a) Change in accounting policy
Presentation and disclosure of financial statements During the year
ended March 31, 2012 the revised Schedule VI notified under the
Companies Act 1956, has become applicable to the Company, for
preparation and presentation of its financial statements. The adoption
of revised Schedule VI does not impact recognition and measurement
principles followed by the Company for preparation of financial
statements. However, it has significant impact on presentation and
disclosures made in the financial statements. The Company has also
reclassified the previous year figures in accordance with the
requirements applicable in the current year
b) use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period. Although these estimates are based upon management''s best
knowledge of current events and actions, actual results could differ
from these estimates. Significant estimates used by the management in
the preparation of these financial statements include computation of
percentage completion for projects in progress, project cost, revenue
and saleable area estimates, classification of assets and liabilities
into current and non-current, estimates of the economic useful lives of
fixed assets, provisions for bad and doubtful debts. Any revision to
accounting estimates is recognised prospectively
c) Tangible and Intangible fixed assets
i. Tangible fixed assets
Tangible fixed assets are stated at cost, less accumulated depreciation
and impairment losses, if any. Cost comprises the purchase price and
any attributable cost of bringing the asset to its working condition
for its intended use. Any trade discounts and rebates are deducted in
arriving at the purchase price.
Borrowing costs directly attributable to acquisition of fixed assets
which take substantial period of time to get ready for its intended use
are also included to the extent they relate to the period till such
assets are ready to be put to use.
Gains or losses arising from derecognition of fixed assets are measured
as the difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in the statement of profit and
loss when the asset is derecognized.
ii. Intangible fixed assets
Intangible assets acquired separately are measured on initial
recognition at cost. Following initial recognition, intangible assets
are carried at cost less accumulated amortization and accumulated
impairment losses, if any. Intangible assets are amortized on a
straight line basis over a period of 3 years, which is estimated to be
the useful life of the asset.
d) Depreciation on tangible fixed assets
Depreciation on assets, other than those described below, is provided
using written down value method at the rates prescribed under schedule
XIV of the Companies Act, 1956, which is also estimated by the
management to be the estimated useful lives of the assets.
Steel scaffolding items are depreciated using straight line method over
a period of 6 years, which is estimated to be the useful life of the
Assets individually costing less than or equal to Rs 5,000 are fully
depreciated in the year of purchase Leasehold land where title does not
pass to the Company and leasehold improvements are amortised over the
remaining primary period of lease or their estimated useful life,
whichever is shorter, on a straight-line basis.
e) Impairment of tangible and intangible assets
The Company assesses at each reporting date whether there is any
indication that an asset may be impaired. If any indication exists, the
Company estimates the asset''s recoverable amount. An asset''s
recoverable amount is the higher of an asset''s or cash-generating
unit''s (CGU) net selling price and its value in use. The recoverable
amount is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other
assets or groups of assets. Where the carrying amount of an asset or
CGU exceeds its recoverable amount, the asset is considered impaired
and is written down to its recoverable amount. 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. In determining net selling price, recent market transactions are
taken into account, if available. If no such transactions can be
identified, an appropriate valuation model is used. Impairment losses,
including impairment on inventories, are recognised in the statement of
profit and loss.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life
Where the Company is lessee Finance leases, which effectively transfer
to the Company substantially all the risks and benefits incidental to
ownership of the leased asset, are capitalized at the lower of the fair
value and present value of the minimum lease payments at the inception
of the lease term and disclosed as leased assets Lease payments are
apportioned between the finance charges and reduction of the lease
liability based on the implicit rate of return. Finance charges are
recognized as finance costs in the statement of profit and loss.
A leased asset is depreciated on a straight-line basis over the lower
of the lease term or the estimated useful life of the asset unless
there is reasonable certainty that the Company will obtain ownership,
wherein such assets are depreciated over the estimated useful life of
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased term, are classified as
operating leases. Operating lease payments are recognized as an
expense in the statement of profit and loss on a straight-line basis
over the lease term.
Investments that are readily realisable and intended to be held for not
more than a year are classified as current investments. All other
investments are classified as long-term investments.
On initial recognition, all investments are measured at cost. The cost
comprises purchase price and directly attributable acquisition charges
such as brokerage, fees and duties. If an investment is acquired, or
partly acquired, by the issue of shares or other securities, the
acquisition cost is the fair value of the securities issued.
