Provisions, contingent liabilities and contingent assets
Provisions are recognized when there is a present obligation as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation and there is a reliable estimate of the
amount of the obligation. Provisions are measured at the best estimate of the expenditure required to settle the present
obligation at the Balance sheet date. Provisions are discounted to their present values, where the time value of money is
material.
Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which
will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the
control of the Company or a present obligation that arises from past events where it is either not probable that an outflow
of resources will be required to settle or a reliable estimate of the amount cannot be made. Contingent assets are neither
recognized nor disclosed except when realisation of income is virtually certain, related asset is disclosed.
2.10 Cash and cash equivalents including Statement of Cash Flows
Cash and cash equ ivalent in the balance sheet comprise cash at banks and cash on hand wh ich are subject to an insignificant
risk of changes in value.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and balances with banks, as
defined above as they are considered an integral part of the company's cash management process.
2.11 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.
(a) Financial assets
(i) Initial recognition and measurement
At initial recognition, financial asset is measured at its fair value plus, in the case of a financial asset not at fair
value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.
(ii) Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in following categories:
a) at amortized cost; or
b) at fair value through other comprehensive income; or
c) at fair value through profit or loss.
The classification depends on the entity's business model for managing the financial assets and the contractual
terms of the cash flows.
Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent
solely payments of principal and interest are measured at amortized cost. Interest income from these financial
assets is included in finance income using the effective interest rate method (EIR).
Fair value through other comprehensive income (FVOCI): Assets that are held for collection of contractual cash
flows and for selling the financial assets, where the assets' cash flows represent solely payments of principal and
interest, are measured at fair value through other comprehensive income (FVOCI). Movements in the carrying
amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue and
foreign exchange gains and losses which are recognized in Statement of Profit and Loss. When the financial
asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to
Statement of Profit and Loss and recognized in other gains/ (losses). Interest income from these financial assets
is included in other income using the effective interest rate method.
Fair value through profit or loss (FVTPL): Assets that do not meet the criteria for amortized cost or FVOCI are
measured at fair value through profit or loss. Interest income from these financial assets is included in other
income.
Equity instruments: All equity investments within the scope of Ind AS 109 are measured at fair value. Equity
instruments included within the FVTPL category are measured at fair value with all changes recognized in
the statement of profit and loss. The Company has currently exercised the irrevocable option to classify its
investment in Mutual Funds as Fair Value through Profit and Loss (FVTPL).
(iii) Impairment of financial assets
In accordance with Ind AS 109, Financial Instruments, the Company applies expected credit loss (ECL) model
for measurement and recognition of impairment loss on financial assets that are measured at amortized cost.
For recognition of impairment loss on 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
sign ificantly, lifetime ECL is used. If in subsequent years, credit qual ity of the instrument improves such that there
is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognizing
impairment loss allowance based on 1 2 month ECL.
Life time ECLs are the expected credit losses resulting from all possible default events over the expected life of
a financial instrument. The 1 2 month ECL is a portion of the lifetime ECL which results from default events that
are possible within 12 months after the year end.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the
contract and all the cash flows that the entity expects to receive (i.e. all shortfalls), discounted at the original EIR.
When estimating the cash flows, an entity is required to consider all contractual terms of the financial instrument
(including prepayment, extension etc.) over the expected life of the financial instrument.
ECL impairment loss allowance/reversal recognized during the year is recognized as income/expense in the
statement of profit and loss. In balance sheet ECL for financial assets measured at amortized cost is presented as
an allowance, i.e. as an integral part of the measurement of those assets in the balance sheet.
(iv) Derecognition of financial assets
A financial asset is derecognized only when
a) the rights to receive cash flows from the financial asset is transferred or
b) the company retains the contractual rights to receive the cash flows of the financial asset, but assumes a
contractual obligation to pay the cash flows to one or more recipients.
Where the financial asset is transferred then in that case financial asset is derecogn ized only if substantially
all risks and rewards of ownership of the financial asset is transferred. Where the entity has not transferred
substantially all risks and rewards of ownersh ip of the financial asset, the financial asset is not derecognized.
(b) Financial liabilities
(i) Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss
and at amortized cost, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of borrowings and payables, net of
directly attributable transaction costs.
(ii) Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at lair value through protit 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. 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 recognized in the Statement of Profit and Loss.
