Mar 31, 2023
Sobha Limited (the ''Company'') was incorporated on 07 August 1995 under the provision of erstwhile Companies Act, 1956. The Company is engaged in the business of real estate construction, development, sale, management and operation of all or any part of townships, housing projects, commercial premises and other related activities. The Company is also engaged in manufacturing activities related to interiors, glazing and metal works and concrete products which also provides backward integration to Sobha''s turnkey projects.
The Company is a public limited company, incorporated and domiciled in India and has its registered office at, Sarjapur - Marathahalli Outer Ring Road (ORR), Devarabisanahalli, Bellandur Post, Bengaluru - 560 103. The Company''s equity shares are listed on two recognized stock exchanges in India namely National Stock Exchange of India Limited and BSE Limited.
The standalone financial statements of the Company have been prepared in accordance with the Indian Accounting Standards (Ind-AS) specified under section 133 of the Companies Act
2013 read with the Companies (Indian Accounting Standards) Rules 2015 and other accounting principles generally accepted in India.
The standalone financial statements for the year ended 31 March 2023 were authorized and approved for issue by the Board of Directors on 29 May 2023. The revision to financial statements is permitted by Board of Directors after obtaining necessary approvals or at the instance of regulatory authorities as per provisions of Companies Act, 2013.
These standalone financial statements are presented in Indian Rupee (T) which is also the functional and presentation currency of the Company. All amounts have been rounded-off to the nearest million (two decimals), unless otherwise indicated.
c. Basis of measurement
These standalone financial statements have been prepared on going concern basis under the historical cost basis except for certain financial instruments which are measured at fair value at the end of each reporting period, as explained in the accounting policies below.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
d. Use of estimates
The preparation of financial statements in conformity with Ind AS requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. The Management believes that, although these estimates used in preparation of the financial statements are prudent and reasonable and are based on the management''s best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities. The effect of change in an accounting estimate is recognized prospectively. Significant management judgement in applying accounting policies and estimation uncertainty have been disclosed in note 2.3.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for leasing transactions that are within the scope of Ind AS 116, ''Leases'', and measurements that have some similarities to fair value but are not fair value, such as net realisable value in Ind AS 2, ''Inventories'', or value in use in Ind AS 36, ''Impairment of assets''.
Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques have been disclosed in note 2.2(o)(xi).
The Company presents assets and liabilities in the balance sheet based on current/non-current classification.
The Company classifies an asset as current asset when:
- it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;
- it holds the asset primarily for the purpose of trading;
- it expects to realise the asset within twelve months after the reporting period; or
- the asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is classified as current when -
- it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;
- it holds the liability primarily for the purpose of trading;
- the liability is due to be settled within twelve months after the reporting period; or
- it does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents.
The real estate development projects undertaken by the Company generally run over a period ranging up to 5 years. Based on the nature of service and the time between the acquisition of assets for development and their realization in cash and cash equivalents, Operating assets and liabilities relating to such projects are classified as current based on an operating cycle as 5 years. For all other assets and liabilities the Company has considered twelve months.
Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company
expects to be entitled in exchange for those goods or services. Revenue is measured based on the transaction price, which is the consideration, adjusted for discounts and other credits, if any, as specified in the contract with the customer. The Company presents revenue from contracts with customers net of indirect taxes in its statement of profit and loss.
The Company considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price, the Company considers the effects of variable consideration, the existence of significant financing components, non-cash consideration, and consideration payable to the customer (if any).
The Company has applied five step model as per Ind AS 115 ''Revenue from contracts with customers'' to recognise revenue in the standalone financial statements. The Company satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met:
a) The Customer simultaneously receives and consumes the benefits provided by the Company''s performance as the Company performs; or
b) The Company''s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or
c) The Company''s performance does not create an asset with an alternative use to the Company and the entity has an enforceable right to payment for performance completed to date.
For performance obligations where any of the above conditions are not met, revenue is recognised at the point in time at which the performance obligation is satisfied.
Revenue is recognised either at point of time or over a period of time based on various conditions as included in the contracts with customers.
The billing schedules agreed with customers include periodic performance-based billing and/ or milestone-based progress billings. Revenues in excess of billing are classified as unbilled revenue, while billing in excess of revenues is classified as contract liabilities (which we refer to as deferred revenues).
i) Recognition of revenue from sale of real estate property
Revenue from real estate development of residential unit is recognised at the point in time, when the control of the asset is transferred to the customer, which generally coincides with transfer of physical possession of the residential unit to the customer ie., handover/ deemed handover of the residential units. Deemed handover of the residential units is considered upon intimation to the customers about receipt of occupancy certificate and receipt of substantial sale consideration.
Revenue consists of sale of undivided share of land and constructed area to the customer, which have been identified by the Company as a single performance obligation, as they are highly interrelated/interdependent.
Further, for projects executed through joint development arrangements not being jointly controlled operations, wherein the land owner/possessor provides land and the Company
undertakes to develop properties on such land and in lieu of land owner providing land, the Company has agreed to transfer certain percentage of constructed area or certain percentage of the revenue proceeds, the revenue from the development and transfer of constructed area/revenue sharing arrangement in exchange of such development rights/land is being accounted on gross basis on launch of the project. Revenue is recognised over time using input method, on the basis of the inputs to the satisfaction of a performance obligation relative to the total expected inputs to the satisfaction of that performance obligation.
The revenue is measured at the fair value of the land received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the land received cannot be measured reliably, the revenue is measured at the fair value of the estimated construction service rendered to the land owner, adjusted by the amount of any cash or cash equivalents transferred. The fair value so estimated is considered as the cost of land in the computation of percentage of completion for the purpose of revenue recognition as mentioned above.
For contracts involving sale of real estate unit, the Company receives the consideration in accordance with the terms of the contract in proportion of the percentage of completion of
such real estate project and represents payments made by customers to secure performance obligation of the Company under the contract enforceable by customers. Such consideration is received and utilised for specific real estate projects in accordance with the requirements of the Real Estate (Regulation and Development) Act, 2016. Consequently, the Company has concluded that such contracts with customers do not involve any financing element since the same arises for reasons explained above, which is other than for provision of finance to/from the customer.
Revenue from contractual project is recognised over time, using an input method with reference to the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs.
The Company recognises revenue only when it can reasonably measure its progress in satisfying the performance obligation. Until such time, the Company recognises revenue to the extent of cost incurred, provided the Company expects to recover the costs incurred towards satisfying the performance obligation.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately when such probability is determined.
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 contracts/agreements. Revenue from sale of land and development rights is only recognised when transfer of legal title to the buyer is not a condition precedent for transfer of significant risks and rewards of ownership to the buyer.
Revenue from glazing projects is recognised over time, using an output method with reference to the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of the budgeted cost associated to the units produced/installed for work performed to date relative to the total contractual obligation of production/installation of such units.
The Company recognises revenue only when it can reasonably measure its progress in satisfying the performance obligation. Until such time, the Company recognises revenue to the extent of cost incurred, provided the Company expects to recover the costs incurred towards satisfying the performance obligation.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately when such probability is determined.
Revenue is recognised when control of the goods are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in
exchange for those goods. Revenue excludes indirect taxes and is after deduction of any trade discounts.
