B.10 Provisions, Contingent Liabilities and Contingent Assets
Provisions are recognised when the Company has a present obligation (legal or constructive) as a
result of a past event, it is probable that the Company will be required to settle the obligation,
and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle
the present obligation at the end of the reporting period, taking into account the risks and
uncertainties surrounding the obligation.
When some or all of the economic benefits required to settle a provision are expected to be
recovered from a third party, a receivable is recognised as an asset if it is virtually certain that
reimbursements will be received and the amount of the receivable can be measured reliably.
Contingent liability is disclosed for possible obligations which will be confirmed only by future
events not within the control of the Company or present obligations arising from past events
where it is not probable that an outflow of resources will be required to settle the obligation or a
reliable estimate of the amount of the obligation cannot be made.
Contingent Assets are not recognized since this may result in the recognition of income that may
never be realized.
B.ll Financial instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to the
contractual provisions of the instruments.
Financial assets and financial 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 or loss) are added
to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on
initial recognition. Transaction costs directly attributable to the acquisition of financial assets or
financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
Financial assets:
All regular way purchases or sales of financial assets are recognised and derecognised on a trade
date basis. Regular way purchases or sales are purchases or sales of financial assets that require
delivery of assets within the time frame established by regulation or convention in the
marketplace.
Classification of financial assets
The financial assets are initially measured at fair value. Transaction costs that are directly
attributable to the acquisition of financial assets are added to the fair value of the financial assets
on initial recognition.
After initial recognition:
(i) Financial assets (other than investments) are subsequently measured at amortised cost using
the effective interest method.
Effective interest method is a method of calculating the amortised cost of a debt instrument and
of allocating interest income over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash receipts (including all fees and points paid or received
that form an integral part of the effective interest rate, transaction costs and other premiums or
discounts) through the expected life of the debt instrument, or, where appropriate, a shorter
period, to the net carrying amount on initial recognition.
Investments in debt instruments that meet the following conditions are subsequently measured
at amortised cost:
• The asset is held within a business model whose objective is to hold assets in order to
collect contractual cash flows; and
• the contractual terms of the instrument give rise on specified dates to cash flows that
are solely payments on principal and interest on the principal amount outstanding.
Income on such debt instruments is recognised in profit or loss and is included in the "Other
Income".
The Company has not designated any debt instruments as fair value through other
comprehensive income.
(ii) Financial assets (i.e. investments in instruments other than equity of subsidiaries) are
subsequently measured at fair value.
Such financial assets are measured at fair value at the end of each reporting period, with any
gains (e.g. any dividend or interest earned on the financial asset) or losses arising on re¬
measurement recognised in profit or loss and included in the "Other Income".
Investments in equity instruments of subsidiaries
The Company measures its investments in equity instruments of subsidiaries at cost in
accordance with Ind AS 27. At transition date, the Company has elected to continue with the
carrying value of such investments measured as per the previous GAAP and use such carrying
value as its deemed cost.
Impairment of financial assets:
A financial asset is regarded as credit impaired when one or more events that may have a
detrimental effect on estimated future cash flows of the asset have occurred. The Company
applies the expected credit loss model for recognising impairment loss on financial assets (i.e. the
shortfall between the contractual cash flows that are due and all the cash flows (discounted) that
the Company expects to receive).
De-recognition of financial assets:
The Company de-recognises a financial asset when the contractual rights to the cash flows from
the asset expire, or when it transfers the financial asset and substantially all the risks and rewards
of ownership of the asset to another party. 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 asset and an associated liability for
amounts it may have to pay. On de-recognition of a financial asset in its entirety, thedifference
between the asset's carrying amount and the sum of the consideration received and receivable is
recognised in the Statement of profit and loss.
Financial liabilities and equity instruments
Equity instruments
Equity instruments issued by the Company are classified as equity in accordance with the
substance and the definitions of an equity instrument. An equity instrument is any contract that
evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Financial liabilities
All financial liabilities are subsequently measured at amortised cost using the effective interest
method. The carrying amounts of financial liabilities that are subsequently measured at
amortised cost are determined based on the effective interest method. Interest expense that is
not capitalised as part of costs of an asset is included in the "Finance Costs".
The effective interest method is a method of calculating the amortised cost of a financial liability
and of allocating interest expense over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash payments (including all fees and points paid or
received that form an integral part of the effective interest rate, transaction costs and other
premiums or discounts) through the expected life of the financial liability, or (where appropriate)
a shorter period, to the net carrying amount on initial recognition.
De-recognition of financial liabilities
The Company de-recognises financial liabilities when, and only when, the Company's obligations
are discharged, cancelled or have expired. An exchange between with a lender of debt
instruments with substantially different terms is accounted for as an extinguishment of the
original financial liability and the recognition of a new financial liability. Similarly, a substantial
modification of the terms of an existing financial liability (whether or not attributable to the
financial difficulty of the debtor) is accounted for as an extinguishment of the original financial
liability and the recognition of a new financial liability. The difference between the carrying
amount of the financial liability derecognised and the consideration paid and payable is
recognised in profit or loss.
B. 12 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.For the purpose of calculating diluted earnings 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 are adjusted for the effects of all dilutive potential equity shares.
C. Critical Accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with Ind AS requires the Company's
Management to make judgments, estimates and assumptions about the carrying amounts of
assets and liabilities recognised in the financial statements that are not readily apparent from
other sources. The judgements, estimates and associated assumptions are based on historical
experience and other factors including estimation of effects of uncertain future events that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates (accounted on a prospective basis) and recognised in the period in which
the estimate is revised if the revision affects only that period, or in the period of the revision and
future periods of the revision affects both current and future periods.
The following are the key estimates that have been made by the Management in the process of
applying the accounting policies:
Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the balance sheet
cannot be measured based on quoted prices in active markets, their fair value are measured
using valuation techniques. The inputs to these models are taken from observable markets
where possible, but where this is not feasible, a degree of judgement is required in establishing
fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and
volatility. Changes in assumptions relating to these factors could affect the reported fair value of
financial instruments.
Allowance for doubtful trade receivables
Trade receivables do not carry any interest and are stated at their nominal value as reduced by
appropriate allowances for estimated irrecoverable amounts.
Estimated irrecoverable amounts are derived based on a provision matrix which takes into
account various factors such as customer specific risks, geographical region, product type,
currency fluctuation risk, repatriation policy of the country, country specific economic risks,
customer rating, and type of customer, etc.
Individual trade receivables are written off when the management deems them not to be
collectable.
Defined benefit plan
The cost of the defined benefit plans and other post-employment benefits and the present value
of the obligation 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, mortality rates and future
pension increases. 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 reporting date.
The parameter that is subject to change the most is the discount rate. In determining the
appropriate discount rate, the management considers the interest rates of government bonds in
currencies consistent with the currencies of the post-employment benefit obligation and
extrapolated as needed along the yield curve to correspond with the expected term of the
defined benefit obligation.
The mortality rate is based on publicly available mortality tables. Those mortality tables tend to
change only at intervals in response to demographic changes. Future salary increases are after
considering the expected future inflation rates for the country.
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