Note 2 - Material Accounting Policies
This note provides a list of the material accounting policies
adopted in the preparation of these financial statements. The
accounting policies have been consistently applied by the
Company unless otherwise stated or where a newly issued
accounting standard is initially adopted.
A. Basis of preparation
i. Statement of compliance
These financial statements are prepared in accordance
with Indian Accounting Standards (hereinafter referred to
as "Ind AS”) under the provisions of the Companies Act,
2013 (hereinafter referred to as 'the Act') (to the extent
notified). The Ind AS are prescribed under Section 133
of the Act read with Rule 3 of the Companies (Indian
Accounting Standards) Rules, 2015 and Companies
(Indian Accounting Standards) Amendment Rules, 2016.
ii. Basis of preparation
The financial statements have been prepared on historical
cost basis except the following assets and liabilities which
have been measured at fair value amount:
• certain financial assets and liabilities (including
derivative instruments)
• defined benefit plans- plan assets; and
• Equity-settled Share Based Payments
The Financial statements of the Company are presented in
Indian Rupees (?), which is also its functional currency and
all values are rounded off to Lakhs, except when otherwise
indicated.
B. Summary of material accounting policies
i. Current versus non-current classification
The Company presents assets and liabilities in the balance
sheet based on current /non-current classification.
An asset is treated as current when it is:
• Expected to be realized or intended to be sold or
consumed in normal operating cycle.
• Held primarily for the purpose of trading.
• Expected to be realized within twelve months after the
reporting date, or
• 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:
• It is expected to be settled in normal operating cycle.
• It is due to be settled within twelve months after the
reporting period, or
• There is no unconditional right to defer the settlement of
the liability for at least twelve months after the reporting
period.
All other liabilities are classified as noncurrent.
Deferred tax assets and liabilities are classified as non-current
assets and liabilities.
Based on the nature of products and services offered by the
Company, operating cycle determined is 12 months for the
purpose of current and non-current classification of assets
and liabilities.
The operating cycle is the time between the acquisition of
assets for processing and their realisation in cash and cash
equivalents,
ii. Segment Reporting
The company identifies operating segments based on the
internal reporting provided to the chief operating decision¬
maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the
operating segments, has been identified as the Board of
Directors that makes strategic decisions.
The accounting policies adopted for segment reporting are
in line with the accounting policies of the Company. Segment
revenue, segment expenses have been identified to segments
on the basis of their relationship to the operating activities of
the segment.
iii. Foreign Currencies
Transaction and balances
Transactions in foreign currencies are initially recorded by
the company in their functional currency at the exchange
rate prevailing on the date of transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency using
rate of exchange prevailing on the balance sheet date.
Exchange differences arising on the settlement or
translation of monetary items are recognized in the
statement of profit or loss except where:
• 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 on transactions entered into in
order to hedge certain foreign currency risks.
• exchange differences on monetary items receivable
from or payable to a foreign operation for which
settlement is neither planned nor likely to occur
(therefore forming part of the net investment in foreign
operation), which are recognised initially in other
comprehensive income and reclassified from equity to
profit or loss on repayment of the monetary items.
Non-monetary items that are measured in terms of historical
cost in a foreign currency are recorded using the exchange
rates as at the dates of the initial transactions. Non-monetary
items measured at fair value in a foreign currency are
translated using the exchange rates on the date when the fair
value was measured. The gain or loss arising on translation of
non-monetary items measured at fair value is treated in line
with the recognition of the gain or loss on the change in fair
value of the item (i.e. translation differences on items whose
fair value gain or loss is recognised in OCI or profit or loss are
also recognised in OCI or profit or loss, respectively).
Effective 1st April,2018, the Company has adopted Appendix
B to the Ind-AS 21-foreign currency transaction and advance
consideration, which clarify the date of transaction for the
purpose of determining the exchange rate to use on initial
recognition of the related assets, expenses or income when
an entity has received or paid advance consideration in
foreign currency. The effect on account of adoption of this
amendment was insignificant.
iv. Revenue recognition
The Company derives revenue primarily from activities
in BFSI and ATM Services (ATM, Insurance Services and
Banking & financial services), Assisted E-Commerce
Service (Online shopping, Pharmacy, Bill payment and
recharge, logistics) including bullion and jewellery, through
its Vakrangee Kendra (on B2B and B2C basis) with special
competencies in handling massive, multi-state, and data
digitization, software and license.
