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CARE Ratings

BSE: 534804|NSE: CARERATING|ISIN: INE752H01013|SECTOR: Miscellaneous
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Notes to Accounts Year End : Mar '18

Note 1 :

Company Overview and Significant Accounting Policies Company Overview:

CARE Ratings Limited (Formerly known as Credit Analysis & Research Limited) (the Company), commenced its operations in April 1993 has established itself as the leading credit rating agency of India. The Company provides various credit ratings that helps corporate to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. The Company has its registered office and head office both located in Mumbai. In addition, CARE Ratings has regional offices at Ahmedabad, Bengaluru, Chandigarh, Chennai, Coimbatore, Hyderabad, Jaipur, Kolkata, New Delhi, Pune.

Note 1(A):

Use of Estimates and Judgements

The preparation of the financial statements in conformity with Ind AS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. 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 periods.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are included in the following notes:

a) Useful Lives of Property, Plant & Equipment:

The Company uses its technical expertise along with historical and industry trends for determining the economic life of an asset/component of an asset. The useful lives are reviewed by management periodically and revised, if appropriate. In case of a revision, the unamortised depreciable amount is charged over the remaining useful life of the assets.

b) 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 is measured using valuation techniques. The inputs for valuation techniques are taken from observable market 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.

c) Revenue

The Company recognizes portion of rating fee income commensurate with the efforts involved based on percentage completion method.

The Company uses various judgments and estimates to assess the efforts required for completion of various activities in the rating process. Based on assessment, the Company defines the percentage completion to be applied to measure income to be recognized from initial rating and surveillance during the year.

As a matter of prudent policy and on the basis of past experience of recoverability of income, fees in respect of certain defined categories of clients are recognized when there is reasonable certainty of ultimate collection.

Change in Accounting Estimates:

During the year ended March 31,2018, the Company has reviewed efforts required for completion of various activities in the rating process. Based on review, the Company has changed its effort estimates for rating activities as above due to change in Regulations, Business-Mix and Technological Enhancements as compared to previous year.

Accordingly, the revenue recognized for the year ended on March 31, 2018 based on revised efforts estimation is higher by Rs.186,186,612 as compared to revenue that would have been recognized based on earlier efforts estimation.

d) Defined benefit plans

The cost of the defined benefit gratuity plan and other employment benefits and the present value of the gratuity obligation and other employment benefits 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 reporting date.

e) Expected Credit Losses on Financial Assets

The impairment provisions of financial assets are based on assumptions about risk of default and expected timing of collection. The Company uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the Company’s past history, customer’s creditworthiness, existing market conditions as well as forward looking estimates at the end of each reporting period.

f) Share-Based Payments

The Company measures the cost of equity-settled transactions with employees using Black-Scholes model to determine the fair value of the liability incurred on the grant date. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 34.

2(a): The Company does not have a Holding Company

2(b): Shares reserved for issue under options and contracts, including the terms and amounts:

For details of Shares reserved for issue under the Employee Stock Option Plan (ESOP) of the Company: Refer Note 34

2(c): Terms/Right attached to Equity Shares :

The company has only one class of equity shares having a par value of Rs. 10/- per share. Each holder of equity shares is entitled to one vote per share. The company declares and pays dividends in Indian Rupees. The dividend proposed by the Board of Directors is subject to approval of the shareholders at the ensuing Annual General Meeting.

In the event of liquidation of the company, the holders of equity shares will 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.

