2 (B) MATERIAL ACCOUNTING POLICY
A) Property, plant and equipment
Property, plant and equipment (“”ppe””) are stated at cost less accumulated depreciation and impairment
losses. The cost of PPE comprises of its purchase price and other costs attributable to bring such assets to
its working condition for its intended use. Advances paid towards the acquisition of PPE outstanding at each
balance sheet date are disclosed as capital advances. Subsequent expenditures, if any, related to an item
of PPE are added to its book value only if they increase the future benefits from existing asset beyond its
previously assessed standard of performance.
The gain or loss arising on disposal of an asset is determined as the difference between the sale proceeds
and the carrying value of the asset, and is recognised in the statement of profit and loss.
The estimated useful lives for main categories of property, plant and equipment and intangible assets are:
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on
a straight-line basis.
B) Intangibles
Intangible assets are stated at their cost of acquisition, less accumulated amortization and impairment
losses, if any. An intangible asset is recognized, where it is probable that the future economic benefits
attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably.
Development costs are expensed as incurred unless technical and commercial feasibility of the project is
demonstrated, future economic benefits are probable, the Company has an intention and ability to complete
and use or sell the asset and the costs can be measured reliably. Cost of intangible assets which are not yet
ready for their intended use are disclosed as intangible assets under development.
C) Depreciation and amortisation of property, plant and equipment and intangible assets
Depreciation on PPE is provided on SLM method over the useful lives of assets prescribed under
Schedule II of the Act. In respect of additions, depreciation is provided on pro-rata basis from the date
of acquisition/installation. SLM of all assets acquired prior to 1 April 2014 is being depreciated over their
remaining useful life as prescribed in Schedule II of the Act. Leasehold improvements are depreciated
over the period of original lease taking into account any subsequent modifications to the lease term.
The amortisation period and the amortisation method for an intangible asset are reviewed at least at the end
of each reporting period.
D) Government Grants
Grants from the government are recognised at their fair value where there is a reasonable
assurance that the grant will be received and the Company will comply with all attached conditions.
Government grants relating to income are deferred and recognised in the profit or loss over the period necessary
to match them with the costs that they are intended to compensate and presented within other operating income.
Government grants relating to the acquisition/ construction of property, plant and equipment are included in
non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the
expected lives of the related assets and presented within other operating income.
E) Impairment
At each balance sheet date, the Company reviews the carrying values of its property, plant and equipment
and intangible assets to determine whether there is any indication that the carrying value of those assets may
not be recoverable through continuing use. If any such indication exists, the recoverable amount of the asset
is reviewed in order to determine the extent of impairment loss (if any). Where the asset does not generate
cash flows that are independent from other assets, the Company estimates the recoverable amount of the
cash generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell 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. An impairment loss is recognised in the statement
of profit and loss as and when the carrying value of an asset exceeds its recoverable amount.
Where an impairment loss subsequently reverses, the carrying value of the asset (or cash generating unit)
is increased to the revised estimate of its recoverable amount so that the increased carrying value does not
exceed the carrying value 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 in the statement
of profit and loss immediately.
F) Leases
Ind AS 116 requires lessees to determine the lease term as the non-cancellable period of a lease adjusted with
any option to extend or terminate the lease, if the use of such option is reasonably certain. The Company makes an
assessment on the expected lease term on a lease-by-lease basis and thereby assesses whether it is reasonably
certain that any options to extend or terminate the contract will be exercised. In evaluating the lease term, the
Company considers factors such as any significant leasehold improvements undertaken over the lease term,
costs relating to the termination of the lease and the importance of the underlying asset to Company’s operations
taking into account the location of the underlying asset and the availability of suitable alternatives. The lease
term in future periods is reassessed to ensure that the lease term reflects the current economic circumstances.
Leases are classified as finance leases where the terms of the lease transfers substantially all the risks and
rewards of ownership to the lessee. All other leases are classified as operating leases.
The Company as lessee
(i) Operating lease - Rentals payable under operating leases are charged to the statement of profit and
loss on a straight line basis over the term of the relevant lease unless another systematic basis is more
representative of the time pattern in which economic benefits from the leased asset are consumed.
Contingent rentals arising under operating leases are recognised as an expense in the period in
which they are incurred. In the event that lease incentives are received to enter into operating leases,
such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a
reduction of rental expense on a straight line basis, except where another systematic basis is more
representative of the time pattern in which economic benefits from the leased asset are consumed.
(ii) Finance lease - Finance leases are capitalised at the commencement of lease, at the lower
of the fair value of the property or the present value of the minimum lease payments. The
corresponding liability to the lessor is included in the balance sheet as a finance lease
obligation. Lease payments are apportioned between finance charges and reduction of the lease
obligation so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are recognised in the statement of profit and loss over the period of the lease.
G) Financial instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual
provisions of the instrument. Financial assets and liabilities are initially measured at fair value. Transaction
costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other
than financial assets and financial liabilities at fair value through profit and loss) are added to or deducted
from the fair value measured on initial recognition of financial asset or financial liability. The transaction costs
directly attributable to the acquisition of financial assets and financial liabilities at fair value through profit and
loss are immediately recognised in the statement of profit and loss.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial instrument and of
allocating interest income or expense over the relevant period. The effective interest rate is the rate that
exactly discounts future cash receipts or payments through the expected life of the financial instrument, or
where appropriate, a shorter period.
a) Financial assets
Cash and bank balances
Cash and bank balances consist of:
(i) Cash and cash equivalents - which includes cash in hand, deposits held at call with banks and
other short term deposits which are readily convertible into known amounts of cash, are subject to an
insignificant risk of change in value and have maturities of less than three months from the date of
such deposits. These balances with banks are unrestricted for withdrawal and usage.
