3. Material accounting policies
A. Revenue from contracts with customers
Revenue is measured based on the consideration
specified in a contract with a customer. The Company
recognises revenue when it transfers control over a good
or service to a customer.
i) Diagnostic services
Revenue from diagnostics services is amount billed
net of indirect taxes, reversals and discounts/
concessions if any. No element of financing is
deemed present as the sales are made primarily
on cash and carry basis, however for institutional /
organizational customers billing is done fortnightly
/ monthly based on the agreement, which is
consistent with market practice.
Revenue is recognized at an amount that reflects
the consideration to which the Company expects to
be entitled in exchange for transferring the goods or
services to a customer i.e. on transfer of control of
the service to the customer i.e., when the underlying
tests are conducted, samples are processed for
requisitioned diagnostic tests. Each service is
generally a separate performance obligation and
therefore revenue is recognised at a point in time when
the tests are conducted, samples are processed. For
multiple tests, the Company measures the revenue in
respect of each performance obligation at its relative
stand alone selling price and the transaction price
is allocated accordingly. The price that is regularly
charged for a test separately registered is considered
to be the best evidence of its stand alone selling.
Revenue contracts are on principal to principal basis
and the Company is primarily responsible for fulfilling
the performance obligation.
A contract liability is the obligation to transfer
services to a customer for which the Company
has received consideration from the customer. If a
customer pays consideration before the Company
transfer services to the customer, a contract
liability is recognised when the payment is made.
Contract liabilities are recognised as revenue when
the Company performs under the contract.
Revenues in excess of invoicing are classified
as contract assets (referred to as ‘unbilled
revenue’) while invoicing in excess of revenues
are classified as contract liabilities (referred to as
‘unearned revenue’)
ii) Sale of Privilege cards
The Company operates a discount scheme where
certain ‘Privilege cards’ are sold to the customers
against which specified discounts are given on the
future diagnostic services availed by the customer
for a specified period. The Company recognises
revenue from the sale of such cards over the period
for which the card is valid. The difference in sale
consideration received and revenue recognised is
recognised as deferred revenue.
B. Recognition of interest income or expense and
dividend income
Interest income or expense
Interest income or expense is recognized using the
effective interest method.
The ‘effective interest rate’ is the rate that exactly
discounts estimated future cash payments are receipts
through the expected life of the financial instrument to:
- the gross carrying amount of the financial asset; or
- the amortised cost of the financial liability.
In calculating interest income and expense, the effective
interest rate is applied to the gross carrying amount of
the asset (when the asset is not credit-impaired) or to the
amortised cost of the liability. However, for financial assets
that have become credit-impaired subsequent to initial
recognition, interest income is calculated by applying the
effective interest rate to the amortised cost of the financial
asset. If the asset is no longer credit-impaied, then the
calculation of interest income reverts to the gross basis.
Dividend income
Dividend are recognised in statement of profit and loss
on the date on which the Company’s right to receive
payment is established.
C. Financial instruments
A financial instrument is any contract that gives rise to
a financial asset of one entity and financial liability or
equity instrument of another entity.
i) Initial recognition and measurement
Trade receivables issued are initially recognised
when they are originated. All other financial assets
or financial liabilities are initially recognised when
the Company becomes a party to the contractual
provision of the instrument.
A financial asset (unless it is a trade receivable
without a significant financing component) or
financial liability is initially measured at fair value
plus or minus, for an item not at fair value through
profit and loss (FVTPL), transaction costs that are
directly attributable to its acquisition or issue.
The average credit period from these services
provided to customers is 0 to 60 days. No interest
is charged on the trade receivables for the amount
over due above the credit period. A trade receivable
without a significant financing component is
initially measured at the transaction price.
ii) Classification and subsequent measurement
Financial assets
All financial assets are initially measured at fair
value plus, for an item not at fair value through
profit and loss (FVTPL), transaction costs that are
directly attributable to its acquisition or issue.
