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Moneycontrol.com India | Accounting Policy > Finance - Term Lending Institutions > Accounting Policy followed by IFCI - BSE: 500106, NSE: IFCI
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IFCI

BSE: 500106|NSE: IFCI|ISIN: INE039A01010|SECTOR: Finance - Term Lending Institutions
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Accounting Policy Year : Mar '18

ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2018 A. SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Preparation of Financial Statements

The accompanying financial statements have been prepared as per formats prescribed under Schedule-III of the Companies Act,2013,on accrual basis under historical cost convention, and conform in all material aspects to the Generally Accepted Accounting Principles in India which encompasses applicable accounting standards relevant provisions of the Companies Act, 2013, the applicable guidelines issued by the Reserve Bank of India (RBI) for Non-Banking Financial Companies, other statutory provisions and regulatory framework.

2. Use of Estimates

The preparation of financial statements requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable.

3. Revenue Recognition

(a) Interest and other dues are recognized on accrual basis except in the case of income on Non-Performing Assets (NPA) which is recognized, as and when received, as per the prudential norms prescribed by the RBI for Non-Banking Financial Companies.

(b) Amount received from borrowers against loans and advances are appropriated due date-wise towards other debits, interest overdue and principal overdue, in that order, across the due dates, except in the case of one time or negotiated settlements, where the appropriation is done as per the terms of the settlement.

(c) Following are recognized on receipt basis:

(i) Front-end fees, Premium on pre-payment of loans/ reduction in interest rates and LC Commission.

(ii) Interim returns by promoter/ promoter group companies at a pre-agreed rate of return, as per buy-back agreements, on certain equity investments.

(d) Dividends declared by the respective Companies till the close of the accounting period are accounted for as income.

(e) Rental on leased assets is accounted for from the commencement date, as prescribed in the lease agreement entered with the lessees.

(f) The front-end fees/ underwriting commission/ commitment fee received in respect of devolvement of underwriting and direct subscription is reduced from the cost of related investments.

(g) Surplus/ gains on sale of investments is net of losses thereon or vice versa.

(h) The dividend unclaimed on account of shares sold and outstanding in the books are recognized as income after the end of three years, the limitation period.

4. Investments

(a) Investments are classified under two categories i.e. current and long term and are valued in accordance with the RBI Guidelines as applicable to Non-Banking Financial Companies (NBFCs).

(i) ‘Long term Investments’ are carried at acquisition cost in terms of Accounting Standard 13 issued by ICAI, on Accounting for Investments’. Provision is made for diminution other than temporary on an individual basis. However, long term investment in equity shares with buy- back commitment are assessed for diminution other than temporary only when there is a default in buyback commitment by the promoter/ promoter group and provision is made accordingly on individual basis.

(ii) ‘Current investments’ for each category shall be valued at cost or market value whichever is lower. If the aggregate market value for the category is less than the aggregated cost for that category, the net depreciation shall be provided for or charged to the profit and loss account. The net appreciation, if any, shall be ignored.

(b) Security Receipts issued by an Asset Reconstruction Company (ARC)/ Securitization Company (SC) are valued in accordance with RBI guidelines. Accordingly, the net asset value (NAV) is considered net of management fee & other expenses) obtained from the ARC is reckoned for valuation of such investments. Appreciation in the value, if any, is ignored and depreciation is provided for.

(c) Bonds in the nature of current investment are valued in accordance with the FIMMDA platform for the purpose.

5. Derivatives

(a) Equity Index/ Stock Futures and Currency Futures are marked to market on daily basis. Debit or Credit Balances disclosed under Current Assets or Current liabilities, respectively represent the net amount paid or received on the basis of movement of prices in the Index/ Stock Futures and Currency Futures till the Balance Sheet date. Equity Index/ Stock Options are recognized in the books to the extent of premium paid.

(b) As at the Balance Sheet date, the profit or loss on open positions are accounted for as follows:

(i) The unrealized profit determined Scrip wise/ Index wise, being anticipated profit, is ignored and no credit is taken in the statement of profit and loss.