Revenue in respect of maintenance services and other services is recognised on an accrual basis, in accordance with the terms of the respective contract as and when the Company satisfies performance obligations by delivering the services as per contractual agreed terms.
vii) Other operating income
Interest on delayed receipts, cancellation/forfeiture income, transfer fees, marketing fee from customers are recognised based upon underlying agreements with customers and when reasonable certainty of collection is established.
Contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional.
Trade receivable represents the Company''s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due).
Contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract.
The Company recognises as an asset the incremental costs of obtaining a contract with a customer if the Company expects to recover those costs. The Company incurs costs such as sales commission when it enters into a new contract, which are directly related to winning the contract. The asset recognised is amortised on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates.
Rental income receivable under operating leases (excluding variable rental income) is recognized in the statement of profit and loss on a straight-line basis over the term of the lease including lease income on fair value of refundable security deposits. Rental income under operating leases having variable rental income is recognized as per the terms of the contract.
Revenue is recognised when the shareholders'' or unit holders'' right to receive payment is established, which is generally when shareholder approve the dividend.
The Company''s share in profits/losses from LLPs and partnership firm, where the Company is a partner, is recognised as income/loss in the statement of profit and loss as and when the right to receive its profit/loss share is established by the Company in accordance with the terms of contract between the Company and the partnership entity. Share in profit/loss is recorded under Partners Current Account.
Interest income, including income arising from other financial instruments, is recognised using the effective interest rate method.
Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Borrowing costs directly attributable to acquisition or construction of an asset which necessarily take a substantial period of time to get ready for their intended use are capitalised as part of the cost of that asset. Other borrowing costs are recognised as an expense in the period in which they are incurred.
The Company treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete.
Inventories are valued at the lower of cost and net realisable value. Cost is determined based on a weighted average basis. Net realizable 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.
I. Related to real estate and contractual activity
Direct expenditure relating to real estate 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 real estate activity. Cost incurred/items purchased specifically for projects are taken as consumed as and when incurred/received.
i) |
Work-in-progress (Real estate) |
Represents cost incurred in respect of projects where the revenue is yet to be recognized and includes cost of land (including development rights and nonrefundable deposits paid, if any under joint development |
arrangements (''JDA'')), internal development costs, external development charges, construction costs, overheads, borrowing cost etc. Land/development rights received under JDA is measured at the fair value of the estimated construction service rendered to the land owner and the same is accounted on launch of the project. |
||
ii) |
Stock of units/plots in completed real estate projects |
Represents cost incurred in respect of completed real estate project net cost of revenue. |
iii) |
Building materials |
Cost comprises of purchase price and other costs incurred in bringing the inventories to their present location and condition. |
iv) |
Land stock |
Represents land other than area transferred to work-in-progress at the commencement of construction. Cost comprises of purchase price under agreement to purchase, stamp duty, registration charges, brokerage cost and other incidental expenses. |
II. Related to glazing, interiors and concrete products activity |
||
i) |
Raw material, components and stores |
Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. |
ii) |
Work-in-progress and Finished goods |
Cost includes cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. |
Advances paid by the Company to the seller/intermediary towards outright purchase of land is recognised as land advance under other assets 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. Management is of the view that these advances are given under normal trade practices and are neither in the nature of loans nor advance in the nature of loans. (Refer note 14)
Foreign currency transactions are recorded in the functional currency, by applying the exchange rate between the functional currency and the foreign currency at the date of the transaction.
Foreign currency monetary items are retranslated using the exchange rate prevailing at the reporting date. 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. Non-monetary items, which are measured at fair value or other similar valuation denominated in a foreign currency, are translated using the exchange rate at the date when such value was determined.
The Company accounts for exchange differences arising on translation/settlement of foreign currency monetary items as income or as expense in the period in which they arise.
Property plant and equipment at their initial recognition are stated at their cost of acquisition. Cost of an item of property, plant and equipment comprises its purchase price, borrowing costs (if capitalization criteria are met), import duties, non-refundable taxes and directly 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. The Company identifies and determines cost of each component/part of the asset separately if the component/part have a cost which is significant to the total cost of the asset and has useful life that is materially different from that of the remaining asset.
The cost of a self-constructed item of property, plant and equipment comprises the cost of materials, direct labour, borrowing costs (if capitalization criteria are met) and any other costs directly attributable to bringing the asset to working condition for its intended use.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date is classified as capital advances under other non-current assets.
ii) Subsequent measurement
Items of property plant and equipment are measured at cost, less accumulated depreciation and any accumulated impairment losses, if any When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied.
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Company and the cost of the item can be measured reliably All other expenses on existing property, plant and equipment, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred.
An item of Property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the Property plant and equipment is de-recognized.
i) Recognition and initial measurement
Investment property is property held either to earn rental income or for capital appreciation or for both. Upon initial recognition, an investment property is measured at cost, including related transaction costs. The cost comprises purchase price, cost of replacing parts, borrowing cost, if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebates are deducted in arriving at the purchase price.
The cost of a self-constructed item of Investment property comprises the cost of materials, direct labour, borrowing costs (if capitalization criteria are met) and any other costs directly attributable to bringing the asset to working condition for its intended use.
ii) Subsequent measurement
Subsequent to initial recognition, investment property is measured at cost less accumulated depreciation and accumulated impairment losses, if any. When significant parts of the investment property are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives.
iii) Subsequent expenditure
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Company and the cost of the item can be measured reliably. All other repair and maintenance costs are recognised in statement of profit or loss as incurred.
iv) Derecognition
Investment property is derecognised either when control of the same is transferred to the buyer or when it is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or loss on disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss.
v) Reclassification from / to investment property
Transfers to (or from) investment property are made only when there is a change in use. Transfers between investment property, owner-occupied property and inventories do not change the carrying amount of the property transferred and they do not change the cost of that property for measurement or disclosure purposes.
vi) Fair value disclosure
Though the Company measures investment property using cost-based measurement, the fair value
of investment property is disclosed in the notes. Fair values are determined based on an annual evaluation performed by an accredited external independent valuer.
Depreciation is calculated on written down value basis using the following useful lives prescribed under Schedule II of the Act, except where specified.
Particulars |
Useful lives estimated by the management (in years) |
Property, plant and equipment |
|
Factory buildings |
30 |
Buildings - other than factory buildings |
60 |
Buildings - temporary structure for precast plant |
8 |
Buildings - temporary structure |
3 |
Plant and machinery |
|
i. General plant and machinery |
15 |
ii. Plant and machinery - Civil construction |
12 |
iii. Plant and machinery - Electrical installations |
10 |
iv. Plant and machinery - Precast plant |
8 |
v. Plant and machinery - Others |
3-5 |
Furniture and fixtures |
10 |
Motor vehicles - Two wheelers |
10 |
Motor vehicles - Four wheelers |
8 |
Computers |
|
i. Computer equipment |
3 |
ii. Servers and network equipment |
6 |
Office equipment |
5 |
Investment property |
|
Buildings - other than factory buildings |
60 |
Buildings - One Sobha |
46-48 |
Plant and machinery |
|
i. General plant and machinery |
15 |
ii. Plant and machinery |
12 |
Office equipments |
5 |
Furniture and fixtures |
10 |
The Company, based on technical assessment made by technical expert and management estimate, depreciates certain items of building and plant and equipment over estimated useful lives which are different from the useful life prescribed in Schedule II to the Companies Act, 2013. The management believes that these estimated useful lives are realistic and reflect fair approximation of the period over which the assets are likely to be used.