Effective April 1,2018, the Company adopted Ind AS 115
"Revenue from Contracts with Customers notified on
March 28, 2018. This standard will supersede all current
revenue recognition requirements. The Company has
decided to use the modified retrospective approach for
transition method, applied to contracts that were not
completed as of April 1,2018. Please refer Note 2(B)(iv)
"Material Accounting Policies,” in the Company's 2018
standalone financial statement for the policies in effect for
revenue prior to April 1,2018. The effect on adoption of
Ind AS 115 was insignificant.
The following is a summary of new and/or revised
material accounting policies related to revenue
recognition.
Revenue is recognized upon transfer of control of
promised products or services to customers in an amount
that reflects the consideration we expect to receive in
exchange for those products or services.
Arrangement for software-related services are either on
a fixed price, fixed-timeframe or on a time-and material
basis.
Revenue from software usages and license where the
customer obtains a "right to use” the revenue from
software and license is recognised at the time the
software and license is made available to the customer.
Revenue from licenses where the customer obtains a
"right to access” is recognised over the access period.
Trade receivable and unbilled revenues are presented net
of impairment in the Balance Sheet
Revenue from sale of goods and services is shown as
net of sales tax, value added tax, service tax, goods and
services tax and applicable discounts and allowances.
Interest Income
Interest income from financial assets is recognized when it
is probable that economic benefits will flow to the company
and the amount of income can be measured reliably.
Interest income 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 assets to that asset's net carrying amount on initial
recognition.
Dividend Income
Dividend income from investments is recognised when the
shareholder's right to receive payment has been established
(provided that it is probable that the economic benefits will
flow to the company and the amount of income can be
measured reliably).
Insurance claims
Insurance claims are accounted for based on claims admitted
/ expected to be admitted and to the extent that there is no
uncertainty in receiving the claims.
v. Property, Plant and Equipment
Land and buildings held for use in the production or supply
of goods or services, or for administrative purposes, are
stated in the balance sheet at cost less accumulated
depreciation and accumulated impairment losses.
Freehold land is not depreciated.
All items of property, plant and equipment are initially
recorded at cost. Such cost includes the cost of the
replaced part of the property, plant and equipment and
borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying
property, plant and equipment. The cost of an item of
property, plant and equipment is recognized as an asset
if, and only if, 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.
Properties in the course of construction for production,
supply or administrative purposes are carried at cost,
less any recognized impairment loss. Cost includes
professional fees and, for qualifying assets, borrowing
costs capitalized in accordance with the company's
accounting policy. Such properties are classified into the
appropriate categories of property, plant and equipment
when completed and ready for intended use. Depreciation
of these assets, on the same basis as other property
assets, commences when the assets are ready for their
intended use.
Subsequent to recognition, property, plant and equipment
(excluding freehold land) are measured at cost less
accumulated depreciation and accumulated impairment
losses. When significant parts of property, plant and
equipment are required to be replaced in intervals, the
company recognizes such parts as individual assets
with specific useful lives and depreciation respectively.
Likewise, when a major inspection is performed, its cost
is recognized in the carrying amount of the plant and
equipment as a replacement cost only if the recognition
criteria are satisfied. All other repair and maintenance
costs are recognized in the Statement of Profit and Loss
as incurred.
Assets held under finance leases are depreciated over
their expected useful lives on the same basis as owned
assets. However, when there is no reasonable certainty
that ownership will be obtained by the end of the lease
term, assets are depreciated over the shorter of the lease
term and useful lives.
Depreciation is recognised to write off the cost of
assets (other than freehold land and properties under
construction) less their residual values over the
useful lives, using the straight- line method ("SLM”).
Management, based on a technical evaluation, believes
that the useful lives of the assets reflect the periods over
which these assets are expected to be used, which are as
follows:
The carrying values of property, plant and equipment
are reviewed for impairment when events or changes in
circumstances indicate that the carrying value may not be
recoverable.
The residual values, useful life and depreciation method are
reviewed at each financial year-end to ensure that the amount,
method and period of depreciation are consistent with
previous estimates and the expected pattern of consumption
of the future economic benefits embodied in the items of
property, plant and equipment.
An item of property, plant and equipment is derecognised
upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any
gain or loss arising on disposal or retirement of an item of
property, plant and equipment is determined as the difference
between sale proceeds and the carrying amount of the asset
and is recognised in profit or loss.
vi. Intangible Asset
Intangible assets purchased are measured at cost as of
the date of acquisition, as applicable, less accumulated
amortisation and accumulated impairment, if any.