The Description of the Nature and Purpose of each reserve within equity is as follows:

a. Capital Redemption Reserve

Capital Redemption Reserve represents nominal value of shares credited at the time of buyback of shares

b. Securities Premium Reserve

Securities Premium Reserve is credited when the shares are issued at premium. It is utilized in accordance with the provision of the Companies Act, to issue bonus shares, to provide for premium on redemption of shares, equity related expenses like underwriting costs, etc.

c. Employees Stock Options Outstanding Reserve

The Company has Share Options Scheme under which option to subscribe for the Company’s shares have been granted to selected employees. Refer Note 34 for further details of this plan.

d. General Reserve

The Company has transferred a portion of the net profits of the Company before declaring dividends to General Reserve. Mandatory transfer to General Reserve is not required under the Companies Act, 2013

Note 3: Contingent Liabilities (Ind AS 37)

(A) Claims against the Company not acknowledged as debts (to the extent not provided for):

(B) In one case of rating given by the Company during one of the earlier financial year, there is an inquiry / investigation being carried out by a government agency. The matter is still under investigation / inquiry and the Company has not received any order from the government with respect to the said matter.

(C) Guarantees given by Bank on behalf of the Company in respect of lien marked Deposits is Nil (March 31, 2017 - Rs. 2,96,850) (April 1, 2016 - Nil)

Note 4: Capital and Other Commitments

There are no amounts pending on account of contracts remaining to be executed on capital account, not provided for (net of advances) is Nil (March 31, 2017 - Nil) (April 1, 2016 - Nil)

The Company has a process whereby periodically all long term contracts are assessed for material foreseeable losses. At the year end, the Company has reviewed and ensured that adequate provision as required under any law/accounting standards for material foreseeable losses on such long term contracts has been made in the books of account.

Note 5: Employee Benefits (Ind AS 19)

(A) Defined Benefit Plans:

Gratuity:

The gratuity payable to employees is based on the employee’s service and last drawn salary at the time of leaving the services of the Company and is in accordance with the rules of the Company for payment of gratuity. The Company accounts for the liability based on actuarial valuation. The Company has created a trust for future payment of gratuities which is funded through gratuity-cum-life insurance scheme of LIC of India.

Inherent Risk on above:

The plan is defined in nature which is sponsored by the Company and hence it underwrites all the risks pertaining to the plan. In particular, this exposes the Company to actuarial risk such as adverse salary growth, change in demographic experience, inadequate return on underlying plan assets. This may result in an increase in cost of providing these benefits to the employees in future. Since the benefits are lump sum in nature, the plan is not subject to any longevity risk.

* The sensitivity analysis have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant. The present value of the projected benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method as applied in calculating the projected benefit obligation as recognized in the balance sheet. There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.

(xi) Basis used to determine Expected Rate of Return on Plan Assets:

Expected rate of return on Plan Assets is based on expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligations.

(xii) Salary Escalation Rate:

Salary escalation rates are determined taking into account seniority, promotion, inflation and other relevant factors.

(xiii) Asset Liability Matching (ALM) strategy:

The plan faces the ALM risk as to the matching cash flow. Since the plan is invested in lines of Rule 101 of Income Tax Rules, 1962, this generally reduces ALM risk.

(xiv) The Company’s expected contribution during next year is Rs. 1,61,15,072

(B) Compensated Absences:

“The compensated absences cover the Company’s liability for earned leave. Long term compensated absences are determined on the basis of actuarial valuation made at the end of each financial year using the projected unit credit method. Short term compensated absences are provided for based on estimates.

Amount recognized as an expense in respect of Compensated Absences is RS.45,831,370 (March 31, 2017 - RS.58,756,247)”

(C) Defined Contribution Plans:

Amount recognized as an expense and included in Note 25 under the head “Contribution to Provident and other Funds” of Statement of Profit and Loss is RS.2,21,51,442 (March 31, 2017 - RS.2,05,65,397)

(D) Superannuation Benefits:

Superannuation Benefits is contributed by the Company to Life Insurance Corporation of India (LIC) @ 10% of basic salary with respect to certain employees.

Contribution to Superannuation Fund is charged to Statement of Profit & Loss in Note 25 under the head “Contribution to Provident and other Funds” is RS.4,287,890 (March 31, 2017 - RS.47,03,252)”

Note 6: Segment Reporting (Ind AS 108):

The Company is exclusively engaged in the business of ratings. As per Ind AS 108 “Operating Segments”, specified under Section 133 of the Companies Act, 2013, there are no reportable operating or geographical segments applicable to the Company.