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 asset by the management based on planned usage and technical advice thereon. These lives are higher than those indicated in Schedule II.
Leasehold land is amortized on a straight-line basis over the balance period of lease Freehold land is not depreciated and is stated at cost less impairment loss, if any.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
Capital work-in-progress and intangible assets under development represents expenditure incurred in respect of capital projects/intangible assets under development which are not yet ready for their intended use and are carried at cost less accumulated impairment loss, if any.
Depreciation/amortisation is not provided on capital work-in-progress and intangible assets under development until construction/installation are complete and the asset is ready for its intended use.
j) Intangible 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, comprising of software and intellectual property rights are amortized on a straight line basis over a period of 3 years, which is estimated to be the useful life of the asset and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Statement of Profit or Loss when the asset is derecognised.
k) Leases
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
I. Company as a lessee
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
i) Right-of-use assets
The Company recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the lease term.
If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment. Refer to the accounting policies in note 2.2(p)(ii) on impairment of non-financial assets.
At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
The Company applies the short-term lease recognition exemption to its short-term leases (i.e. those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of assets that are considered to be low value. Lease payments on shortterm leases and leases of low value assets are recognised as expense on a straight-line basis over the lease term.
Leases in which the Company does not transfer substantially all the risks and rewards incidental to ownership of the asset are classified as operating leases. Assets subject to operating leases are included under Investment property.
Lease income from operating lease is recognized on a straight-line basis over the term of the relevant lease including lease income on fair value of refundable security deposits, unless the lease agreement explicitly states that increase is on account of inflation. Costs, including depreciation, are recognized as an expense in the statement of profit and loss. 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.
Retirement benefits in the form of state governed Employee Provident Fund and Employee State Insurance are defined contribution schemes (collectively the ''Schemes''). The Company has no obligation, other than the contribution payable to the Schemes. The Company recognizes
contribution payable to the Schemes as expenditure, when an employee renders the related service. The contribution paid in excess of amount due is recognized as an asset and the contribution due in excess of amount paid is recognized as a liability
ii) Gratuity
Gratuity is a post-employment benefit and is in the nature of a defined benefit plan. The liability recognised in the balance sheet in respect of gratuity is the present value of the defined benefit/ obligation at the balance sheet date, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit/ obligation is calculated at or near the balance sheet date by an independent actuary using the projected unit credit method. This is based on standard rates of inflation, salary growth rate and mortality. Discount factors are determined close to each year-end by reference to market yields on government bonds that have terms to maturity approximating the terms of the related liability Service cost and net interest expense on the Company''s defined benefit plan is included in statement of profit and loss. Actuarial gains/ losses resulting from re-measurements of the liability are included in other comprehensive income in the period in which they occur and are not reclassified to profit or loss in subsequent periods.
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.
iii) Compensated absences
Accumulated leave, which is expected to be utilized within the next twelve 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 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 12 months after the reporting date.
iv) Other short-term benefits
Short-term employee benefits comprising employee costs including performance bonus is recognized in the statement of profit and loss on the basis of the amount paid or payable for the period during which services are rendered by the employee.
Provisions are recognized only when there is a present obligation (legal or constructive), as a result of past events and it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and when a reliable estimate of the amount of obligation can be made at the reporting date. Provisions are discounted to their present values, where the time value of money is material, using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
When the Company expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit and loss net of any reimbursement.
If the Company has a contract that is onerous, the present obligation under the contract is recognised and measured as a provision. However, before a separate provision for an onerous contract is established, the Company recognises any impairment loss that has occurred on assets dedicated to that contract.
An onerous contract is a contract under which the unavoidable costs (i.e. the costs that the Company cannot avoid because it has the contract) of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.
A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control 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 it in the financial statements, unless the possibility of an outflow of resources embodying economic benefits is remote.
Contingent assets are neither recognised nor disclosed except when realisation of income is virtually certain, related asset is disclosed.
Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the year. Current and deferred tax are recognized in the statement of profit and loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively.
Current income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the taxable income for that period. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
Deferred income tax is recognized on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction.
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss (either in other comprehensive income or in equity). Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are initially measured at fair value, however, trade receivables and trade payables that do not contain a significant financing component are measured at transaction value and investments in subsidiaries are measured at cost in accordance with Ind AS 27 - Seperate financial statements. 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 measured on initial recognition of financial asset or financial liability.
Financial assets are subsequently measured at amortized cost if these financial assets are held within a business whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets are measured at fair value through other comprehensive income if these financial assets are held within a business whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets are measured at fair value through profit or loss unless it is measured at amortized cost or at fair value through other comprehensive income on initial recognition. The transaction costs directly attributable to the acquisition of financial assets and liabilities at fair value through profit or loss are immediately recognized in statement of profit and loss.
A ''debt instrument'' is measured at the amortized cost if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the profit or loss. The losses arising from impairment are recognized in the profit or loss. This category generally applies to trade and other receivables.
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments. Gains or losses on liabilities held for trading are recognized in the profit or loss.
Financial liabilities are subsequently carried at amortized cost using the effective interest (''EIR'') method.
Interest-bearing loans and borrowings are subsequently measured at amortized cost using EIR method. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition under Ind AS 109. A financial liability (or a part of a financial liability) is derecognized when the obligation specified in the contract is discharged or cancelled or expires.
ix) Reclassification of financial assets
The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial instruments.
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
In determining the fair value of its financial instruments, the Company uses following hierarchy and assumptions that are based on market conditions and risks existing at each reporting date.
Fair value hierarchy:
All assets and liabilities for which fair value is measured or disclosed in the standalone financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
⢠Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
⢠Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
⢠Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognized in the standalone financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Investment in equity instruments of subsidiaries, joint ventures and associates are stated at cost as per Ind AS 27 ''Separate Financial Statements''. Where the carrying amount of an investment is greater than its estimated recoverable amount, it is assessed for recoverability and in case of permanent diminution, provision for impairment is recorded in statement of Profit and Loss. On disposal of investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to the Statement of Profit and Loss.
The Company assesses at each date of balance sheet whether a financial asset or a group of financial assets (except financial assets valued through fair value through profit or loss) is impaired. Ind AS 109 requires expected credit losses to be measured through a loss allowance. The Company recognizes lifetime expected losses for all contract assets and / or all trade receivables that do not constitute a financing transaction. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month expected credit losses or at an amou
Mar 31, 2022
1 Corporate information
Sobha Limited (''Company'' or ''SL'') was incorporated on 7 August 1995. SL is a leading real estate developer engaged in the business of construction, development, sale, management and operation of all or any part of townships, housing projects, commercial premises and other related activities. The Company is also engaged in manufacturing activities related to interiors, glazing and metal works and concrete products which also provides backward integration to SL''s turnkey projects.