Intangible assets consist of rights under licensing
agreement and software licences which are amortised
over license period which equates the useful life ranging
between 2-5 years on a straight-line basis.
vii. Taxation
Income tax expense comprises current tax expense
and the net change in the deferred tax asset or liability
during the year. Current and deferred taxes are
recognized statement of profit and loss except to the
extent that it relates to items recognized directly in
other comprehensive income or equity, in which case it
is recognized in other comprehensive income or equity
respectively.
Current taxes
Current income tax is recognized at the amount expected to
be paid to or recovered from the tax authorities, using the tax
rates and tax laws that have been enacted or substantively
enacted by the balance sheet date. The Company offsets, on a
year-to-year basis, the current tax assets and liabilities, where
it has legally enforceable right to do so and where it intends to
settle such assets and liabilities on a net basis.
Deferred taxes
Deferred tax is recognized on 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 and are accounted for using
the balance sheet liability method. Deferred tax liabilities are
generally recognized for all taxable temporary differences, and
deferred tax assets are generally recognized 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 utilized. Such assets and
liabilities are not recognized if the temporary difference arises
from goodwill or from the initial recognition (other than in
a business combination) of other assets and liabilities in
a transaction that affects neither the taxable profit nor the
accounting profit.
Deferred tax relating to items recognised outside the profit
and loss is recognised either in other comprehensive income
or in equity.
The carrying amount of deferred tax assets is reviewed at
each balance sheet date 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 assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Company
intends to settle its current tax assets and liabilities on a net
basis.
viii. Fair Value measurement
The Company measures financial instruments at fair
value at each balance sheet date. Fair value is the price
that would be received to sell an asset or paid to settle
a liability in an orderly transaction between market
participants at the measurement date, regardless of
whether that price is directly observable or estimated
using another valuation technique
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:
• 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.
This note summarises accounting policy for fair value.
Other fair value-related disclosures are given in the
relevant notes.
ix. Investment property
Investment properties are properties that are held for long¬
term rentals yields or for capital appreciation (including
property under construction for such purposes) or both,
and that is not occupied by the Company, is classified as
investment property.
Investment properties are measured initially at cost,
including transaction costs. Subsequent to initial
recognition, investment properties are stated at cost less
accumulated depreciation and accumulated impairment
loss, if any.
Investment properties are depreciated using the straight¬
line method over their estimated useful lives. The useful
life has been determined based on technical evaluation
performed by the management expert.
Though the Company measures investment property
using cost-based measurement, the fair value of
investment property is disclosed in the notes. Fair values
are determined based on an annual evaluation performed
by an accredited external independent valuer.
Investment properties are derecognised either when they
have been disposed of or when they are permanently
withdrawn from use and no future economic benefit is
expected from their disposal. The difference between
the net disposal proceeds and the carrying amount of
the asset is recognised in profit or loss in the period of
derecognition.
x. Impairment of Non-Financial Assets
At the end of each reporting period, the company reviews
the carrying amounts of its tangible and intangible assets
to determine whether there is any indication that those
assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of impairment
loss (if any). When it is not possible to estimate the
recoverable amount of an individual asset, the company
estimates the recoverable amount of the cash-generating
unit to which the asset belongs. When a reasonable and
consistent basis of allocation can be identified, corporate
assets are also allocated to individual cash-generating
units, or otherwise they are allocated to the smallest
group of cash-generating units for which a reasonable and
consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible
assets not yet available for use are tested for impairment
at least annually, and whenever there is an indication that
the asset may be impaired.
Recoverable amount is the higher of fair value less costs
of disposal and value in use. 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 for which the estimates
of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating
unit) is estimated to be less than it is carrying amount, the
carrying amount of the asset (or cash-generating unit) is
reduced to its recoverable amount. An impairment loss is
recognized in the profit or loss.
When an impairment loss subsequently reverses, the
carrying amount of the asset (or a cash-generating unit)
is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does
not exceed the carrying amount that would have been
determined had no impairment loss been recognised
for the asset (or cash-generating unit) in prior years. A
reversal of an impairment loss is recognised immediately
in profit or loss.
xi. 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
a) Initial recognition and measurement
All financial assets are recognised initially at fair value
plus, in the case of financial assets not recorded at fair
value through profit or 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 marketplace (regular way trades)
are recognised on the trade date, i.e., the date that the
Company commits to purchase or sell the asset.
b) Subsequent measurement
Debt Instruments at amortised cost:
A financial asset is subsequently 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. Interest income from these financial assets
is included in finance income using the effective interest
rate method. A gain or loss on a debt investment that is
subsequently measured at amortised cost is recognized in
profit or loss when the asset is derecognised or impaired.