(ii) The unrealized loss determined Scrip wise/ Index wise, being anticipated loss, is recognized in the statement of profit and loss.

(iii) Equity Index/ Stock Options are carried at cost where they are used as an instrument for hedging

(c) On final settlement or squaring-up of contracts for Equity Index/ Stock Futures, the profit or loss is calculated as difference between settlement/ squaring-up price and contract price. Accordingly, debit or credit balance pertaining to the settled/ squared-up contract is recognized as profit or loss upon expiry/ squaring-up of the contracts. When more than one contract in respect of the relevant series of Equity Index/ Stock Futures contract to which the squared-up contract pertains is outstanding at the time of the squaring-up of the contract, the contract price of the contract so squared-up is determined using weighted average method for calculating profit/ loss on squaring up.

(d) Initial and additional margin paid, for entering into contracts for Equity Index/ Stock Futures, which are released on final settlement/ squaring-up of underlying contracts, are disclosed under Current Assets.

6. Foreign Exchange Transactions

(a) The expenses and income in foreign exchange transactions are accounted for at the rates prevailing on the date of transactions/ at the forward rate, if booked, for such transaction.

(b) Assets and liabilities held in foreign currencies and accrued income and expenditure in foreign currencies are translated into Indian Rupees at the rates advised by Foreign Exchange Dealers Association of India (FEDAI) prevailing towards the close of the accounting period. Gains/ losses, if any, on valuation of various assets and liabilities are taken to Statement of Profit & Loss.

7. Tangible Fixed Assets and Depreciation

(a) Fixed Assets are carried at cost (including capitalized interest) less accumulated depreciation and impairment loss, if any. Residual value in respect of Buildings and Vehicles is considered as 5% of the cost and in case of other assets ''‘Nil’.

(b) Depreciation is provided on the Straight Line Method (SLM) over the useful life of the assets as prescribed under Schedule II to the Companies Act, 2013.

(c) Depreciation on revalue amount of Leasehold Land & Buildings is provided on SLM basis over the remaining useful life of asset. An amount equivalent to the ‘depreciation on revalue amount’ provided during the period is withdrawn from the revaluation reserve and credited to the General reserve.

(d) Leasehold land is amortized over the lease period on SLM basis.

(e) Depreciation is calculated on pro-rata basis, including the month of addition and excluding the month of sale/disposal.

(f) Assets having individual value of less than ''5,000/- are charged to statement of Profit and Loss in the year of purchase.

8. Intangible assets and amortization

(a) Intangible assets are recognized at cost of acquisition which includes all expenditure that can be directly attributed or allocated on a reasonable and consistent basis, to create, produce or making the asset ready for its intended use.

(b) Intangible assets include computer software having perpetual license and are amortized on Straight Line Method over the period of six years from the date of capitalization.

9. Impairment of Assets

An asset is treated as impaired when the carrying cost of assets exceeds its recoverable value and impairment loss is charged to the P&L statement in the year in which an asset is identified as impaired. The impairment loss recognised in earlier accounting period is reversed if there has been a change in the estimates of recoverable amount.

10. Provisions/ Write off against Loans and Other Credit Facilities

(a) All credit exposures are classified into performing and non-performing assets (NPAs) as per the RBI Guidelines as applicable to Non-Banking Financial Companies. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by RBI. Provisions are made on standard, sub-standard and doubtful assets at rates prescribed by RBI. Loss assets and unsecured portion of doubtful assets are fully provided/ written off as per the extant RBI guidelines. Additional provisions are made against specific non-performing assets over and above what is stated above, if in the opinion of the management, increased provisions are necessary.

(b) For restructured/ rescheduled assets, provision is made in accordance with the amended guidelines issued by RBI.

(c) Recovery against debts written off/ provided for is credited to revenue. Income is recognized where amounts are either recovered and/ or adjusted against securities/ properties or advances received there-against or are considered recoverable in terms of RBI Guidelines.

(d) Provision in respect of purchase and sale of NPAs is accounted as per guidelines prescribed by RBI.