(ii) Other bank balances - which includes balances and deposits with banks that are restricted for
withdrawal and usage or have maturities of more than three months but less than one year from the
date of such deposits.
Financial assets at amortised cost
Financial assets are subsequently measured at amortised cost if these financial assets are held within a
business model whose objective is to hold these assets 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.
Financial assets measured at fair value
Financial assets are measured at fair value through other comprehensive income if these financial assets are
held within a business model whose objective is to hold these assets in order to collect contractual cash flows
or to sell these 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.
The Company in respect of equity investments (other than in subsidiaries, associates and joint ventures)
which are not held for trading has made an irrevocable election to present in other comprehensive income
subsequent changes in the fair value of such equity instruments. Such an election is made by the Company
on an instrument by instrument basis at the time of initial recognition of such equity investments.
Financial asset not measured at amortised cost or at fair value through other comprehensive income is
carried at fair value through the statement of profit and loss.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and
recognition of impairment loss on the following financial assets:
• Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt
securities, deposits and trade receivables
• Financial assets that are debt instruments and are measured as at FVTOCI
• Trade receivables or any contractual right to receive cash or another financial asset that result from
transactions that are within the scope of Ind AS 18.
The Company follows ‘simplified approach’ for recognition of impairment loss allowance on trade receivables.
The application of simplified approach does not require the Company to track changes in credit risk. Rather,
it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial
recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines
that whether there has been a significant increase in the credit risk since initial recognition. If credit risk
has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk
has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument
improves such that there is no longer a significant increase in credit risk since initial recognition, the Company
reverts to recognising impairment loss allowance based on 12-month ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life
of a financial instrument. The 12-month ECL is a portion of the lifetime ECL which results from default events
that are possible within 12 months after the reporting date. ECL is the difference between all contractual
cash flows that are due to the Company in accordance with the contract and all the cashflows that the entity
expects to receive (i.e., all cash shortfalls), discounted at the original EIR.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/expense
in the statement of profit and loss. This amount is reflected under the head ‘other expenses’ in the statement
of profit and loss. The balance sheet presentation for various financial instruments is described below:
Financial assets measured as at amortised cost: ECL is presented as an allowance, i.e., as an integral
part of the measurement of those assets in the balance sheet. The allowance reduces the net carrying
amount. Until the asset meets write-off criteria, the Company does not reduce impairment allowance from the
gross carrying amount.
Debt instruments measured at FVTOCI: Since financial assets are already reflected at fair value, impairment
allowance is not further reduced from its value. Rather, ECL amount is presented as ‘accumulated impairment
amount’ in the OCI.
For assessing increase in credit risk and impairment loss, the Company combines financial instruments on
the basis of shared credit risk characteristics with the objective of facilitating an analysis that is designed to
enable significant increases in credit risk to be identified on a timely basis.
The Company does not have any purchased or originated credit-impaired (POCI) financial assets, i.e.,
financial assets which are credit impaired on purchase/ origination.
Derecognition of financial assets
The Company de-recognises a financial asset only when the contractual rights to the cash flows from the
asset expire, or it transfers the financial asset and substantially all risks and rewards of ownership of the
asset to another entity.
If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues
to control the transferred asset, the Company recognises its retained interest in the assets and an associated
liability for amounts it may have to pay.
If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset,
the Company continues to recognise the financial asset and also recognises a collateralised borrowing for
the proceeds received.
b) Financial liabilities and equity instruments
Classification as debt or equity
Financial liabilities and equity instruments issued by the Company are classified according to the substance of
the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after
deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue
costs.
Financial Liabilities
Financial liabilities are classified, at initial recognition, as at fair value through profit or loss, payables or as
appropriate. All financial liabilities are recognized initially at fair value and, in the case of payables, net of
directly attributable transaction costs.
Interest bearing bank loans, overdrafts and issued debt are initially measured at fair value and are subsequently
measured at amortised cost using the effective interest rate method. Any difference between the proceeds
(net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the
borrowings in the statement of profit and loss.
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the Company’s obligations are
discharged, cancelled or they expire.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a
legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or
realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent
on future events and must be enforceable in the normal course of business and in the event of default,
insolvency or bankruptcy of the counterparty.
Derivative financial instruments
In the ordinary course of business, the Company uses certain derivative financial instruments to reduce
business risks which arise from its exposure to foreign exchange and interest rate fluctuations. The instruments
are confined principally to forward foreign exchange contracts and interest rate swaps. The instruments are
employed as hedges of transactions included in the financial statements or for highly probable forecast
transactions/firm contractual commitments. These derivatives contracts do not generally extend beyond six
months except for interest rate derivatives.
Derivatives are initially accounted for and measured at fair value from the date the derivative contract is
entered into and are subsequently re-measured to their fair value at the end of each reporting period.
H) Employee benefits
Defined benefit plans
The liability recognised in the balance sheet in respect of defined benefit gratuity plans is the present value
of the defined benefit obligation at the end of the reporting period. The defined benefit obligation is calculated
annually by actuaries using the projected unit credit method
The present value of the defined benefit obligation is determined by discounting the estimated future cash
outflows by reference to market yields at the end of the reporting period on government bonds that have
terms approximating to the terms of the related obligation.
The net interest cost is calculated by applying the discount rate to the defined benefit obligation. This cost is
included in employee benefit expense in the Statement of Profit and Loss.
Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions
are recognised in the period in which they occur, directly in other comprehensive income and is not reclassified
to the statement of profit and loss. Defined benefit costs are categorised as follows:
- Service cost (including current service cost, past service cost, as well as gains and losses on
curtailments and settlements);
- Net interest expense; and
- Remeasurement
The Company presents the first two components of defined benefit costs in the Statement of Profit and Loss
in the line item ‘Employee benefits expenses’.
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