Current investments are carried at lower of cost and fair value
determined on an individual investment basis. Long-term investments are
carried at cost. However, provision for diminution in value is made to
recognise a decline other than temporary in the value of the
On disposal of an investment, the difference between its carrying
amount and net disposal proceeds is charged or credited to the
statement of profit and loss.
Related to contractual and real estate activity Direct expenditure
relating to construction activity is inventorised. Other expenditure
(including borrowing costs) during construction period is inventorised
to the extent the expenditure is directly attributable cost of bringing
the asset to its working condition for its intended use. Other
expenditure (including borrowing costs) incurred during the
construction period which is not directly attributable for bringing the
asset to its working condition for its intended use is charged to the
statement of profit and loss. Direct and other expenditure is
determined based on specific identification to the construction and
real estate activity. Cost incurred/ items purchased specifically for
projects are taken as consumed as and when incurred/ received.
i. Work-in-progress - Contractual: Cost of work yet to be certified/
billed, as it pertains to contract costs that relate to future activity
on the contract, are recognised as contract work-in-progress provided
it is probable that they will be recovered. Contractual
work-in-progress is valued at lower of cost and net realisable value.
ii. Work-in-progress - Real estate projects (including land
inventory): Represents cost incurred in respect of unsold area of the
real estate development projects or cost incurred on projects where the
revenue is yet to be recognised. Real estate work-in- progress is
valued at lower of cost and net realisable value.
iii. Finished goods - Flats: Valued at lower of cost and net realisable
iv. Finished goods - Plots: Valued at lower of cost and net realisable
v. Building materials purchased, not identified with any specific
project are valued at lower of cost and net realisable value. Cost is
determined based on a weighted average basis.
vi. Land inventory: Valued at lower of cost and net realisable value.
Land inventory which is under development or held for development/ sale
in near future is classified as current asset. Land which held for
undetermined use or for future development is classified as non current
Related to manufacturing activity
i. Raw materials are valued at lower of cost and net realisable value.
Cost is determined based on a weighted average basis.
ii. Work-in-progress and finished goods are valued at lower of cost
and net realisable value. Cost includes direct materials and labour and
a proportion of manufacturing overheads based on normal operating
capacity. Cost of finished goods includes excise duty.
Net realisable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated
costs necessary to make the sale. However, inventory held for use in
production of finished goods is not written down below cost if the
finished products in which they will be incorporated are expected to be
sold at or above cost.
i) Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured. Revenue from operations (gross) is net of sales tax/
value added tax and adjustments on account of cancellation/ returns.
Excise duty deducted from revenue (gross) is the amount that is
included in the revenue (gross) and not the entire amount of liability
arising during the year.
i. Recognition of revenue from contractual projects
If the outcome of contractual contract can be reliably measured,
revenue associated with the construction contract is recognised by
reference to the stage of completion of the contract activity at year
end (the percentage of completion method). The stage of completion on
a project is measured on the basis of completion of a physical
proportion of the contract work/ based upon the contracts/ agreements
entered into by the Company with its customers.
ii. Recognition of revenue from real estate projects
Revenue from real estate projects is recognised when it is reasonably
certain that the ultimate collection will be made and that there is
buyers'' commitment to make the complete payment.
The following specific recognition criteria must also be met before
revenue is recognized:
a. Recognition of revenue from property development
Recognition of revenue from construction activity
Revenue from real estate under development/ sale of developed property
is recognised upon transfer of all significant risks and rewards of
ownership of such real estate/ property, as per the terms of the
contracts entered into with buyers, which generally coincides with the
firming of the sales contracts/ agreements, except for contracts where
the Company still has obligations to perform substantial acts even
after the transfer of all significant risks and rewards.
In such cases, the revenue is recognised on percentage of completion
method, when the stage of completion of each project reaches a
reasonable level of progress. Revenue is recognised in proportion that
the contract costs incurred for work performed up to the reporting date
bear to the estimated total contract costs. Land costs are not
included for the purpose of computing the percentage of completion.