Debt instrument at Fair Value through Other
Comprehensive Income (OCI)
A financial asset is subsequently measured at fair value
through other comprehensive income 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. Interest income from these financial assets
is included in finance income using the effective interest
rate method. Fair value movements are recognized in
the other comprehensive income (OCI). However, the
Company recognizes interest income, impairment gains
or losses and foreign exchange gains and losses in the
statement of profit and loss. On derecognition of the
asset, the cumulative gain or loss previously recognised in
OCI is reclassified from equity to statement of profit and
loss.
Debt instrument at Fair Value through Profit or Loss
(FVTPL)
A financial asset which does not meet the criteria for
categorization as at amortized cost or as fair value
through other comprehensive income is classified
as fair value through profit or loss. Debt instruments
subsequently measured at fair value through profit or loss
are measured at fair value with all changes recognized in
the statement of profit and loss.
Equity instruments
All equity investments in scope of Ind AS 109 are measured
at fair value. Equity instruments which are held for trading
are classified as at FVTPL. For all other equity instruments,
the Company may make an irrevocable election to present
subsequent changes in the fair value in OCI. The Company
makes such election on an instrument-by-instrument basis.
The classification is made on initial recognition and is
irrevocable.
Dividends from such investments are recognized in profit or
loss as other income. There is no recycling of the amounts
from OCI to Profit and Loss, even on sale of investment.
However, the Company may transfer the cumulative gain or
loss within equity.
Equity instruments subsequently measured at fair value
through profit or loss are measured at fair value with all
changes recognized in the statement of profit and loss.
Investment in subsidiaries is carried at cost less impairment in
the financial statements.
c) De-recognition
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
primarily derecognized (i.e. removed from the company
balance sheet) 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 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 its rights to receive
cash flows from an asset or has entered 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 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
an 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.
d) Impairment of financial assets
The Company recognises impairment loss applying the
expected credit loss (ECL) model on the financial assets
measured at amortised cost, debt instruments at FVTOCI,
lease receivables, trade receivables, other contractual right
to receive cash or another financial asset and financial
guarantee not designated as at FVTPL.
Expected credit losses are the weighted average of credit
losses with the respective risks of default occurring as the
weights.
The Company measures the loss allowance for a financial
instrument at an amount equal to the lifetime expected
credit losses if the credit risk on that financial instrument
has increased significantly since initial recognition. If the
credit risk on a financial instrument has not increased
significantly since initial recognition, the Company
measures the loss allowance for that financial instrument
at an amount equal to 12 months expected credit losses.
For trade receivables or any contractual right to
receive cash or other financial assets that result from
transactions that are within the scope of Ind AS 11 and Ind
AS 18, the Company always measures the loss allowance
at an amount equal to lifetime expected credit losses.
Further, for the purpose of measuring lifetime expected
credit loss allowance for trade receivables, the Company
applies 'simplified approach' permitted by Ind AS 109
Financial Instruments. This expected credit loss allowance
is computed based on a provision matrix which takes into
account historical credit loss experience and adjusted for
forward-looking information.
Financial Liabilities
a) Initial recognition and measurement
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.
b) Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and 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
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 profit or loss.
Financial liabilities designated upon initial recognition
at fair value through profit or loss are designated at the
initial date of recognition, and only if the criteria in Ind AS
109 are satisfied. For liabilities designated as FVTPL, fair
value gains/ losses attributable to changes in own credit
risk is recognized in OCI. These gains/ losses are not
subsequently transferred to P&L. However, the company
may transfer the cumulative gain or loss within equity. All
other changes in fair value of such liability are recognised
in the statement of profit or loss. The Company has not
designated any financial liability as at fair value through
profit and loss.
Financial liabilities are subsequently carried at amortized
cost using the effective interest method, except for
contingent consideration recognized in a business
combination which is subsequently measured at fair value
through profit and loss. 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.
Loans and borrowings
After initial recognition, interest-bearing loans and
borrowings are subsequently measured at amortised cost
using the effective interest rate method. Gains and losses
are recognised in profit or loss when the liabilities are
derecognised as well as through the effective interest rate
amortisation process.
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 effective interest rate. Such
amortisation is included as finance costs in the statement
of profit and loss.
Financial guarantee contracts
Financial guarantee contracts issued by the Company
are those contracts that require a payment to be made
to reimburse the holder for a loss it incurs because the
specified debtor fails to make a payment when due in
accordance with the terms of a debt instrument. Financial
guarantee contracts are recognised initially as a liability
at fair value, adjusted for transaction costs that are
directly attributable to the issuance of the guarantee.