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost
using the EIR method. Gains and losses are recognized in Statement of Profit and Loss when the liabilities
are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into
account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR
amortization is included as finance costs in the Statement of Profit and Loss.
(iii) Derecognition
A financial liability is derecognized 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 recognized in the Statement of Profit and Loss as finance costs.
2.12 Employee Benefits
(a) Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits that are expected to be settled wholly within
12 months after the end of the year in which the employees render the related service are recognized in respect
of employees' services up to the end of the year and are measured at the amounts expected to be paid when the
liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet.
(b! Other long-term employee benefit obligations
(ij Defined contribution plan
Provident Fund: Contribution towards provident fund is made to the regu latory authorities, where the Company
has no further obligations. Such benefits are classified as Defined Contribution Schemes as the Company does
not carry any further obligations, apart from the contributions made on a monthly basis which are charged to
the Statement of Profit and Loss.
Employee's State Insurance Scheme: Contribution towards employees' state insurance scheme is made to the
regulatory authorities, where the Company has no further obligations. Such benefits are classified as Defined
Contribution Schemes as the Company does not carry any further obligations, apart from the contributions made
on a monthly basis which are charged to the Statement of Profit and Loss.
(ii) Defined benefit plans
Gratuity: The Company provides for gratuity, a defined benefit plan (the 'Gratuity Plan") covering eligible
employees in accordance with the Payment of Gratuity Act, 1972. The Gratuity Plan provides a lump sum
payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount
based on the respective employee's salary. The Company's I iabi lity is actuarially determined (using the Projected
Unit Credit method) at the end of each year. Actuarial losses/gains are recognized in the other comprehensive
income in the year in which they arise.
Compensated Absences: Accumulated compensated absences, which are expected to be availed or encashed
within 1 2 months from the end of the year are treated as short term employee benefits. The obligation towards
the same is measured at the expected cost of accumulating compensated absences as the additional amount
expected to be paid as a result of the unused entitlement as at the year end.
Accumulated compensated absences, which are expected to be availed or encashed beyond 12 months
from the end of the year end are treated as other long term employee benefits. The Company's liability is
actuarially determined (using the Projected Unit Credit method) at the end of each year. Actuarial losses/gains
are recognized in the statement of profit and loss in the year in which they arise. Leaves under defined benefit
plans can be encashed only on discontinuation of service by employee.
2.13 Contributed equity
Equity shares are classified as equity share capital.
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.
2.14 Earnings Per Share
Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders by the
weighted average number of equity shares outstanding during the year. Earnings considered in ascertaining the Company's
earnings per share is the net profit or loss for the year after deducting interest on preference shares and any attributable
tax thereto for the year. The weighted average number of equity shares outstanding during the year and for all the years
presented is adjusted for events, such as bonus shares, other than the conversion of potential equity shares, that have
changed the number of equity shares outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earn ings per share, the net profit or loss for the year attributable to equity shareholders
and the weighted average number of shares outstanding during the year is adjusted for the effects of all dilutive potential
equ ity shares.
2.15 Borrowing costs
Borrowing costs directly attributable to the acquisition and/or construction of a qualifying asset are capitalized during the
period of time that is necessary to complete and prepare the asset for its intended use or sale. A qualifying asset is one that
necessarily takes substantial period of time to get ready for its intended use. All other borrowing costs are charged to the
statement of profit or loss as incurred
3 Significant accounting judgments, estimates and assumptions
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the
reported amounts of revenues, expenses, assets and liabi lities, and the accompanying disclosures, and the disclosure of contingent
liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the
carrying amount of assets or liabilities affected in future years.
3.1 Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the year end date, that have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year, are described below. The Company based its assumptions and estimates on parameters available when the financial
statements were prepared. Existing circumstances and assumptions about future developments, however, may change due
to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the
assumptions when they occur.
(a) Defined benefit plans (gratuity benefits and leave encashment)
The cost of the defined benefit plans such as gratuity and leave encashment are determined using actuarial
valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in
the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to
the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to
changes in these assumptions. All assumptions are reviewed at each year end.
The principal assumptions are the discount and salary growth rate. The discount rate is based upon the market yields
available on government bonds at the accounting date with a term that matches that of liabilities. Salary increase rate
takes into account of inflation, seniority, promotion and other relevant factors on long term basis.
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