Recognition of revenue from sale of undivided share of land [group
Revenue from sale of undivided share of land [group housing] is
recognised upon transfer of all significant risks and rewards of
ownership of such real estate/ property, as per the terms of the
contracts entered into with buyers, which generally coincides with the
firming of the sales contracts/ agreements and/ or minimum level of
collection of dues from the customer
Recognition of revenue from sale of villa plots
Revenue from sale of villa plots is recognised upon transfer of all
significant risks and rewards of ownership of such real estate/
property, as per the terms of the contracts entered into with buyers,
which generally coincides with the firming of the sales contracts/
Revenue from real estate projects include charges collected from
clients and are accounted based upon the contracts/ agreements entered
into by the Company with its customers.
b. Recognition of revenue from sale of land and development rights
Revenue from sale of land and development rights is recognised upon
transfer of all significant risks and rewards of ownership of such real
estate/ property, as per the terms of the contracts entered into with
buyers, which generally coincides with the firming of the sales
iii. Recognition of revenue from manufacturing division
Revenue from sale of materials is recognised when the significant risks
and rewards of ownership of the goods have passed to the buyer which
coincides with dispatch of goods to the customers. Excise duty deducted
from turnover (gross) is the amount that is included in the amount of
turnover (gross) and not the entire amount of liability arising during
the year. Service income is recognised on the basis of completion of a
physical proportion of the contract work/ based upon the contracts/
agreements entered into by the Company with its customers.
iv. Dividend income
Revenue is recognised when the shareholders'' or unitholders'' right to
receive payment is established by the balance sheet date.
v. Share in profits of partnership firm investments
The Company''s share in profits from a firm where the Company is a
partner, is recognised on the basis of such firm''s audited accounts, as
per terms of the partnership deed.
vi. Interest income
Income is recognised on a time proportion basis taking into account the
amount outstanding and the rate applicable.
j) Foreign currency translation
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction. Foreign currency monetary items are reported using the
exchange rate prevailing at the reporting rate. Non-monetary items,
which are measured in terms of historical cost denominated in a foreign
currency, are reported using the exchange rate at the date of the
transaction. Exchange differences arising on the settlement of monetary
items or on reporting monetary items of Company at rates different from
those at which they were initially recorded during the year, or
reported in previous financial statements, are recognised as income or
as expenses in the year in which they arise.
Tax expense comprises of current and deferred tax.
Current income tax is measured at the amount expected to be paid to the
tax authorities in accordance with the Indian Income Tax Act. Deferred
income taxes reflects the impact of current year timing differences
between taxable income and accounting income for the year and reversal
of timing differences of earlier years.
Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the balance sheet date. Deferred
tax assets are recognised only to the extent that there is reasonable
certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realised. In situations
where the Company has unabsorbed depreciation or carry forward tax
losses, all deferred tax assets are recognised only if there is virtual
certainty supported by convincing evidence that they can be realised
against future taxable profits. At each balance sheet date the Company
re-assesses unrecognised deferred tax assets. It recognises
unrecognised deferred tax assets to the extent that it has become
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available against which such
deferred tax assets can be realised.
The carrying amount of deferred tax assets are reviewed at each balance
sheet date. The Company writes-down the carrying amount of a deferred
tax asset to the extent that it is no longer reasonably certain or
virtually certain, as the case may be, that sufficient future taxable
income will be available against which deferred tax asset can be
Minimum Alternative tax (MAT) credit is recognised as an asset only
when and to the extent there is convincing evidence that the Company
will pay normal income tax during the specified period. In the year in
which the MAT credit becomes eligible to be recognized as an asset in
accordance with the recommendations contained in Guidance Note issued
by the Institute of Chartered Accountants of India, the said asset is
created by way of a credit to the statement of profit and loss and
shown as MAT Credit Entitlement. The Company reviews the same at each
balance sheet date and writes down the carrying amount of MAT Credit
Entitlement to the extent there is no longer convincing evidence to the
effect that Company will pay normal income tax during the specified
l) Retirement and other employee benefits
Retirement benefits in the form of provident fund is a defined
contribution scheme and the contributions are charged to the statement
of profit and loss of the year when the contributions to the provident
fund are due. There are no other obligations other than the
contribution payable to the government administered provident fund.
The Company makes contributions to Sobha Developers Employees Gratuity
Trust (''the trust'') to discharge the gratuity liability to employees.
