Provisions, contingent assets and contingent liabilities
A provision is recognized when:
• the Company has 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
• a reliable estimate can be made of the
amount of the obligation.
A disclosure for a contingent liability is made
when there is a possible obligation or a present
obligation that may, but probably will not,
require an outflow of resources. Where there is
a possible obligation or a present obligation that
the likelihood of outflow of resources is remote,
no provision or disclosure is made.
(xiii) Earnings per share
Basic earnings per share are calculated by
dividing the net profit for the year attributable to
equity shareholders by the weighted average
number of equity shares outstanding during the
year.
For the purpose of calculating diluted earnings
per share, the net profit for the year
attributable to equity shareholders and the
weighted average number of shares outstanding
during the year are adjusted for the effects of all
dilutive potential equity shares.
(xiv) Leases
The company follows INDAS 116. In accordance
with INDAS 116, the company recognises right
of use assets representing its right to use the
underlying asset for the lease term at the lease
commencement date. The cost of right of use
asset measured at inception shall comprise of
the amount of the initial measurement of the
lease liability adjusted for any lease payments
made at or before commencement date less any
lease incentive received plus any initial direct cost
incurred and an estimate of cost to be incurred
by lessee in dismantling and removing underlying
asset or restoring the underlying asset or site
on which it is located. The right of use asset is
subsequently measured at cost less accumulated
depreciation, accumulated impairment losses,
if any, and adjusted for any re-measurement
of lease liability. The right of use assets is
depreciated using the Straight Line Method
from the commencement date over the charter
of lease term or useful life of right of use asset.
The estimated useful life of right of use assets
are determined on the same basis as those of
Property, Plant and Equipment. Right of use
asset are tested for impairment whenever there
is any indication that their carrying amounts may
not be recoverable. Impairment loss, if any, is
recognised in Statement of Profit and Loss.
The company measures the lease liability at the
present value of the lease payments that are not
paid at the commencement date of lease. The
lease payments are discounted using the interest
rate implicit in the lease, if that rate can be
readily determined. If that rate cannot be readily
determined, the company uses incremental
borrowing rate.
The lease liability is subsequently re-measured
by increasing the carrying amount to reflect
interest on lease liability, reducing the carrying
amount to reflect the lease payments made and
re-measuring the carrying amount to reflect any
reassessment or lease modification or to reflect
revised-in-substance fixed lease payments. The
company recognises amount of re-measurement
of lease liability due to modification as an
adjustment to write off use asset and statement
of profit and loss depending upon the nature
of modification. Where the carrying amount of
right of use assets is reduced to zero and there
is further reduction in measurement of lease
liability, the company recognises any remaining
amount of the re-measurement in Statement of
Profit and Loss.
The company has elected not to apply the
requirements of INDAS 116 to short term leases
of all assets that have a lease term of 12 months
or less unless renewable on long term basis and
leases for which the underlying asset is of low
value. The lease payments associated with these
leases are recognised as an expense over lease
term.
Company as a lessor leases in which the Company
does not transfer substantially all the risks and
rewards of ownership of an asset are classified as
operating leases. Rental income from operating
lease is recognised on a straight-line basis over
the term of the relevant lease. 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. Fit- out rental
income is recognised in the statement of profit
and loss on accrual basis.
Leases are classified as finance leases when
substantially all of the risks and rewards
of ownership transfer from the Company to
the lessee. Amounts due from lessees under
finance leases are recorded as receivables at the
Company's net investment in the leases. Finance
lease income is allocated to accounting periods
so as to reflect a constant periodic rate of return
on the net investment outstanding in respect of
the lease.
(xv) Income Taxes
i. Provision for current tax is made based
on the tax payable under the Income Tax
Act, 1961. Current income tax relating to
items recognised outside profit and loss is
recognised outside profit and loss (either in
other comprehensive income or in equity).
ii. Deferred tax is recognised on temporary
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.
Deferred tax liabilities and assets are
measured at the tax rates that are expected
to apply in the period in which the liability
is settled or the asset realised, based on
tax rates (and tax laws) that have been
enacted or substantively enacted by the
end of the reporting period. The carrying
amount of deferred tax liabilities and assets
are reviewed at the end of each reporting
period.
(xvi) Cash and Cash Equivalent
Cash and Cash equivalent in the balance sheet
comprises cash at bank and cash on hand,
demand deposits and short term deposits which
are subject to an insignificant change in value.
The amendment to INDAS-7 requires entities
to provide disclosure of change in the liabilities
arising from financing activities, including both
changes arising from cash flows and non cash
changes (such as foreign exchange gain or loss).
The Company has provided information for both
current and comparative period in cash flow
statement.
(xvii) Significant management judgement in applying
accounting policies and estimation of
uncertainty
(a) significant management judgements
When preparing the financial statements,
management undertakes a number of
judgements, estimates and assumptions
about the recognition and measurement of
assets, liabilities, income and expenses.
(b) Recognition of deferred tax assets
The extent to which deferred tax assets can
be recognized is based on an assessment
of the probability of the Company's future
taxable income against which the deferred
tax assets can be utilized.
(c) Recoverability of advances/receivables
At each balance sheet date, based on
historical default rates observed over
expected life, the management assesses
the expected credit loss on outstanding
receivables and advances.
(d) Defined benefit obligation (DBo)
Management's estimate of the DBO is
based on a number of critical underlying
assumptions such as standard rates of
inflation, medical cost trends, mortality,
discount rate and anticipation of future
salary increases. Variation in these
assumptions may significantly impact the
DBO amount and the annual defined benefit
expenses.
(e) provisions
At each balance sheet date based on
management judgment, changes in facts
and legal aspects, the Company assesses
the requirement of provisions against the
outstanding warranties and guarantees.
However the actual future outcome may be
different from this judgement.
(f) Inventories
Inventory is stated at the lower of cost or
net realisable value (NRV).
NRV for completed inventory is assessed
including but not limited to market
conditions and prices existing at the
reporting date and is determined by the
Company based on net amount that it
expects to realise from the sale of inventory
in the ordinary course of business.
NRV in respect of inventories under
construction is assessed with reference
to market prices (by referring to expected
or recent selling price) at the reporting
date less estimated costs to complete the
construction, and estimated cost necessary
to make the sale. The costs to complete the
construction are estimated by management.
(g) Revenue from contracts with customers
The Company has appli ed judg ements
that significantly affect the determination
of the amount and timing of revenue from
contracts with customers.
(h) Lease
The Company evaluates if an arrangement
qualifies to be a lease as per the
requirements of INDAS 116. Identification
of a lease requires significant judgement.
The company uses significant judgement
in assessing the lease term (including
anticipated renewals) and the applicable
discount rate.
The company determines the lease term
as the non-cancellable period of 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 exercise whether the company is
reasonably certain to exercise an option to
extend a lease or to exercise an option to
terminate the 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 to
exercise the option to terminate the lease.
The company revises lease term, if there is
change in non-cancellable period of lease.
The discount rate used is generally based
on incremental borrowing rate.
(i) Fair value measurements
Management applies valuation techniques
to determine the fair value of financial
instruments (where active market quotes
are not available) and non-financial assets.
This involves developing estimates and
assumptions consistent with how market
participants would price the instrument /
assets. Management bases its assumptions
on observable date as far as possible but
this may not always be available. In that
case Management uses the best relevant
information available. Estimated fair values
may vary from the actual prices that would
be achieved in an arm's length transaction
at the reporting date.
(j) classification of assets and liabilities into
current and non-current
The Management classifies assets and
liabilities into current and non-current
categories based on its operating cycle.
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