On initial recognition, a financial asset is classified
as measured at:
- Amortised cost;
- Fair Value through Other Comprehensive
Income (FVOCI) - equity investment; or
- Fair Value through Profit or Loss (FVTPL)
Financial assets are not reclassified subsequent
to their initial recognition, except if and in the
period the Company changes its business model
for managing financial assets, in which case all
affected financial assets are reclassified on the
first day of the first reporting period following the
change in the business model.
A financial asset is measured at amortised cost if
it meets both of the following conditions and is not
designated as at FVTPL:
- Its held within a business model whose
objective is to hold assets to collect
contractual cash flows; and
- Its 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.
On initial recognition of an equity investment that is
not held for trading, the Company may irrevocably
elect to present subsequent changes in the
investment’s fair value in OCI (designated as FVOCI
- equity investment). This election is made on an
investment-by-investment basis.
All financial assets not classified as measured
at amortised cost or FVOCI as described above
are measured at FVTPL. On initial recognition, the
Company may irrevocably designate a financial
asset that otherwise meets the requirements to be
measured at amortised cost or at FVOCI as at FVTPL
if doing so eliminates or significantly reduces an
accounting mismatch that would otherwise arise.
Subsequent measurement
Financial assets at FVTPL: These assets are
subsequently measured at fair value. Net gains and
losses, including any interest or dividend income,
are recognised in profit or loss.
Financial assets at amortised cost: These assets
are subsequently measured at amortised cost using
the effective interest method. The amortised cost
is reduced by impairment losses. Interest income,
foreign exchange gains and losses and impairment
are recognised in profit or loss. Any gain or loss on
derecognition is recognised in profit or loss.
Equity investments at FVOCI: These assets are
subsequently measured at fair value. Dividends are
recognised as income in profit or loss unless the
dividend clearly represents a recovery of part of the
cost of the investment. Other net gains and losses
are recognised in OCI and are not reclassified to
profit or loss.
Financial liabilities:
Financial liabilities are classified as measured
at amortised cost or FVTPL. A financial liability
is classified as at FVTPL if it is classified as
held-for-trading, or it is a derivative or it is designated
as such on initial recognition. Financial liabilities
at FVTPL are measured at fair value and net gains
and losses, including any interest expense, are
recognised in statement of profit or loss. Other
financial liabilities are subsequently measured at
amortised cost using the effective interest method.
Interest expense and foreign exchange gains and
losses are recognised in statement of profit or loss.
i) Derecognition
Financial assets
The Company derecognises a financial asset when:
- the contractual rights to the cash flows from
the financial asset expire; or
- it transfers the rights to receive the contractual
cash flows in a transaction in which either:
• substantially all of the risks and rewards
of ownership of the financial asset are
transferred; or
• the Company neither transfers nor
retains substantially all of the risks and
rewards of ownership and it does not
retain control of the financial asset.
If the Company enters into transactions whereby it
transfers assets recognised on its balance sheet,
but retains either all or substantially all of the risks
and rewards of the transferred assets in these
cases, the transferred assets are not derecognised.
Financial liabilities
The Company derecognises a financial liability
when its contractual obligations are discharged or
cancelled, or expired.
The Company also derecognises a financial
liability when its terms are modified and the cash
flows under the modified terms are substantially
different. In this case, a new financial liability based
on the modified terms is recognised at fair value. On
derecognition of a financial liability, the difference
between the carrying amount extinguished and the
consideration paid (including any non-cash assets
transferred or liabilites assumed) is recognised in
profit or loss.
iv) Offsetting
Financial assets and financial liabilities are offset
and the net amount presented in the balance sheet
when, and only when, the Company currently has
a legally enforceable right to set off the amounts
and it intends either to settle them on a net basis
or to realise the asset and settle the liability
simultaneously.
D. Property, plant and equipment
i) Recognition and measurement
The cost of an item of property, plant and equipment
shall be recognised as an asset if, and only if it is
probable that future economic benefit associated
with the item will flow to the Company and the cost of
the item can be measured reliably. Items of property,
plant and equipment (including capital-work-in
progress) are measured at cost, which includes
capitalised borrowing costs, less accumulated
depreciation and any accumulated impairment
losses. Freehold land is carried at historical
cost less any accumulated impairment losses.