The Company is a public limited company domiciled in India and incorporated under the provisions of the Companies Act, 1956. The registered office is located at Bangalore. The Company''s shares and debentures are listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
The standalone financial statements are approved for issue by the Company''s Board of Directors on 20 May 2022.
2 Significant accounting policies
These financial statements are separate financial statements prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of Companies Act, 2013, ( the ''Act'') and other relevant provision of the Act.
The standalone financial statements have been prepared on the historical cost basis, except for the following assets and liabilities which have been measured at fair value:
⢠Certain financial assets and liabilities measured at fair value (refer accounting policy regarding financial instruments)
The standalone financial statements are presented in ? and all values are rounded to the nearest millions, except when otherwise indicated.
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 is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties collected on behalf of the government. Revenue includes excise duty, since the recovery of excise duty flows to the Company on its own account. However, sales tax/value added tax (VAT)/Goods and Services Tax (GST) is not received by the Company on its own account. These taxes are collected on value added to the commodity by the seller on behalf of the government. Accordingly, it is excluded from revenue.
The specific recognition criteria described below must also be met before revenue is recognised.
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 proportion of the contract work/ based upon the contracts/agreements entered into by the Company with its customers.
Revenue is recognized upon transfer of control of residential units to customers, in an amount that reflects the consideration the Company expects to receive in exchange for those residential units. The Company shall determine the performance obligations associated with the contract with customers at contract inception and also determine whether they satisfy the performance obligation over time or at a point in time. In case of residential units, the Company satisfies the performance obligation and recognises revenue at a point in time i.e., upon handover/deemed handover of the residential units.
Deemed handover of the residential units is considered upon intimation to the customers about receipt of occupancy certificate and receipt of total sale consideration.
To estimate the transaction price in a contract, the Company adjusts the promised amount of consideration for the time value of money if that contract contains a significant financing component. The Company when adjusting the promised amount of consideration for a significant financing component is to recognise revenue at an amount that reflects the cash selling price of the transferred residential unit.
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 contracts/ agreements. Revenue from sale of land and development rights is only recognised when transfer of legal title to the buyer is not a condition precedent for transfer of significant risks and rewards of ownership to the buyer.
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. 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.
Revenue is recognised when the shareholders'' or unit holders'' right to receive payment is established, which is generally when shareholder approve the dividend.
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.
Rental income receivable under operating leases (excluding variable rental income) is recognized in the statement of profit and loss on a straight-line basis over the term of the lease including lease income on fair value of refundable security deposits. Rental
income under operating leases having variable rental income is recognized as per the terms of the contract.
Interest income, including income arising from other financial instruments, is recognised using the effective interest rate method.
Property, plant and equipment are stated at their cost of acquisition/construction, net of accumulated depreciation and impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met, directly attributable cost of bringing the asset to its working condition for the intended use and initial estimate of decommissioning, restoring and similar liabilities. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. This applies mainly to components for machinery. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in statement of profit and loss as incurred.
Subsequent expenditure related to an item of property, plant and equipment is added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard of performance.
Borrowing costs directly attributable to acquisition of property, plant and equipment 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.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit and loss when the property, plant and equipment is derecognised.
Expenditure directly relating to construction activity is capitalised. Indirect expenditure incurred during construction period is capitalised to the extent to which the expenditure is indirectly related to construction or is incidental thereto. Other indirect expenditure (including borrowing costs) incurred during the construction period which is not related to the construction activity nor is incidental thereto is charged to the statement of profit and loss.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date is classified as capital advances under other non-current assets.
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and accumulated impairment loss, if any.
The cost includes the cost of replacing parts and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of the investment property are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. All other repair and maintenance costs are recognized in statement of profit and loss as incurred.
Though the Company measures investment property using cost based measurement, the fair value of investment property is disclosed in the notes. Fair values are determined based on an annual evaluation performed by an accredited external independent valuer.
Investment properties are derecognized either when they have been disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in statement of profit and loss in the period of derecognition.
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, comprising of software and intellectual property rights are amortized on a straight line basis over a period of 3 years, which is estimated to be the useful life of the asset and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period.
Depreciation is calculated on written down value basis using the following useful lives prescribed under Schedule II of the Act, except where specified.
Particulars |
Useful lives estimated by the management (in years) |
Property, plant and equipment |
|
Factory buildings |
30 |
Buildings - other than factory buildings |
60 |
Buildings - temporary structure for precast plant |
8 |
Buildings - temporary structure |
3 |
Plant and machinery |
|
i. General plant and machinery |
15 |
ii. Plant and machinery - Civil construction |
12 |
iii. Plant and machinery - Electrical installations |
10 |
Furniture and fixtures |
10 |
Motor vehicles |
8 |
Computers |
|
i. Computer equipment |
3 |
ii. Servers and network equipment |
6 |
Office equipment |
5 |
Investment property |
|
Buildings - other than factory buildings |
60 |
Plant and machinery |
|
i. General plant and machinery |
15 |
ii. Plant and machinery - Civil construction |
12 |
iii. Plant and Machinery - Electrical installations |
10 |
Furniture and fixtures |
10 |
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 asset by the management based on planned usage and technical advice thereon. These lives are higher than those indicated in Schedule II.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
The Company assesses, at each reporting date, whether there is an indication that any nonfinancial asset may be impaired. If any indication exists, or when annual impairment testing for a non-financial asset is required, 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) fair value less costs of disposal and its value in use. 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. When 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 fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
Impairment losses, including impairment on inventories, are recognised in the statement of profit and loss.
The Company assesses at each date of balance sheet whether a financial asset or a group of financial assets is impaired. Ind AS 109 requires expected credit losses to be measured through a loss allowance. The Company recognises lifetime expected losses for all contract assets and/or all trade receivables that do not constitute a financing transaction. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month expected credit losses or at an amount equal to the life time expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition.
The Company presents assets and liabilities in the balance sheet based on current/non-current classification. An asset is treated as current when it is:
- Expected to be realised or intended to be sold or consumed in normal operating cycle
- Held primarily for the purpose of trading
- Expected to be realised within twelve months after the reporting period, or
- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
- It is expected to be settled in normal operating cycle
- It is held primarily for the purpose of trading
- It is due to be settled within twelve months after the reporting period, or
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The real estate development projects undertaken by the Company generally run over a period ranging up to 5 years. Operating assets and liabilities relating to such projects are classified as current based on an operating cycle of up to 5 years. Borrowings in connection with such projects are classified as short-term (i.e. current) since they are payable over the term of the respective projects.
Assets and liabilities, other than those discussed above, are classified as current to the extent they are expected to be realised/are contractually repayable within 12 months from the balance sheet date and as non-current, in other cases.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The Company measures financial instruments at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
⢠Level 1 â Quoted prices (unadjusted) in active markets for identical assets or liabilities
⢠Level 2 â inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
⢠Level 3 â inputs for the asset or liability that are not based on observable market data (unobservable inputs).
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition and measurement
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset.