11. Borrowing Cost

Borrowing costs that are attributable to the acquisition or construction of qualifying assets are capitalized as part of the cost of such assets. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use.

All other borrowing costs are charged to revenue.

12. Leases

Lease arrangements where the risks and rewards incidental to the ownership of an asset vest substantially with the lessor are recognized as operating leases. Lease rent under operating leases are recognized in the Profit & Loss Statement with reference to the lease terms.

13. Issue Expenses

Expenses on issue of Shares and Debentures/ Bonds are charged to Securities Premium Reserve in accordance with Section 52 of Companies Act, 2013.

14. Employee Benefits

(a) Monthly contributions to the Provident Fund being in the nature of defined contribution is charged against revenue. The Provident Fund is administered through duly constituted and approved administrators.

(b) Prior to 01.04.2008, the employees were governed by the provisions of the pension scheme in operation at the time of their retirement and are accordingly entitled to DA relief and family pension as and when due. The contribution made on account of same is charged to revenue as and when due. The Company switched to defined contribution scheme in August 2008 for employees existing on 01.04.2008 and opting for the same. The administration of Pension Fund in respect of the employees has been entrusted by Trustees to Life Insurance Corporation of India (LIC) by entering into a Group Superannuation Cash Accumulation Scheme.

(c) The Company has a defined benefit employee scheme in the form of Gratuity. The Trustees of the scheme have entrusted the administration of related fund to LIC. Expense for the year is determined on the basis of actuarial valuation of the Company’s year-end obligation in this regard and the value of year end assets of the scheme. Contribution is deposited with LIC based on intimation received by the Company.

(d) Provision for leave encashment and Leave Fare Concession is being made on actuarial valuation basis.

(e) The Company has a post-retirement medical benefit scheme for employees and their dependants subject to certain limits for hospitalization and normal medical treatment. Provision is being made on actuarial valuation in line with Accounting Standard 15.

15. Employee Stock Option Plan

The Company had formulated Employee Stock Option Schemes (ESOS) in 2011-12 in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Schemes provided for grant of options to employees (including employees deputed in subsidiaries/ associates/ joint ventures) to acquire equity shares of the Company that vest in a graded manner and that are to be exercised within a specified period. In accordance with the SEBI Guidelines, the excess, if any, of the closing market price on the day prior to the grant of the options under ESOS over the exercise price was amortized on a straight-line basis over the vesting period.

16. Income Tax

Tax Expense comprises of current & deferred tax. Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act,1961. Deferred tax resulting from timing differences between book profits and tax profits is accounted for at the current rate of tax or the substantively enacted rate of tax to the extent the timing differences are expected to crystallize, in case of deferred tax liabilities with reasonable certainty and in case of deferred tax assets with reasonable certainty that there would be adequate future taxable income against which deferred tax assets can be realized. However, deferred tax asset arising on account of unabsorbed depreciation and business losses are recognized only if there is virtual certainty supported by convincing evidence that there would be adequate future taxable income against which the same can be realized/set off.

17. Provisions and Contingencies

Provisions are recognized when the Company has a legal and constructive obligation as a result of a past event, for which it is probable that cash outflow will be required and a reliable estimate can be made of the amount of the obligation. Contingent liabilities are disclosed when the Company has a possible or present obligation where the probability of occurrence of outflow of resources cannot be ascertained to settle the same. Contingent assets are neither recognized nor disclosed.

18. Cash and Cash equivalent

Cash and cash equivalents include balance with banks in current accounts and term deposits, cash & cheques in hand and money lent on collateralized lending & borrowing obligations transactions.

1.8 Employee Stock Option Scheme

The Company had, during the financial year 2011-12, granted options for 71,96,993 shares under Employees Stock Option Scheme 2011, subject to the vesting conditions mentioned in the Scheme. The Board in its meeting dated November 12, 2013 has withdrawn the scheme, subject to all the regulatory compliances required in this regard and no further vesting under the scheme shall be held. All applicable compliance have since been ensured and the granted options that have not vested under the scheme, have been cancelled.

Source : Dion Global Solutions Limited
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