Cost of an item of property, plant and equipment
comprises its purchase price, including non¬
refundable purchase taxes, after deducting trade
discounts and rebates, any directly attributable
cost of bringing the items to its working conditions
for its intended use and estimated costs of
dismantaling and removing the item and restoring
the site on which it is located.
The cost of a self-constructed item of property,
plant and equipment comprises the cost of
materials and direct labour, any other costs
directly attributable to bringing the item to working
condition for its intended use, and estimated costs
of dismantling and removing the item and restoring
the site on which it is located.
Any gain or loss on disposal of an item of property,
plant and equipment is recognised in profit or loss.
An item of of property, plant and equipmnet is
derecognised upon disposal or when no future
economic benefits are expecteed to arise from the
continued use of asset.
The net written down value as at April 01, 2016
has been considered as the gross carrying amount
recognised as per the previous GAAP (Deemed
cost) as at the date of transision to Ind AS.
Subsequent expenditure is capitalized only if it
is probable that the future economic benefits
associated with the expenditure will flow to
the Company and the cost of the item can be
measured reliably.
ii) Depreciation
Depreciation is recognised so as to write off the
cost of assets (other than freehold land) less
their residual values over their useful lives. The
Company has charged depreciation on property,
plant and equipment (PPE) based Straight Line
Method (“”SLM””).
Depreciation is charged over the useful lives of
the assets as estimated by the management
based on technical evaluation, which coincide
with the useful live prescribed in Schedule II to the
Act. Depreciation on additions and deletions are
restricted to the period of use.
In case of Building on leasehold land, the
depreciation is charged based on useful life of the
building or the lease period whichever is lower.
In the case of lease hold building improvements,
the depreciation is charged based on useful
life of the improvements which is 10 years or
lease period including expected renewal period
which ever is lower.
Residual value is considered to be 5% on
all the assets, as technically estimated by
the management.
Assets costing below Rs. 5,000 are depreciated
using depreciation rate at 100%.
Depreciation methods, useful lives and residual
values are reviewed at each reporting date and
adjusted if appropriate.
E. Intangible assets
i) Recognition and measurement
Intangible assets that are acquired, are recognized
at cost initially and carried at cost less accumulated
amortization and accumulated impairment loss, if
any. Subsequent expenditure is capitalised only
when it increases the future economic benefits
embodied in the specific asset to which it relates.
ii) Amortisation
Amortisation is calculated to write off the cost of
intangible assets less their estimated residual
values over their estimated useful lives using
the Straight Line Method (SLM) and is included
in depreciation and amortisation expense in
statement of profit and loss.
The estimated useful lives are as follows:
- Software - 5 years
Amortisation method, useful lives and residual
values are reviewed at each reporting date and
adjusted if appropriate.
F. Inventories
Inventories comprise of diagnostic kits, reagents,
laboratory chemicals, consumables etc., these are
measured at lower of cost and net realisable value.
The cost of inventories is based on the first-in, first-out
formula and includes expenditure incurred in acquiring
the inventories and other costs incurred in bringing them
to their present location and condition.
Net realisable value is the estimated selling
price in the ordinary course of business,
less estimated costs of completion and the
estimated costs necessary to make the sale.
The comparison of cost and net realisable value is made
on an item-by-Item basis.
G. Impairment of assets
i) Impairment of financial instruments
The Company recognises loss allowances
for expected credit losses on financial assets
measured at amortised cost. At each reporting
date, the Company assesses whether financial
assets carried at amortised cost are credit-
impaired. A financial asset is ‘credit-impaired’
when one or more events that have a detrimental
impact on the estimated future cash flows of the
financial asset have occurred.
Evidence that a financial asset is credit-impaired
includes the following observable data:
- significant financial difficulty of the debtor;
- a breach of contract such as a default or being
more than 90 days past due;
- it is probable that the debtor will enter
bankruptcy or other financial reorganisation; or
- the disappearance of an active market for a
security because of financial difficulties.
The Company measures loss allowances at an
amount equal to lifetime expected credit losses.
Loss allowances for trade receivables are
always measured at an amount equal to lifetime
expected credit losses.