Note 7: Related Party Disclosures pursuant to Ind AS 24

(A) List of Related Parties where control exists:

No amount in respect of the related parties have been written off/back are provided for during the year. Related party relationship have been identified by the management and relied upon by the auditors.

Remuneration does not include provision made for compensated absence, leave travel allowance, gratuity since the same is provided for the company as a whole based on independent actuarial valuation except to the extent of amount paid. *Share based payments refer to amounts charged to the statement of Profit & Loss account, being charge on ESOP granted to Key Management Personnel as per ESOS 2017 scheme based on Fair Value method.

i) ESOS 2017: The weighted average remaining contractual life for the stock options outstanding as at March 31, 2018 is 1.42 years (Previous Year: Nil)

ii) ESOS 2013: The weighted average remaining contractual life for the stock options outstanding as at March 31, 2018 is Nil years (Previous Year: 0.76 years)

The ESOS compensation cost is amortized on a straight line basis over the total vesting period of the options. Accordingly for ESOS 2017,an amount of Rs. 8,64,89,983 (Previous Year Nil ) has been charged to the current year Statement of Profit and Loss. In respect of ESOS 2013, an amount of Nil (Previous Year Nil ) has been charged to the current year Statement of Profit and Loss.

(C) Fair Valuation:

The fair value of the options used to compute proforma net profit and earnings per share have been done by an independent valuer on the date of grant using Black - Scholes Formula . The key assumptions and the Fair Value are as under:

(B) Investments in equity instruments designated at Fair Value through Other Comprehensive Income

As on April 01, 2016, the Company was holding 53,000 Equity Shares of USD 10 each of ARC Ratings Holdings PTE Limited. In FY 2016-17, pursuant to internal structuring, the Company received 20 Equity Shares of USD 22,600 each of ARC Ratings Holdings Limited in lieu of its existing investment in ARC Ratings Holdings PTE Limited.

As on March 31, 2017 and March 31, 2018, The Company has investments in ARC Ratings holding Limited of 20 Ordinary Shares of USD 22,600 each and 20,00,000 ordinary shares of RM 1 each in Malaysian Rating Corporation Berhard. The Company has opted to designate these investment at Fair Value through Other Comprehensive Income since these investments are not held for trading.

The Company has received RS.37,17,089 (Previous Year RS.49,98,709) as Dividend and has recognized in the Statement of Profit & Loss under Note 24 - Other Income. There has been no transfer in investment during any period.

Note 8: Fair Value measurement (Ind AS 113):

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The Company has established the following fair value hierarchy that categorizes the values into 3 levels. The inputs to valuation techniques used to measure fair value of financial instruments are:

Level 1:

This hierarchy uses quoted (unadjusted) prices in active markets for identical assets or liabilities. The company does not have any such asset or liabilities.

Level 2:

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on company specific estimates. The investment in mutual funds are valued using the closing Net Asset Value based on the mutual fund statements received by the company. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

Level 3:

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. The fair valuation of investment in Equity Shares of Malaysian Rating Corporation Berhard and ARC Ratings Holdings Limited and investment in Preference share of CARE Risk Solutions Private Limited (Formerly known as CARE Kalypto Risk Technologies & Advisory Services Pvt Ltd.) is classified under Level 3. The details are given in the table below:

The Company has utilized the expertise of the in-house team to value the investments in ARC Ratings Holdings Limited & Malaysian Rating Corporation Berhard. For investment in Preference Shares of CARE Risk Solutions Private Limited (Formerly known as CARE Kalypto Risk Technologies & Advisory Services Pvt Ltd.), the Company has availed services of external valuer. The auditors have relied upon the reports provided by the said valuers.

