3. Material accounting policies
(a) Revenue recognition
The Company earns revenue from shipping/vessel operations, comprising charter hire of vessels and freight revenue. The Company offers its vessels on time-charter for transportation of cargo in coastal and international waterways.
Revenue towards satisfaction of a performance obligation is measured at the amount of transaction price (net of variable consideration) allocated to that performance obligation. The transaction price of services rendered is net of variable consideration on account of adjustments due to current prevailing freight rates, the cost of operation, vessel performance, pool points earned, service level credits, price concessions and incentives and number of days in operation as applicable, if any, as part of the contract and recognized as follows;
(i) Charter Hire - The Company earns charter hire revenue by placing its vessels on time charter, and in pool arrangements. The performance obligations within pool and time-charter contracts include the operation of the vessel. Charter hire revenue is recognised over time as the Company satisfies its obligation based on the time elapsed between the delivery of a vessel to a charterer and the redelivery of a vessel from the charterer. For time charter contracts, charter hire is typically invoiced as per the terms of charter hire agreement and charter hire revenue is accrued based on the daily hire rates. Other variable hire components of the contract, such as off-hire and speed claims, are recognised only to the extent that it is highly probable that a significant reversal will not occur when the uncertainty is subsequently resolved.
For pool arrangements, the Company only has pool arrangements operated by third parties in which the Company's owned vessels are deployed. The Company recognises revenue from these pool arrangements based on its portion of the net distributions reported by the relevant pool, which represents the total earnings of the pool after voyage expenses and pool manager fees. The net distribution is computed based on (a). pool points and the participation days of the Company's vessels in these third party pool arrangements or (b). net revenue / net earning sharing as per the contractual terms.
(ii) Freight revenue - Ocean freight income from transportation of cargo by coastal and international waterways respectively is recognised following the proportionate completion method on time basis. In case of end-to-end logistics service under multimodal transport, the revenue is recognized following the proportionate completion method on time basis for each mode.
(iii) Other operating income in nature of documentation charges is recognised upon delivery of such services to the customers.
(b) Other Income Interest income
Interest income, except for on income tax refund, is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition. Interest income on an income tax refund is accrued when it is awarded per order received from a competent authority under Income Tax Act 1961.
For accounting policies related to Gain / (loss) arising sale of assets, refer to paragraph (c) below.
(c) Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost comprises its purchase price net of any trade discounts and rebates, import duties and other taxes (other than those subsequently recoverable from tax authorities), any directly attributable expenditure on making the asset ready for its intended use at the location and condition necessary for it to be capable of operating in the matter intended by the Company, including relevant borrowing costs for qualifying asset.
An item of property, plant and equipment is derecognized upon disposal (upon delivery to the buyer) or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the Statement of Profit and Loss.
For transition to Ind AS, the Company has elected to continue with the carrying value of all of its property, plant and equipment recognized as of April 1, 2016 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.
Depreciation commences when the assets are ready for their intended use. The depreciable amount for assets is the cost of an asset, or other amount substituted for cost, less its estimated residual value. Depreciation is recognized so as to write off the depreciable amount of assets over their useful lives, using the straight-line method as per the useful life prescribed in Schedule II to the Companies Act, 2013 except in respect of the following categories of assets, in whose case the life of the assets has been assessed as under based on technical advice, taking into account the nature of the asset, the expected usage of the asset, the operating conditions
of the asset, past history of replacement, anticipated technological changes, manufacturers warranties and maintenance support, etc.
(1) A shipping company on periodic basis is required to bring all ships into dry dock for major inspection and overhaul. The Company capitalises the costs associated with drydocking as they occur and depreciates these costs on a straight-line basis over 2.5/5 years depend upon ship durability, which is generally the period until the next scheduled drydocking occurs.
Where the cost of a part of the asset ("asset component”) is significant to the total cost of the asset and the useful life for that part is different from the useful life of the remaining asset, useful life of that significant part is determined separately, and such asset component is depreciated over its separate useful life.
The Company reviews the residual value, useful lives and depreciation method annually and, if expectations differ from previous estimates, the change is accounted for as a change in accounting estimate on a prospective basis.
(d) Intangible assets
Intangible assets purchased are carried at cost as of the date of acquisition less accumulated amortisation and accumulated impairment losses, if any. Intangible asset in the nature of computer software is amortised on a straight line basis over the estimated useful life of 6 years.
The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
An intangible assets is derecognized on disposal, or when no future economic benefits are expected to arise from continued use of asset. Gains or losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in the Statement of Profit and Loss.
For transition to Ind AS, the Company has elected to continue with the carrying value of all of its intangible assets recognised as of April 1, 2016 (transition date) measured as per the Previous GAAP and use that carrying value as its deemed cost as of the transition date.
(e) Foreign exchange transactions
The functional and presentation currency of the Company is Indian Rupee.
Income and expenses in foreign currencies are recorded at exchange rates prevailing on the date of the transaction. Foreign currency denominated monetary assets and liabilities are translated at the exchange rate prevailing on the Balance Sheet date and exchange gains and losses arising on settlement and restatement are recognised in the Statement of Profit and Loss.
Non-monetary items denominated in a foreign currency are measured at historical cost and translated at the exchange rate prevalent at the date of transaction.
Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for the exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings.
Exchange differences arising on settlement/restatement of long-term foreign currency monetary items recognized in the Standalone Financial Statements for the year ended March 31, 2017 prepared under Previous GAAP, are
capitalized as a part of the depreciable fixed assets to which the monetary item relates and depreciated over the remaining useful life of such assets.
(f) Borrowing costs
Borrowing costs that are directly attributable to the acquisition or construction of a qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.
Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All the other borrowing costs are recognised in the Statement of Profit and Loss in the period in which they are incurred.
(g) Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax:
The Company has opted for Tonnage Tax for the shipping / vessel operation income. Current tax for the current period is the aggregate of Tonnage Tax on shipping income determined in accordance with the provisions of Section 115VT of the income tax Act,1961 ("IT Act”) and tax on non-shipping income determined based on taxable income and tax credit computed in accordance with the relevant provisions of IT Act.
Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle the asset and the liability on a net basis.
Deferred tax:
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Standalone Financial Statements and the corresponding tax bases used in the computation of taxable profit adjusted for assets and liabilities used in generation of income on which Tonnage Tax is paid.
Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised.
Deferred tax assets include Minimum Alternative Tax (MAT) paid in accordance with the tax laws in India, which is likely to give future economic benefits in the form of availability of set off against future income tax liability. Accordingly, MAT is recognised as deferred tax asset in the balance sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with asset will be realised.
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 all or part of the asset to be recovered.
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.
Current and deferred tax is recognised in profit and loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting of a business combination, the tax effect is included in the accounting for the business combination.
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