Lifetime expected credit losses are the expected
credit losses that result from all possible
default events over the expected life of a
financial instrument.
12 months expected credit losses are the portion
of expected credit losses that result from default
events that are possible within 12 months after the
reporting date (or a shorter period if the expected
life of the instrument is less than 12 months).
In all cases, the maximum period considered when
estimating expected credit losses is the maximum
contractual period over which the Company is
exposed to credit risk.
When determining whether the credit risk of a
financial asset has increased significantly since
initial recognition and when estimating expected
credit losses, the Company considers reasonable
and supportable information that is relevant and
available without undue cost or effort. This includes
both quantitative and qualitative information
and analysis, based on the Company’s historical
experience and informed credit assessment and
including forward-looking information.
Measurement of expected credit losses
Expected credit losses are a probability-weighted
estimate of credit losses. Credit losses are
measured as the present value of all cash
shortfalls (i.e. the difference between the cash
flows due to the Company in accordance with the
contract and the cash flows that the Company
expects to receive).
‘Expected credit losses’ are discounted at the
effective interest rate of the financial statement.
Presentation of allowance for expected credit
losses in the balance sheet
Loss allowances for financial assets measured
at amortised cost are deducted from the gross
carrying amount of the assets.
ii) Impairment of non-financial assets
At each reporting date, the Company reviews the
carrying amount of non-financial assets, other than
inventories and deferred tax assets, to determine
whether there is any indication of impairment. If any
such indication exists, then the asset’s recoverable
amount is estimated.
For impairment testing, assets that do not generate
independent cash inflows are grouped together
into cash-generating units (CGUs). Each CGU
represents the smallest group of assets that
generates cash inflows that are largely independent
of the cash inflows of other assets or CGUs.
The recoverable amount of a CGU (or an individual
asset) is the higher of its value in use and its fair
value less costs to sell. Value in use is based on the
estimated future cash flows, 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 CGU
(or the asset).
An impairment loss is recognised if the carrying
amount of an asset or CGU exceeds its estimated
recoverable amount. Impairment losses are
recognised in the statement of profit and loss.
In respect of assets for which impairment loss has
been recognised in prior periods, the Company
reviews at each reporting date whether there is
any indication that the loss has decreased or no
longer exists. An impairment loss is reversed if
there has been a change in the estimates used
to determine the recoverable amount. Such a
reversal is made only to the extent that the asset’s
carrying amount does not exceed the carrying
amount that would have been determined, net of
depreciation or amortisation, if no impairment loss
has been recognised.
H. Employee benefits
(i) Short-term employee benefits
Short term employee benefits are measured on an
undiscounted basis and expensed as the related
service is provided. A liability is recognised for
the amount expected to be paid under short-term
cash bonus, if the Company has a present legal
or constructive obligation to pay this amount as a
result of past service provided by the employee and
the obligation can be estimated reliably.
(ii) Defined contribution plans
A defined contribution plan is a post-employment
benefit plan where the Company’s legal or
constructive obligation is limited to the amount
that it contributes to a seperate legal entity.
The Company makes specified monthly
contributions towards Government administered
provident fund scheme and Employees’ State
Insurance (‘ESI’) scheme.
Obligations for contributions to defined
contribution plans are expensed as an employee
benefits expense in statement of profit and loss
in the period in which the related services are
rendered by employees.
(iii) Defined benefit plans
A defined benefit plan is a post-employment
benefit plan other than a defined contribution plan.
The Company’s net obligation in respect of defined
benefit plans is calculated seperately for each plan
by estimating the amount of future benefits that
employees have earned in the current and prior
periods, discounting that amount and deducting
the fair value of any plan assets. The defined benefit
obligation is calculated annually by a qualified
actuary using the projected unit credit method.