The following methods and assumptions were used to estimate the fair values:

The fair values of the quoted investments/units of mutual fund schemes are based on market price/net asset value at the reporting date

The fair value of the remaining financial instruments is determined using discounted cash flow analysis. The discount rates used is based on management estimates

The significant unobservable inputs used in the fair value measurement of the fair value hierarchy together with a quantitative sensitivity analysis as at March 31, 2018, March 31, 2017 and April 01, 2016 are as shown below:

The Company had adopted Net Asset Method for Valuation of Investments in MARC Malaysia and ARC Ratings Holdings Ltd. as on April 01, 2016 and March 31, 2017.

Accordingly, there are no significant unobservable inputs.

Note 9: Financial Risk Management Objectives and Policies (Ind AS 107):

The Company is a Debt Free Company. The principal financial liabilities of the Company comprise of Other liabilities and Provisions which arise on a account of normal course of business. The Company’s principal financial assets include Investments, Trade Receivables, Cash and Cash Equivalents and Other Bank Balances.

The Company is exposed to Market Risk, Credit Risk, Liquidity Risk. The Company’s senior management oversees the management of these risks. The Company’s senior management ensures that the Company’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company’s policies and risk objectives.

The Management of the Company updates its Board of Directors on periodic basis about various risks to the business and status of various activities planned to mitigate the risk.

The Company has exposure to the following risks arising from financial instruments:

(A) Market Risk

Market risk is the risk that the fair value or future cash flows of such financial instrument will be impacted because of various financial and non financial market factors. The financial instruments affected by market risk include the investment in Mutual Funds and investment in Equity Shares of companies incorporated and operating outside India.

The investment in mutual funds are fair valued using the closing Net Asset Value based on the mutual fund statements received by the company at the end of each reporting period.

There is no Interest rate risk since the Company does not hold any financial instrument whose fair value or future cash flows will fluctuate because of changes in market interest rates.

The following table shows foreign currency exposures in USD, MRF, RM, NPR and GBP on financial instruments at the end of the reporting period. The exposure to foreign currency for all other currencies are not material. The company does not hedge its foreign currency exposure.

(B) Credit Risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating (primarily Trade Receivables), investing and financing activities including Mutual Fund Investments, Investment in Debt Securities, Bank Balance, Deposits with Bank, Security Deposits, Loans to Employees and other financial instruments.

The Company measures and manages its Credit Risk by diversification of its surplus funds into various mutual fund schemes based on its investment policy.

Total Trade receivable as on March 31, 2018 is RS.371,809,714 (March 31, 2017 - RS.231,907,837) (April 01, 2016 - RS.222,355,117) The Company does not have higher concentration of credit risks to a single customer.

As per simplified approach, the Company makes provision of expected credit losses on trade receivables using a provision matrix to mitigate the risk of default payments and makes appropriate provision at each reporting date wherever outstanding is for longer period and involves higher risk.

As per the provision matrix receivables are classified into different bucket based on the overdue period, buckets range from 12 months - 18 months, 18 months - 24 months and more than 24 months. The norms of provisioning on the same range are from 25% - 100%. The management, on a case to case basis may decide to provide or write of at a higher rate with reasons whenever felt necessary.

Investments, Cash and Cash Equivalent and Bank Deposit:

Credit Risk on cash and cash equivalent, deposits with the banks/financial institutions is generally low as the said deposits have been made with the PSU Banks.

Investments of surplus funds are made only based on Investment Policy of the Company. Investments primarily include investment in units of mutual funds, Bonds issued by Government/ Semi Government Agencies/ PSU etc. These Mutual Funds and Counterparties have low credit risk.

(C) Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The cash flows and liquidity of Company is monitored under the control of the management. The objective is to ensure that Company’s surplus fund are not kept idle and invested in the financial instruments only after adequate review of such instrument and approval of the management.

The Company manages liquidity risk by maintaining adequate reserves, continuously monitoring forecasted and actual periodic cash requirement and matching the maturity profiles of financial assets and liabilities.