Classification and subsequent measurement
On initial recognition, financial asset is classified as measured at:
- amortised cost
- fair value through other comprehensive income (FVTOCI) - debt investment
- fair value through other comprehensive income (FVTOCI) - equity investment
- fair value through profit or loss (FVTPL)
A ''financial asset'' is measured at the amortised cost if both the following conditions are met and is not designated as FVTPL:
a) the asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b) contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
This category is the most relevant to the Company. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement of profit and loss. The losses arising from impairment are recognised in the statement of profit and loss. This category generally applies to trade and other receivables.
A ''Debt investment'' is classified as at the FVTOCI if both of the following criteria are met and is not designated as FVTPL:
a) the objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b) contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
Debt investment included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI)
FVTPL is a residual category for financial assets. Any financial assets, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL. Financial assets included within the FVTPL category are measured at fair value with all changes recognized in the statement of profit and loss. In addition, the Company may elect to designate a financial asset, which otherwise meets amortized cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as ''accounting mismatch''). The Company has not designated any financial asset as at FVTPL.
The Company has availed the option available in Ind AS 27 separate financial statements to carry its investment in subsidiaries and joint ventures at cost. Impairment recognized, if any, is reduced from the carrying value.
A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is primarily derecognised when:
⢠The rights to receive cash flows from the asset have expired, or
⢠The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ''pass-through'' arrangement and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Company''s continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Financial liabilities
All financial liabilities are recognised initially at fair value plus, in the case of financial liabilities not recorded at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue.
Classification, subsequent measurement and gains and losses
The financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as FVTPL if it is classified as held-for-trading or it is as derivative or deginated as such on initial recognition. Financial liabilities measured as FVTPL are measured at fair value and net gains or losses, including any interest expense, are recognised in statement of profit and loss. Other financial liabilities are subsequently measured at amortised cost using effective interest method. Interest expense and foreign exchange gains and losses are recognised in the statement of profit and loss. Any gain or loss on derecognition is also recognised in the statement of profit and loss.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit and loss.
Borrowing costs are interest and other costs incurred in connection with borrowings of funds. 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.
Cash and cash equivalents for the purposes of cash flow statement comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts as they are considered an integral part of the Company''s cash management.
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. The Company makes specified monthly contributions towards Government administered provident fund scheme. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in profit or loss in the periods during which the related services are rendered by employees.
Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company''s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Company, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan (''the asset ceiling''). In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised in Other Comprehensive Income (OCI). The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in the statement of profit and loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service (''past service cost'' or ''past service gain'') or the gain or loss on curtailment is recognised immediately in the statement of profit and loss. The Company recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.
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.
Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.
Past service costs are recognised in profit or loss on the earlier of
⢠The date of the plan amendment or curtailment, and
⢠The date that the company recognises related restructuring costs
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Company recognises the following changes in the net defined benefit obligation as an expense in the statement of profit and loss
⢠Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements; and
⢠Net interest expense or income
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 12 months after the reporting date.
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.
A provision is recognized when an enterprise has a present obligation (legal or constructive) as result of past event and it is probable that an outflow of embodying economic benefits of resources will be required to settle a reliably assessable obligation. Provisions are determined based on best estimate required to settle each obligation at each balance sheet date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
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 control 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 financial statements.
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 and buy back
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.
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 date. 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.
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-inprogress is valued at lower of cost and net realisable value.
iii. Finished goods - Flats: Valued at lower of cost and net realisable value.
iv. Finished goods - Plots: Valued at lower of cost and net realisable value.
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.
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.
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.
Land/ development rights received under joint development arrangements is measured at the fair value of the estimated construction service rendered to the land owner and the same is accounted on launch of the project. Further, non-refundable deposit amount paid by the Company under joint development arrangements is recognised as land advance under other assets and on the launch of the project, the non-refundable amount is transferred as land cost to work-in-progress.
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.
Right of use 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 the asset.
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.
The Company recognises a liability to make cash distributions to equity holders of the Company when the distribution is authorised and the distribution is no longer at the discretion of the Company. Final dividends on shares are recorded as a liability on the date of approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company''s Board of Directors.
! Significant accounting judgements, estimates and assumptions
The preparation of financial statements in conformity with the recognition and measurement principles of Ind AS requires management to make judgements, estimates and assumptions that affect the reported balances of revenues, expenses, assets and liabilities and the accompanying disclosures, and the disclosure of contingent liabilities. 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.
In the process of applying the accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements:
The Company determines whether a property is classified as investment property or inventory property:
Investment property comprises land and buildings (principally offices, commercial warehouse and retail property) that are not occupied substantially for use by, or in the operations of, the Company, nor for sale in the ordinary course of business, but are held primarily to earn rental income and capital appreciation. These buildings are substantially rented to tenants and not intended to be sold in the ordinary course of business.
Inventory property comprises property that is held for sale in the ordinary course of business. Principally, this is residential property that the Company develops and intends to sell before or on completion of construction.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
The Company uses the percentage-of-completion method for recognition of revenue, accounting for unbilled revenue and contract cost thereon for its contractual projects. The percentage of completion is measured by reference to the stage of the projects and contracts determined based on the proportion of contract costs incurred for work performed to date bear to the estimated total contract costs. Use of the percentage-of-completion method requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Significant assumptions are required in determining the stage of completion, the extent of the contract cost incurred, the estimated total contract revenue and contract cost and the recoverability of the contracts. These estimates are based on events existing at the end of each reporting date.
Income tax expense comprises of current and deferred tax. It is recognised in the statement of profit and loss except to the extent that it relates to an item recognised directly in equity or in other comprehensive income.
Current income tax
Current income tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax reflects the best estimate of the tax amount expected to be paid or received after considering the uncertainty, if any, related to income taxes. It is measured using tax rates (and tax laws) enacted or substantively enacted by the reporting date.
Current tax assets and current tax liabilities are offset only if there is a legally enforceable right to set off the recognised amounts, and it is intended to realise the asset and settle the liability on a net basis or simultaneously.
Deferred income tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for taxation purposes. Deferred tax is also recognised in respect of carried forward tax losses and tax credits. Deferred tax is not recognised for:
⢠temporary differences arising on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss at the time of the transaction;
⢠temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
⢠taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which they can be used. The existence of unused tax losses is strong evidence that future taxable profit may not be available. Therefore, in case of a history of recent losses, the Company recognises a deferred tax asset only to the extent that it has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available against which such deferred tax asset can be realised. Deferred tax assets - unrecognised or recognised, are reviewed at each reporting date and are recognised/ reduced to the extent that it is probable/ no longer probable respectively that the related tax benefit will be realised.
When determining whether a contract includes a significant financing component, the Company considers the period between performance and payment for that performance. For contracts where revenue is recognised at a point in time, the period considered is that between transfer of control of the good and the payment. Therefore, if payment for a property is made before the date on which control is transferred, an assessment is required of whether the contract includes a significant financing component, especially if the period is greater than twelve months.
Advanced payments from the customer lead to higher amount of revenue being recognised than the contract price because the Company accepts a lower amount in return for financing. As the entity recognises the interest expense related to the financing component, the corresponding amount is recorded as a contract liability/revenue.
Inventory property is stated at the lower of cost and net realisable value (NRV).
NRV for completed inventory property is assessed by reference to market conditions and prices existing at the reporting date and is determined by the Company, based on comparable transactions identified by the Company for properties in the same geographical market serving the same real estate segment.