Remeasurements of the net defined benefit
liability, which comprise actuarial gains and losses,
the return on plan assets (excluding interest) and
the effect of the asset ceiling (if any, excluding
interest), are recognised immediately in OCI. They
are included in retained earnings in the statement
of changes in equity and in the balance sheet. The
Company determines the net interest expense
(income) on the net defined benefit liability
(asset) for the period by applying the discount rate
determined by reference to market yields at the end
of the reporting period on government bonds. This
rate is applied on the net defined benefit liability
(asset), both as determined at the start of the
annual reporting period, taking into account any
changes in the net defined benefit liability (asset)
during the period as a result of contributions and
benefit payments. Net interest expense and other
expenses related to defined benefit plans are
recognised in profit or loss.
Changes in the present value of the defined benefit
obligation resulting from plan amendments or
curtailments are recognised immediately in profit or
loss as past service cost. The Company recognises
gain and losses on settlement of a defined benefit
plan when the settlement occurs.
(iv) Other long-term employee benefits -
compensated absences
Accumulated absences expected to be carried
forward beyond twelve months is treated as long¬
term employee benefit for measurement purposes.
The Company’s net obligation in respect of other
long-term employee benefit of accumulating
compensated absences is the amount of future
benefit that employees have accumulated at the end
of the year. That benefit is discounted to determine
its present value The obligation is measured annually
by a qualified actuary using the projected unit credit
method. Remeasurements are recognised in profit
or loss in the period in which they arise.
The obligations are presented as current liabilities
in the balance sheet if the Company does not have
an unconditional right to defer the settlement for at
least twelve months after the reporting date.
(v) Share based payments
The grant date fair value of equity-settled
share-based payment arrangements granted to
employees is generally recognised as an employee
benefits expense, with a corresponding increase in
equity, over the vesting period of the options. The
amount recognised as an expense is adjusted to
reflect the number of options for which the related
service and non-market performance conditions
are expected to be met, such that the amount
ultimately recognised is based on the number of
options that meet the related service and non¬
market performance conditions at the vesting
date. For share-based payment options with non¬
vesting conditions, the grant date fair value of the
share-based payment is measured to reflect such
conditions and there is no true-up for differences
between expected and actual outcomes.
I. Leases
At inception of a contract, the Company assesses
whether a contract is, or contains, a lease. A contract is,
or contains, a lease if the contract conveys the right to
control the use of an identified asset for a period of time
in exchange for consideration. Lease contracts entered
by the Company majorly pertains for buildings taken on
lease to conduct its business in the ordinary course.
As a Lessor:
Leases for which the Company is a lessor are classified
as a finance or operating lease. Whenever the terms of
a lease transfer substantially all the risks and rewards
of ownership to the lessee, the contract is classified
as a finance lease. All other leases are classified as
operating leases. Rental income from operating leases
are recognised on straight line basis over the term of
relevant lease as part of other income.
As a Lessee:
At commencement or on modification of a contract that
contains a lease component, the Company allocates the
consideration in the contract to each lease component
on the basis of its relative stand-alone prices. The
Company recognises a right-of-use asset and a lease
liability at the lease commencement date. The right-of-
use asset is initially measured at cost, which comprises
the initial amount of the lease liability adjusted for any
lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate
of costs to dismantle and remove the underlying asset or
to restore the underlying asset or the site on which it is
located, less any lease incentives received.
The Company determines the lease term as the non¬
cancellable period of a lease, together with both
periods covered by an option to extend the lease if the
Company is reasonably certain to exercise that option;
and periods covered by an option to terminate the lease
if the Company is reasonably certain not to exercise that
option. In assessing whether the Company is reasonably
certain to exercise an option to extend a lease, or not
to exercise an option to terminate a lease, it considers
all relevant facts and circumstances that create an
economic incentive for the Company to exercise the
option to extend the lease, or not to exercise the option
to terminate the lease. The Company revises the
lease term if there is a change in the non-cancellable
period of a lease.
The right-of-use asset is subsequently depreciated
using the straight-line method from the commencement
date to the earlier of the end of the useful life of the right-
of-use asset or the end of the lease term. In addition, the
right-of-use asset is periodically reduced by impairment
losses, if any, and adjusted for certain remeasurements
of the lease liability.
The lease liability is initially measured at the present
value of the lease payments that are not paid at the
commencement date, discounted using the interest
rate implicit in the lease or, if that rate cannot be readily
determined, the Company’s incremental borrowing rate.