The Company generally has investments and liquids funds more than its forecasted and current liabilities and has not faced shortage of funds at any point of time. The Liquidity risk on the Company is very less.

The table below summarizes the maturity profile of the Company’s financial liabilities & investments based on contractual undiscounted payments.

Proposed dividends on equity shares are subject to approval at the annual general meeting and are not recognized as a liability (including Divided Distribution Tax thereon) as at March 31 of respective year.

Note 10: Capital Management (Ind AS 1):

The Company is cash surplus and has no capital other than Equity. The Company is not exposed to any regulatory imposed capital requirements.

The cash surplus are currently invested in income generating Mutual funds units and Government Securities which in line with its Investment Policy . Safety of Capital is of prime importance to ensure availability of capital for operations. Investment objective is to provide safety and adequate return on surplus funds.

The Company does not have any borrowings.

Note 11: Operating Leases (Ind AS 17):

a. With respect to offices given on lease, there are no office given on lease.

b. With respect to office taken on lease, operating lease expense recognized in the Statement of Profit and Loss amounting to RS.26,730,960 (March 31, 2017 - RS.27,815,415)

The lease payments are recognized in the Statement of Profit and Loss under rent in Note 26 - Other Expenses.

The future minimum lease payments under operating lease is given below:

c. General Description of Leasing Agreements:

- Office Building taken on lease: Bengaluru, Chandigarh, Chennai, Delhi, Kolkata & Kochi

- Future lease rental expenses are determined on basis of agreed terms

- At expiry of lease terms, the Company has the right to vacate the property or extend the term of agreement

- Lease agreements are generally non-cancellable and ranges between 11months and 5 years

Note 12: Micro, Small and Medium Enterprises

Under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED) which came into force from 2 OctobeRs.2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises.

Note 13: Corporate Social Responsibility

Gross Amount required to be spent by the Company during the year is RS.2,86,52,836/- (Previous Year R3,95,02,885/-)

During Previous Year, the Company has spent an amount of RS.50,00,000/- by way of contribution to Swachh Bharat Kosh and Prime Minister’s National Relief Fund of RS.25,00,000/- each

Note 14: Disclosure as per Section 186(4) of the Companies Act, 2013

a. Details of Inter-Corporate Loans / Guarantees granted during the year as below:

There is no transaction in the nature of inter-Corporate Loans/Grarantee granted during the year.

During the year FY 16-17, the Company had granted loan amounting to Rs. 1,00,00,000 to its wholly owned subsidiary CARE Risk Solutions Pvt. Ltd. (formerly known as CARE Kalypto Risk Technologies and Advisory Services Pvt. Ltd) and the same was repaid duging FY 17-18

Note 15 : Details of Specified Bank Notes (SBN) held and transacted during the period 08 Nov, 2016 to 30 Dec, 2016.[Refer Statutory requirement under notification no G.S.RS.308 (E) of MCA dated 30th March, 2017.

The above provisions are not applicable for the financial yeaRs.2017-18.

Note 16: Ind AS 115: Revenue from Contracts with Customers

In March 2018, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) Amendment Rules, 2018, notifying Ind AS 115 ‘Revenue from Contracts with Customers’, which replaces Ind AS 18 ‘Revenue’. Based on the preliminary assessment carried out by the management, except for the disclosure requirements, the application of new standard may not have any significant impact the Company’s financial statements. The amendment will come into force from April 01, 2018.

Note 17: First Time Adoption of Ind AS (Ind AS 101):

As stated in Note 1, these financial statements, for the year ended March 31, 2018, are the first the Company has prepared in accordance with Ind AS. For periods up to and including the year ended March 31, 2017, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (IGAAP).

Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for periods ending on March 31, 2018, together with the comparative period data as at and for the year ended March 31, 2017, as described in the summary of significant accounting policies. In preparing these financial statements, the Company’s opening balance sheet was prepared as at April 01, 2016, the Company’s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its IGAAP financial statements, including the balance sheet as at April 01, 2016 and the financial statements as at and for the year ended March 31, 2017 and how the transition from IGAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows.