NRV in respect of inventory property under construction is assessed with reference to market prices at the reporting date for similar completed property, less estimated costs to complete construction and an estimate of the time value of money to the date of completion.
With respect to land advance given, the net recoverable value is based on the present value of future cash flows, which depends on the estimate of, among other things, the likelihood that a project will be completed, the expected date of completion, the discount rate used and the estimation of sale prices and construction costs.
Ministry of Corporate Affairs (âMCAâ) notifies new standard or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. On 23 March 2022, MCA amended the Companies (Indian Accounting Standards) Amendment Rules, 2022, applicable from 1 April 2022, as below:
The amendments specify that to qualify for recognition as part of applying the acquisition method, the identifiable assets acquired and liabilities assumed must meet the definitions of assets and liabilities in the Conceptual Framework for Financial Reporting under Indian Accounting Standards (Conceptual Framework) issued by the Institute of Chartered Accountants of India at the acquisition date. These changes do not significantly change the requirements of Ind AS 103. The Company does not expect the amendment to have any impact in its financial statements.
The amendments mainly prohibit an entity from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, an entity will recognise such sales proceeds and related cost in profit or loss. The Company does not expect the amendments to have any impact in its recognition of its property, plant and equipment in its financial statements.
The amendments specify that the ''cost of fulfilling'' a contract comprises the ''costs that relate directly to the contract''. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of other costs that relate directly to fulfilling contracts. The amendment is essentially a clarification and the Company does not expect the amendment to have any significant impact in its financial statements.
The amendment clarifies which fees an entity includes when it applies the ''10 percent'' test of Ind AS 109 in assessing whether to derecognise a financial liability. The Company does not expect the amendment to have any impact in its financial statements.
The amendments remove the illustration of the reimbursement of leasehold improvements by the lessor in order to resolve any potential confusion regarding the treatment of lease incentives that might arise because of how lease incentives were described in that illustration. The Company does not expect the amendment to have any impact in its financial statements.
Mar 31, 2018
a) 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 is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties collected on behalf of the government. Revenue includes excise duty, since the recovery of excise duty flows to the Company on its own account.
However, sales tax/ value added tax (VAT) is not received by the Company on its own account. These taxes are collected on value added to the commodity by the seller on behalf of the government. Accordingly, it is excluded from revenue.
The specific recognition criteria described below must also be met before revenue is recognised.
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 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 buyersâ 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
Revenue from real estate projects including 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. Where the Company still has obligations to perform substantial acts even after the transfer of all significant risks and rewards, revenue in such cases is recognised by applying the percentage of completion method only if the following thresholds have been met:
(a) all critical approvals necessary for the commencement of the project have been obtained;
(b) the expenditure incurred on construction and development costs (excluding land cost) is not less than 25% of the total estimated construction and development costs;
(c) at least 25% of the saleable project area is secured by contracts/agreements with buyers; and
(d) at least 10% of the contracts/agreements value are realised at the reporting date in respect of such contracts/agreements.
When the outcome of a real estate project can be estimated reliably and the conditions above are satisfied, project revenue (including from sale of undivided share of land) and project costs associated with the real estate project should be recognised as revenue and expenses by reference to the stage of completion of the project activity at the reporting date arrived at with reference to the entire project costs incurred (including land costs).
Further, for projects executed through joint development arrangements, wherein the land owner/possessor provides land and the Company undertakes to develop properties on such land and in lieu of land owner providing land, the Company has agreed to transfer certain percentage of constructed area or certain percentage of the revenue proceeds, the revenue from the development and transfer of constructed area/ revenue sharing arrangement in exchange of such development rights/ land is being accounted on gross basis on launch of the project.
The revenue is measured at the fair value of the land received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the land received cannot be measured reliably, the revenue is measured at the fair value of the estimated construction service rendered to the land owner, adjusted by the amount of any cash or cash equivalents transferred. The fair value so estimated is considered as the cost of land in the computation of percentage of completion for the purpose of revenue recognition as discussed above.
There is diversity in real estate industryâs practice of presenting gross revenues and corresponding gross costs in such transactions. Over the period of the contract, there is no impact on profits arising from the above accounting treatment. Due to the diversity in practice for presentation of the above, the Company is in the process of consulting with the relevant bodies / committee dealing with clarifying matters relating to Ind AS.
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 contracts/ agreements. Revenue from sale of land and development rights is only recognised when transfer of legal title to the buyer is not a condition precedent for transfer of significant risks and rewards of ownership to the buyer.
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. 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 shareholdersâor unit holdersâright to receive payment is established, which is generally when shareholder approve the dividend.
v. Share in profits of partnership firm investments
The Companyâs share in profits from a firm where the Company is a partner, is recognised on the basis of such firmâs audited accounts, as per terms of the partnership deed.
vi. Interest income
Interest income, including income arising from other financial instruments, is recognised using the effective interest rate method.
b) Property, plant and equipment
Property, plant and equipment are stated at their cost of acquisition/construction, net of accumulated depreciation and impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met, directly attributable cost of bringing the asset to its working condition for the intended use and initial estimate of decommissioning, restoring and similar liabilities. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. This applies mainly to components for machinery. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in statement of profit and loss as incurred.
Subsequent expenditure related to an item of property, plant and equipment is added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard of performance.
Borrowing costs directly attributable to acquisition of property, plant and equipment 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.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the Property, plant and equipment is derecognised.
Expenditure directly relating to construction activity is capitalised. Indirect expenditure incurred during construction period is capitalised to the extent to which the expenditure is indirectly related to construction or is incidental thereto. Other indirect expenditure (including borrowing costs) incurred during the construction period which is not related to the construction activity nor is incidental thereto is charged to the statement of profit and loss.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date is classified as capital advances under other non-current assets.
c) Intangible 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, comprising of software and intellectual property rights are amortized on a straight line basis over a period of 3 years, which is estimated to be the useful life of the asset and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period.
d) Depreciation on Property, plant and equipment and Investment property
Depreciation is calculated on written down value basis using the following useful lives prescribed under Schedule II of the Act, except where specified.
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 asset by the management based on planned usage and technical advice thereon. This estimate of useful life is higher than those indicated in Schedule II.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
e) Impairment of non-financial assets
The Company assesses, at each reporting date, whether there is an indication that any non-financial asset may be impaired. If any indication exists, or when annual impairment testing for a non-financial asset is required, the Company estimates the assetâs recoverable amount. An assetâs recoverable amount is the higher of an assetâs or cash-generating unitâs (CGU) fair value less costs of disposal and its value in use. 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. When 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 fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
Impairment losses, including impairment on inventories, are recognised in the statement of profit and loss.
f) Impairment of financial assets
The Company assesses at each date of balance sheet whether a financial asset or a group of financial assets is impaired. Ind AS 109 requires expected credit losses to be measured through a loss allowance. The Company recognises lifetime expected losses for all contract assets and / or all trade receivables that do not constitute a financing transaction. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month expected credit losses or at an amount equal to the life time expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition.
g) Fair value measurement
The Company measures financial instruments at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
- Level 1 â Quoted prices (unadjusted) in active markets for identical assets or liabilities
- Level 2 â inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3 â inputs for the asset or liability that are not based on observable market data (unobservable inputs).
