subsequently measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
iv. Any gains or losses arising from changes in the fair value of derivatives are taken directly to Statement of Profit and Loss, except for the effective portion of cash flow hedges which is recognised in Other Comprehensive Income and later to Statement of Profit and Loss when the hedged item affects profit or loss or treated as basis adjustment if a hedged forecast transaction subsequently results in the recognition of a non-financial assets or nonfinancial liability.
n) Segment Reporting
In accordance with its business and organization structure and internal financial reporting, the company has concluded that Transmission and Distribution of Power (T&D) related business is its primary business segment. As the Company's revenue is mainly from T&D business, no separate information in line with IND AS 108 "Operating Segments" is required.
o) Fair value measurement
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. 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, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the Financial Statements are categorized 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:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2- Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
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.
The Company's Management determines the policies and procedures for both recurring and non - recurring fair value measurement, such as derivative instruments and unquoted financial assets measured at fair value.
At each reporting date, the Management analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Company's accounting policies. For this analysis, the Management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents
The management also compares the change in the fair value of each asset and liability 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.
This note summarizes accounting policy for fair value. Other fair value related disclosures are given in the relevant notes.
C. The preparation of the Company's financial statements requires management to make judgement, estimates and assumptions that affect the reported amount of revenue, expenses, assets and liabilities and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
a) Property, plant and equipment / intangible assets are depreciated / amortised over their estimated useful lives, after taking into account estimated residual value. Management reviews the estimated useful lives and residual values of the assets annually in order to determine the amount of depreciation / amortisation to be recorded during any reporting period. The useful lives and residual values are based on the Company's historical experience with similar assets and take into account anticipated technological changes. The depreciation / amortisation for future periods is revised if there are significant changes from previous estimates.
b) Recoverability of trade receivable
Judgements are required in assessing the recoverability of overdue trade receivables and determining whether a provision against those receivables is required. Factors considered include the credit rating of the counterparty, the amount and timing of anticipated future payments and any possible actions that can be taken to mitigate the risk of non-payment.
c) Provisions
Provisions and liabilities are recognized in the period when it becomes probable that there will be a future outflow of funds resulting from past operations or events and the amount of cash outflow can be reliably estimated. The timing of recognition and quantification of the liability requires the application of judgement to existing facts and circumstances, which can be subject to change. The carrying amounts of provisions and liabilities are reviewed regularly and revised to take account of changing facts and circumstances.
d) 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, the Company estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or Cash Generating Units (CGU's) fair value less costs of disposal and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or a groups of assets. Where the carrying amount of an asset or CGU 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 pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account, if no such transactions can be identified, an appropriate valuation model is used.
e) Impairment of financial assets
The impairment provisions for financial assets are based on assumptions about risk of default and expected cash loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on Company's past history, existing market conditions as well as forward looking estimates at the end of each reporting period.
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