k. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Provisions involving substantial degree of estimation in measurement are recognized
when there is a present obligation as a result of past events, and it is probable that
there will be an outflow of resources. Contingent liabilities are not recognized but
are disclosed in the notes. Contingent assets are neither recognized nor disclosed in
the financial statements.
l. 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
Initial 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 market place (regular way trades) are recognised on the trade
date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent Measurement:
Subsequent measurement is determined with reference to the classification of the
respective financial assets and the contractual cash flow characteristic of the
financial assets, the company classifies financial assets as subsequently measured at
amortized cost, fair value through other comprehensive income or fair value through
profit and loss.
Financial Assets carried at amortised cost
A financial asset is 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
Financial Assets at fair value through other Comprehensive Income (FVOCI)
A financial asset is measured at FVOCI 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.
Financial Assets at fair value through profit or loss (FVTPL)
A financial asset which is not classified in any of the above categories are measured
at FVTPL
Debt instruments included within the FVTOCI category are measured at fair value
with all changes recognized in profit and loss. However currently the company does
not have any financial instrument in this category.
Equity Investment
All equity investments in scope of Ind AS 109 are measured at fair value except
unquoted equity investments which are stated at cost. Equity instruments which are
held for trading are classified as at FVTPL. For other equity instruments, the company
decides to classify the same either as at FVTOCI or FVTPL. The company makes such
election on an instrument by instruments basis. The Classification is made on initial
recognition and is irrevocable.
If the company decides to classify an equity instrument as at FVTOCI, all fair value
changes on the instrument, excluding dividends are recognized in other
comprehensive income. There is no recycling of the amount from other
comprehensive income to profit and loss even on sale of investment. However, the
company may transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value
with all changes recognized in the profit or loss.
m. FAIR VALUE MEASUREMENT
The Company measures financial assets and financial liability at fair value at each
balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement
date. The fair value measurement is based on the presumption that the transaction
to sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability, or
- In the absence of a principal market, in the most advantageous market for the asset
or liability
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market
participants would use when pricing the asset or liability, assuming that market
participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market
participant's ability to generate economic benefits by using the asset in its highest
and best use or by selling it to another market participant that would use the asset in
its highest and best use. The Company uses valuation techniques that are
appropriate in the circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable inputs and minimising
the use of unobservable inputs.
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.
The Management analyses the movements in the values of assets and liabilities
which are required to be remeasured or re-assessed as per the Company's
accounting policies. For this analysis, the Management verifies the major inputs
applied in the latest valuation by agreeing the information in the valuation
computation and other relevant documents.
o. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Financial Risk Factors
The Company's financial risk management is an integral part of how to plan and
execute its business strategies. The Company's overall risk management program
focuses on the unpredictability of financial markets and seeks to minimise potential
adverse effects on the financial performance of the Company.
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates,
interest rates and equity prices will affect the Company's income or the value of its
holdings of financial instruments. The objective of market risk management is to
manage and control market risk exposures within acceptable parameters, while
optimising the return.
Interest Rate Risk
The Company has financial assets which are at fixed interest rates and is therefore
not exposed to the risks associated with the effects of fluctuation in interest rates.
Foreign Exchange Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange rates. As the
company does not deal in forex transaction, there is not foreign risk.
Credit Risk
Credit Risk represents the potential loss that the Company would incur if counter
parties fail to perform pursuant to the terms of their obligations to the Company.
The Company limits its credit risk by carrying out transactions. The maximum
exposure to credit risk is represented by the carrying amount of each financial asset
in the statement of financial position.
There is no risk in terms of Bank Balances, since the counterparty is a reputable bank
with high quality external credit ratings.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial
obligations as they fall due. The Company's approach to managing liquidity is to
ensure, as far as possible, that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Company's reputation. The Company
manages liquidity risk by maintaining adequate reserves, by continuously monitoring
forecast and actual cash flows and matching the maturity profiles of the financial
assets and liabilities.
Derecognition of financial assets
The Company has elected to apply the derecognition requirements for financial
assets and financial liabilities in Ind AS 109 prospectively for transactions occurring
on or after the date of transition to Ind AS.
Classification and movement of financial assets and liabilities
The Company has classified the financial assets and liabilities in accordance with Ind
AS 109 on the basis of facts and circumstances that existed at the date on transition
to Ind AS.
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