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
h) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition and measurement
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset.
Classification and subsequent measurement
On initial recognition, financial asset is classified as measured at:
- amortised cost
- fair value through other comprehensive income (FVTOCI) - debt investment
- fair value through other comprehensive income (FVTOCI) - equity investment
- fair value through profit or loss (FVTPL)
Financial assets at amortised cost
A âfinancial assetâis measured at the amortised cost if both the following conditions are met and is not designated as FVTPL:
a) the asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b) contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
This category is the most relevant to the Company. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement profit and loss. The losses arising from impairment are recognised in the statement profit and loss. This category generally applies to trade and other receivables.
Debt instrument at Fair Value Through Other Comprehensive Income(FVTOCI)
A âDebt instrumentâis classified as at the FVTOCI if both of the following criteria are met and is not designated as FVTPL:
a) the objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b) contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI).
Financial assets at Fair Value Through Profit or Loss (FVTPL)
FVTPL is a residual category for financial assets. Any financial assets, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL. financial assets included within the FVTPL category are measured at fair value with all changes recognized in the statement of profit and loss. In addition, the Company may elect to designate a financial asset, which otherwise meets amortized cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as âaccounting mismatchâ). The Company has not designated any financial asset as at FVTPL.
Equity investments in subsidiaries and joint ventures
The Company has availed the option available in Ind AS 27 separate financial statements to carry its investment in subsidiaries and joint ventures at cost. Impairment recognized, if any, is reduced from the carrying value.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is primarily derecognised when:
- The rights to receive cash flows from the asset have expired, or
- The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a âpass-throughâarrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Companyâs continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Financial liabilities
Initial recognition and measurement
All financial liabiilties are recognised initially at fair value plus, in the case of financial liabilities not recorded at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue.
Classification, subsequent measurement and gains and losses
The financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as FVTPL if it is classified as held-for-trading or it is as derivative or deginated as such on initial recognition. Financial liabilities measured as FVTPL are measured at fair value and net gains or losses, including any interest expense, are recognised in statement of profit and loss. Other financial liabilities are subsequently measured at amortised cost using effective interest method. Interest expense and foregin exchange gains and losses are recognised in the statement of profit and loss. Any gain or loss on derecgonition is also recoginsed in the statement of profit and loss.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit and loss.
i) Borrowing costs
Borrowing costs are interest and other costs incurred in connection with borrowings of funds. 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.
j) 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 deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts as they are considered an integral part of the Companyâs cash management.
k) Employee benefits
i. Defined contribution plans
A defined contribution plan is a postemployment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. The Company makes specified monthly contributions towards Government administered provident fund scheme. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in the statement of profit and loss in the periods during which the related services are rendered by employees.
Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
ii. Defined benefit plans
A defined benefit plan is a postemployment benefit plan other than a defined contribution plan. The Companyâs net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Company, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan (âthe asset ceilingâ). In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised in Other Comprehensive Income (OCI). The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in the statement of profit and loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service (âpast service costâor âpast service gainâ) or the gain or loss on curtailment is recognised immediately in the statement of profit and loss. The Company recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.
The Company makes contributions to Sobha Developers Employees Gratuity Trust (âthe Trustâ) 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.
Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.
Past service costs are recognised in profit or loss on the earlier of:
- The date of the plan amendment or curtailment, and
- The date that the company recognises related restructuring costs
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Company recognises the following changes in the net defined benefit obligation as an expense in the statement of profit and loss:
- Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements; and
- Net interest expense or income
Accumulated leave, which is expected to be utilized within the next 12 months, is treated as shortterm 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 12 months after the reporting date.
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.
l) Provisions
A provision is recognized when an enterprise has a present obligation (legal or constructive) as result of past event and it is probable that an outflow of embodying economic benefits of resources will be required to settle a reliably assessable obligation. Provisions are determined based on best estimate required to settle each obligation at each balance sheet date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
m) 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 control 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 financial statements.
n) 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 and buy back.
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.
o) Income taxes
Income tax expense comprises of current and deferred tax. It is recognised in the statement of profit and loss except to the extent that it relates to an item recognised directly in equity or in other comprehensive income.
Current income tax
Current income tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax reflects the best estimate of the tax amount expected to be paid or received after considering the uncertainty, if any, related to income taxes. It is measured using tax rates (and tax laws) enacted or substantively enacted by the reporting date.
Current tax assets and current tax liabilities are offset only if there is a legally enforceable right to set off the recognised amounts, and it is intended to realise the asset and settle the liability on a net basis or simultaneously.
Deferred income tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for taxation purposes. Deferred tax is also recognised in respect of carried forward tax losses and tax credits. Deferred tax is not recognised for:
- temporary differences arising on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss at the time of the transaction;
- temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
- taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which they can be used. The existence of unused tax losses is strong evidence that future taxable profit may not be available. Therefore, in case of a history of recent losses, the Group recognises a deferred tax asset only to the extent that it has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available against which such deferred tax asset can be realised. Deferred tax assets -unrecognised or recognised, are reviewed at each reporting date and are recognised/ reduced to the extent that it is probable/ no longer probable respectively that the related tax benefit will be realised.
Minimum Alternative Tax (MAT) may become payable when the taxable profit is lower than the book profit. Taxes paid under MAT are available as a set off against regular corporate tax payable in subsequent years, as per the provisions of Income tax Act, 1961. MAT paid in a year is charged to the statement of profit and loss as current tax. The Company recognizes MAT credit available as an asset only to the extent that there is convincing evidence that the Company will pay normal income tax during the specified period, i.e., the period for which MAT credit is allowed to be carried forward. In the year in which the Company recognizes MAT credit as an asset in accordance with the Guidance Note on Accounting for Credit Available in respect of Minimum Alternative Tax under the Income-tax Act, 1961, the said asset is created by way of credit to the statement of profit and loss and shown as âMAT credit entitlement.â The Company reviews the âMAT credit entitlementâ asset at each reporting date and writes down the asset to the extent the Company does not have convincing evidence that it will pay normal tax during the specified period.
p) 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 date. Nonmonetary 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.
q) Inventories
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 value.
iv. Finished goods - Plots: Valued at lower of cost and net realisable value.
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.
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.
r) Land
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.
Land/ development rights received under joint development arrangements is measured at the fair value of the estimated construction service rendered to the land owner and the same is accounted on launch of the project. Further, non-refundable deposit amount paid by the Company under joint development arrangements is recognised as land advance under other assets and on the launch of the project, the non-refundable amount is transferred as land cost to work-in-progress.
s) Leases 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 the asset.
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.
t) Cash dividend to equity holders of the Company
The Company recognises a liability to make cash distributions to equity holders of the Company when the distribution is authorised and the distribution is no longer at the discretion of the Company. Final dividends on shares are recorded as a liability on the date of approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Companyâs Board of Directors.
Mar 31, 2017
1 Corporate Information
Sobha Limited (âCompany'' or âSL'') was incorporated on August 07, 1995. SL is a leading real estate developer engaged in the business of construction, development, sale, management and operation of all or any part of townships, housing projects, commercial premises and other related activities. The Company is also engaged in manufacturing activities related to interiors, glazing and metal works and concrete products which also provides backward integration to SL''s turnkey projects.