Subsequently, the liability is measured at the higher of the
amount of loss allowance determined as per impairment
requirements of Ind AS 109 and the amount recognised
less cumulative amortisation.
c) Derecognition
A financial liability is derecognised when the obligation
under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another
from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified,
such an exchange or modification is treated as the
derecognition of the original liability and the recognition
of a new liability. The difference in the respective carrying
amounts is recognised in the statement of profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the net
amount is reported in the balance sheet if there is a currently
enforceable legal right to offset the recognised amounts and
there is an intention to settle on a net basis, to realise the
assets and settle the liabilities simultaneously.
xii. Inventories
Inventories are valued at lower of cost on First-In¬
First-Out (FIFO) or net realizable value after providing
for obsolescence and other losses, where considered
necessary. Cost of inventories comprises all costs
of purchase and other costs incurred in bringing the
inventories to their present location and condition. Cost of
purchased inventory is determined after deducting rebates
and discounts. Net realizable value is the estimated selling
price in the ordinary course of business, less estimated
costs of completion and estimated costs necessary to
make the sale.
xiii. Leases
Ind AS 116 supersedes Ind AS 17 Leases including its
appendices. The standard sets out the principles for the
recognition, measurement, presentation and disclosure of
leases and requires lessees to recognise most leases on
the balance sheet.
The Company has adopted Ind AS 116 using the modified
retrospective method of adoption under the transitional
provisions of the Standards, with the date of initial
application on 1st April 2019. The Company also elected
to use the recognition exemptions for lease contracts.
The Company assesses at contract inception whether
a contract is, or contains, a lease, that is, if the contract
conveys the right to control the use of an identified asset
for a period of time in exchange for consideration.
Company as a lessee
The Company applies a single recognition and
measurement approach for all leases, except for short¬
term leases and leases of low-value assets. The Company
recognises lease liabilities to make lease payments and
right-of-use assets representing the right to use the
underlying assets.
Right-of-use assets
The Company recognises right-of-use assets at the
commencement date of the lease (i.e., the date the
underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated
depreciation and impairment losses, and adjusted for any
remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised,
initial direct costs incurred, and lease payments made
at or before the commencement date less any lease
incentives received. Right-of-use assets are depreciated
on a straight-line basis over the shorter of the lease term
and the estimated useful lives of the assets.
If ownership of the leased asset transfers to the Company
at the end of the lease term or the cost reflects the
exercise of a purchase option, depreciation is calculated
using the estimated useful life of the asset. The right-of-
use assets are also subject to impairment.
Lease Liabilities
At the commencement date of the lease, the Company
recognises lease liabilities measured at the present
value of lease payments to be made over the lease term.
The lease payments include fixed payments (including
in substance fixed payments) less any lease incentives
receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under
residual value guarantees.
In calculating the present value of lease payments, the
Company uses its incremental borrowing rate at the
lease commencement date because the interest rate
implicit in the lease is not readily determinable. After the
commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced
for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in
the lease payments (e.g., changes to future payments
resulting from a change in an index or rate used to
determine such lease payments) or a change in the
assessment of an option to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition
exemption to its short-term leases of machinery and
equipment (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). Lease payments on short¬
term leases and leases of low-value assets are recognised
as expense on a straight-line basis over the lease term.
Company as a lessor
Lessor accounting under Ind AS 116 is substantially
unchanged from Ind AS 17. Lessors will continue to
classify leases as either operating or finance leases using
similar principles as in Ind AS 17. Therefore, Ind AS 116
does not have an impact for leases where the Company is
the lessor.
Leases in which the Company does not transfer
substantially all the risks and rewards incidental to
ownership of an asset are classified as operating leases.
Rental income arising is accounted for on a straight-line
basis over the lease terms. Initial direct costs incurred in
negotiating and arranging an operating lease are added to
the carrying amount of the leased asset and recognised
over the lease term on the same basis as rental income.
Contingent rents are recognised as revenue in the period
in which they are earned.
xiv. Borrowing Costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets that
necessarily takes a substantial period 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 or sale. All other borrowing costs are
recognised in statement of profit and loss in the period in
which they are incurred.
xv. Equity Instruments
An equity instrument is any contract that evidences a
residual interest in the assets of an entity after deducting
all of its liabilities. Incremental costs directly attributable
to the issue of new shares or options are shown in equity
as a deduction, net of tax, from the proceeds.
xvi. Dividends
Provision is made for any dividend declared, being
appropriately authorized and no longer at the discretion of
the Company, on or before the end of the reporting period
but not distributed at the end of the reporting period.
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