Provision towards gratuity, a defined benefit plan, is made for the
difference between actuarial valuation by an independent actuary and
the fund balance, as at the year-end. The cost of providing benefits
under gratuity is determined on the basis of actuarial valuation using
the projected unit credit method at each year end. Actuarial gains and
losses are immediately taken to statement of profit and loss and are
Accumulated leave, which is expected to be utilized within the next 12
months, is treated as short-term employee benefit. The Company measures
the expected cost of such absences as the additional amount that it
expects to pay as a result of the unused entitlement that has
accumulated at the reporting date.
The Company treats accumulated leave expected to be carried forward
beyond twelve months, as long- term employee benefit for measurement
purposes. Such long-term compensated absences are provided for based
on the actuarial valuation using the projected unit credit method at
the year- end. The Company presents the entire leave as a current
liability in the balance sheet, since it does not have an unconditional
right to defer its settlement for twelve months after the reporting
date. Actuarial gains/ losses are immediately taken to statement of
profit and loss and are not deferred.
Expense in respect of other short term benefits is recognised on the
basis of the amount paid or payable for the period for which the
services are rendered by the employee.
m) Earnings per share
Basic earnings per share are calculated by dividing the net profit or
loss for the year attributable to equity shareholders (after deducting
preference dividends and attributable taxes) by the weighted average
number of equity shares outstanding during the year. The weighted
average number of equity shares outstanding during the year is adjusted
for events of bonus issue.
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.
A provision is recognised when the Company has a present obligation as
a result of past event, it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on the best estimate required to
settle the obligation at the balance sheet date. These are reviewed at
each balance sheet date and adjusted to reflect the current best
o) Contingent liabilities
A contingent liability is a possible obligation that arises from past
events whose existence will be confirmed by the occurrence or
non-occurrence of one or more uncertain future events beyond the con-
trol of the Company or a present obligation that is not recognized
because it is not probable that an outflow of resources will be
required to settle the obligation. A contingent liability also arises
in extremely rare cases where there is a liability that cannot be
recognized because it cannot be measured reliably. The Company does not
recognize a contingent liability but discloses its existence in the
p) Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
q) Borrowing costs
Borrowing costs directly attributable to acquisition/ construction of
qualifying assets are capitalised until the time all substantial
activities necessary to prepare the qualifying assets for their
intended use are complete. A qualifying asset is one that necessarily
takes substantial period of time to get ready for its intended use/
sale. All other borrowing costs not eligible for inventorisation/
capitalisation are charged to statement of profit and loss.
Advances paid by the Company to the seller/ intermediary toward
outright purchase of land is recognised as land advance under loans and
advances during the course of obtaining clear and marketable title,
free from all encumbrances and transfer of legal title to the Company,
whereupon it is transferred to land stock under inventories.
Deposits paid by the Company to the seller towards right for
development of land in exchange of constructed area are recognised as
security deposit under loans and advances, unless they are
non-refundable, wherein they are recognised as land advance under loans
and advances and is transferred to work-in-progress on the launch of
The Company has entered into agreements with land owners/ possessor to
develop properties on such land in lieu of which, the Company has
agreed to transfer certain percentage of constructed area.
The Company measures development rights/ land received under these
agreements at cost of construction transferred, as adjusted for other
cash/ non-cash consideration.
s) Measurement of EBITDA
As permitted by the Guidance Note on the Revised Schedule VI to the
Companies Act, 1956, the Company has elected to present earnings before
interest, tax, depreciation and amortization (EBITDA) as a separate
line item on the face of the statement of profit and loss. The Company
measures EBITDA on the basis of profit/ (loss) from continuing
In its measurement, the Company does not include depreciation and
amortization expense, finance costs and tax expense.
(b) Terms/ rights attached to equity shares
The Company has only one class of equity shares having a par value of
''10 per share Each holder of equity shares is entitled to one vote per
share. The Company declares and pays dividend in Indian rupees. The
dividend proposed by the Board of directors is subject to the approval
of the shareholders in ensuing Annual General Meeting. In event of
liquidation of the Company, the holders of equity shares would be
entitled to receive remaining assets of the Company, after distribution
of all preferential amounts. The distribution will be in proportion to
the number of equity shares held by the shareholders.