Exemption Availed:

Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has availed the following exemptions:

1. Deemed cost for PPE and Intangible Assets:

The Company has elected to continue with the carrying value of all of its plant and equipment and intangible assets as recognized as of April 01, 2016 measured as per the IGAAP and use that carrying value as its deemed cost as of the transition date.

2. Share-Based Payments:

The Company has opted not to apply Ind AS 102, Share based payment to equity instruments that vested before date of transition to Ind AS and to liabilities arising from share-based payment transactions that were settled before the date of transition to Ind AS.

3. Investment in Subsidiary, Joint ventures and Associates:

The Company has elected to carry its investment in subsidiary, joint venture and associates at deemed cost which is its IGAAP carrying amount at the date of transition to Ind AS

4. Fair Value of Financials Assets and Liabilities:

As per Ind AS exemption the Company has not fair valued the financial assets and liabilities retrospectively and has measured the same prospectively.

Notes to the Reconciliation of equity as at April 1, 2016 and March 31, 2017 and Total Comprehensive Income for the year ended March 31, 2018:

(a) Investments:

The Company has measured investments other than investment in subsidaries at Fair Value and has classified the same at Fair Value through Profit and Loss (FVTPL) and Fair value through Other Comprehensive Income (FVOCI). The Company has also designated certain investment in equity instruments at FVOCI. The resulting fair value changes of these investments have been recognised in retained earnings (net of related deferred taxes) as at the date of transition and subsequently in the Statement of Profit and Loss for the year ended 31 March 2017.Refer note 35 and Note 36 for detailed disclosure regarding measurement of Investments.

The Company carries certain Tax free bonds for which the Company had paid premium. Such premium has been ammortised over the life of the bonds and same has been charged to Statement of Profit and Loss.

(b) Fair Valuation of Security Deposit

Interest-free deposits have been fair valued and are discounted using an appropriate current market rate. The difference between the nominal value and the fair value of the deposit under the lease is considered as Prepaid Rent, which is unwinded on a straight line basis over the period of the lease. The company also recognizes interest expense using the discounting rate, over the life of the deposit. These adjustments are reflected in retained earnings as at the date of transition and subsequently in the statement of profit or loss.

(c) Lease Straightlining

Under IGAAP, lease rent under an operating lease were being recognised as an expense on a straight-line basis over the lease term. Under Ind AS 17, straight lining of operating lease is not required, if the payments to the lessor are structured to increase in line with expected general inflation to compensate for the lessor’s expected inflationary cost increases. Since the lease rentals as per the agreement fulfil this condition, straightlining of rent expense has not been carried out and the impact of the same given under IGAAP has been reversed.

(d) Deferred Tax

IGAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12 requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The application of Ind AS 12 approach has resulted in recognition of deferred tax on new temporary differences which was not required under IGAAP. In addition, the various transitional adjustments lead to temporary differences. According to the accounting policies, the Company has to account for such differences. Deferred Tax adjustments are recognised in correlation to the underlying transaction either in retained earnings or profit and loss respectively.

(e) Acturial Gain/Loss

Both under IGAAP and Ind AS, the Company recognised costs related to its post-employment defined benefit plan on an actuarial basis.

Under IGAAP, the entire cost, including actuarial gains and losses, are charged to Statement of Profit and Loss. Under Ind AS, remeasurements (comprising of actual gains and lossses, the effect of the asset celling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets excluding amounts including in net interest on the net benefit liability) are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI.

(f) Reclassifications

Reclassification and regrouping has been done basis the requirement of particular Ind AS and Division II of Schedule III of the Companies Act, 2013 providing the framework for the preparation and presentation of Financial Statements in accordance with Ind ASs.

Source : Dion Global Solutions Limited
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