Generally, the Company uses its incremental borrowing
rate as the discount rate.
The Company determines its incremental borrowing rate
by obtaining interest rates from various external financing
sources and makes certain adjustments to reflect the
terms of the lease and type of the asset leased.
Lease payments included in the measurement of the
lease liability comprise the following:
• fixed payments, including in-substance
fixed payments;
• variable lease payments that depend on an index or
a rate, initially measured using the index or rate as
at the commencement date;
• amounts expected to be payable under a residual
value guarantee.
• the exercise price under a purchase option that
the Company is reasonably certain to exercise,
lease payments in an optional renewal period if
the Company is reasonably certain to exercise
an extension option, and penalties for early
termination of a lease unless the Company is
reasonably certain not to terminate early.
The lease liability is measured at amortised cost using
the effective interest method. It is remeasured when
there is a change in future lease payments arising
from a change in an index or rate, if there is a change
in the Company’s estimate of the amount expected
to be payable under a residual value guarantee, if the
Company changes its assessment of whether it will
exercise a purchase, extension or termination option or
if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a
corresponding adjustment is made to the carrying
amount of the right-of-use asset, or is recorded in profit
or loss if the carrying amount of the right-of-use asset
has been reduced to zero.
Short-term leases and leases of low-value assets
The Company has elected not to recognise right-of-use
assets and lease liabilities for leases of low-value assets
and short-term leases, including IT equipment. The
Company recognises the lease payments associated
with these leases as an expense in profit or loss on a
straight-line basis over the lease term.
. Income-tax
Income-tax expenses comprises current and deferred
tax. It is recognised in profit or loss except to the extent
that it relates to an item recognised directly in equity or
in other comprehensive income.
(i) Current tax
Current tax comprises the expected tax payable
or receivable on the taxable income or loss for
the year and any adjustment to the tax payable
or receivable in respect of previous years. The
amount of current tax reflects the best estimate
of the tax amount expected to be paid or received
after considering the uncertainty, if any, related to
income taxes. It is measured using tax rates (and
tax laws) enacted or substantively enacted at the
reporting date.
Tax assets and liabilities are offset only if there is
a legally enforceable right to set off the recognised
amounts, and it is intended to realise the asset and
settle the liability on a net basis or simultaneously.
(ii) Deferred tax
Deferred tax is recognised in respect of temporary
differences between the carrying amounts of assets
and liabilities for financial reporting purposes
and the corresponding amounts used for taxation
purposes. Deferred tax is not recognised for:
- temporary differences arising on the initial
recognition of assets or liabilities in a
transaction that is not a business combination
and that affects neither accounting nor taxable
profit or loss at the time of the transaction; and
- temporary differences in relation to a right-
of-use asset and a lease liability for a specific
lease are regarded as a net package (the lease)
for the purpose of recognising deferred tax
Deferred tax assets are recognised to the extent that it
is probable that future taxable profits will be available
against which they can be used. The existence of
unused tax losses is strong evidence that future
taxable profit may not be available. Therefore, in case
of a history of recent losses, the Company recognises
a deferred tax asset only to the extent that it has
sufficient taxable temporary differences or there is
convincing other evidence that sufficient taxable profit
will be available against which such deferred tax asset
can be realised. Deferred tax assets - unrecognised
or recognised, are reviewed at each reporting date
and are recognised/ reduced to the extent that it is
probable/ no longer probable respectively that the
related tax benefit will be realised.
Deferred tax is measured at the tax rates that are
expected to apply to the period when the asset is
realised or the liability is settled, based on the laws
that have been enacted or substantively enacted
by the reporting date.
The measurement of deferred tax reflects the tax
consequences that would follow from the manner
in which the Company expects, at the reporting
date, to recover or settle the carrying amount of its
assets and liabilities.
Deferred tax assets and liabilities are offset if there
is a legally enforceable right to offset current tax
liabilities and assets, and they relate to income
taxes levied by the same tax authority on the same
taxable entity, or on different tax entities, but they
intend to settle current tax liabilities and assets on
a net basis or their tax assets and liabilities will be
realised simultaneously.
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