The Company is a public limited Company domiciled in India and incorporated under the provisions of the Indian Companies Act. The registered office is located at Bangalore. Its shares are listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
The standalone financial statements are approved for issue by the Company''s Board of Directors on May 16, 2017.
2 Significant accounting policies
2.1 Basis of preparation
The financial statements are separate financial statements prepared in accordance with Indian
Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time).
For all periods up to and including the year ended March 31, 2016, the Company prepared its financial statements in accordance with accounting standards notified under the section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Indian GAAP). These standalone financial statements for the year ended March 31, 2017 are the first the Company has prepared in accordance with Ind AS. Refer to note 46 for information on how the Company adopted Ind AS.
The standalone financial statements have been prepared on the historical cost basis, except for the following assets and liabilities which have been measured at fair value:
- Certain financial assets and liabilities measured at fair value (refer accounting policy regarding financial instruments).
The standalone financial statements are presented in INR and all values are rounded to the nearest millions, except when otherwise indicated.
2. 2 Summary of significant accounting policies
a) Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties collected on behalf of the government. Revenue includes excise duty, since the recovery of excise duty flows to the Company on its own account. However, sales tax/ value added tax (VAT) is not received by the Company on its own account. Rather, it is tax collected on value added to the commodity by the seller on behalf of the government. Accordingly, it is excluded from revenue.
The specific recognition criteria described below must also be met before revenue is recognized.
i. Recognition of revenue from contractual projects
If the outcome of contractual contract can be reliably measured, revenue associated with the construction contract is recognized 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 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 recognized 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
Revenue from real estate projects including revenue from sale of undivided share of land [group housing] is recognized 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. Where the Company still has obligations to perform substantial acts even after the transfer of all significant risks and rewards, revenue in such cases is recognized by applying the percentage of completion method only if the following thresholds have been met:
(a) all critical approvals necessary for the commencement of the project have been obtained;
(b) the expenditure incurred on construction and development costs (excluding land cost) is not less than 25 % of the total estimated construction and development costs;
(c) at least 25 % of the saleable project area is secured by contracts/agreements with buyers; and
(d) at least 10 % of the contracts/agreements value are realized at the reporting date in respect of such contracts/agreements.
When the outcome of a real estate project can be estimated reliably and the conditions above are satisfied, project revenue (including from sale of undivided share of land) and project costs associated with the real estate project should be recognized as revenue and expenses by reference to the stage of completion of the project activity at the reporting date arrived at with reference to the entire project costs incurred (including land costs).
Further, for projects executed through joint development arrangements, wherein the land owner/possessor provides land and the Company undertakes to develop properties on such land and in lieu of land owner providing land, the Company has agreed to transfer certain percentage of constructed area or certain percentage of the revenue proceeds, the revenue from the development and transfer of constructed area/revenue sharing arrangement in exchange of such development rights/ land is being accounted on gross basis on launch of the project.
The revenue is measured at the fair value of the land received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the land received cannot be measured reliably, the revenue is measured at the fair value of the estimated construction service rendered to the land owner, adjusted by the amount
of any cash or cash equivalents transferred. The fair value so estimated is considered as the cost of land in the computation of percentage of completion for the purpose of revenue recognition as discussed above.
b. Recognition of revenue from sale of land and development rights
Revenue from sale of land and development rights is recognized 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. Revenue from sale of land and development rights is only recognized when transfer of legal title to the buyer is not a condition precedent for transfer of significant risks and rewards of ownership to the buyer.
iii. Recognition of revenue from manufacturing division
Revenue from sale of materials is recognized 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. Service income is recognized 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 recognized when the shareholders'' or unit holders'' right to receive payment is established, which is generally when shareholder approve the dividend.
v. Share in profits of partnership firm investments
The Company''s share in profits from a firm where the Company is a partner, is recognized on the basis of such firm''s audited accounts, as per terms of the partnership deed.
vi. Interest income
Interest income, including income arising from other financial instruments, is recognized using the effective interest rate method.
b) Property, plant and equipment
Since there is no change in the functional currency, the Company has elected to continue with the carrying value for all of its property, plant and equipment as recognized in its Indian GAAP financial statements as deemed cost at the transition date, viz., April 1, 2015. Property, plant & equipment are stated at their cost of acquisition/construction, net of accumulated depreciation and impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met, directly attributable cost of bringing the asset to its working condition for the intended use and initial estimate of decommissioning, restoring and similar liabilities. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. This applies mainly to components for machinery. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in profit or loss as incurred.
Subsequent expenditure related to an item of property, plant and equipment is added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard of performance.
Borrowing costs directly attributable to acquisition of property, plant and equipment 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.
An item of property, plant and equipment and any significant part initially recognized is de-recognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the Property, plant and equipment is derecognized.
Expenditure directly relating to construction activity is capitalized. Indirect expenditure incurred during construction period is capitalized to the extent to which the expenditure is indirectly related to construction or is incidental thereto. Other indirect expenditure (including borrowing costs) incurred during the construction period which is not related to the construction activity nor is incidental thereto is charged to the statement of profit and loss.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date is classified as capital advances under other non-current assets.
c) Investment properties
Since there is no change in the functional currency, the Company has elected to continue with the carrying value for all of its investment property as recognized in its Previous GAAP financial statements as deemed cost at the transition date, viz., April 1, 2015. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and accumulated impairment loss, if any.
The cost includes the cost of replacing parts and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of the investment property are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. All other repair and maintenance costs are recognized in profit or loss as incurred.
Though the Company measures investment property using cost based measurement, the fair value of investment property is disclosed in the notes. Fair values are determined based on an annual evaluation performed by an accredited external independent valuer.
Investment properties are de-recognized either when they have been disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period of de-recognition.
d) Intangible 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, comprising of software and intellectual property rights are amortized on a straight line basis over a period of 3 years, which is estimated to be the useful life of the asset and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period.
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 asset by the management based on planned usage and technical advice thereon. These lives are higher than those indicated in Schedule II.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
f) Impairment of non financial assets
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset''s recoverable amount. An asset''s recoverable amount is the higher of an asset''s or cash-generating units (CGU) fair value less costs of disposal and its value in use. 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. When 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 fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
Impairment losses, including impairment on inventories, are recognized 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.
g) Impairment of financial assets
The Company assesses at each date of balance sheet whether a financial asset or a group of financial assets is impaired. Ind AS 109 requires expected credit losses to be measured through a loss allowance. The Company recognizes lifetime expected losses for all contract assets and / or all trade receivables that do not constitute a financing transaction. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month expected credit losses or at an amount equal to the life time expected credit losses, if the credit risk on the financial asset has increased significantly since initial recognition.
h) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification. An asset is treated as current when it is:
- Expected to be realized or intended to be sold or consumed in normal operating cycle;
- Held primarily for the purpose of trading;
- Expected to be realized within twelve months after the reporting period, or
- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period All other assets are classified as non-current.
A liability is current when:
- I t is expected to be settled in normal operating cycle;
- I t is held primarily for the purpose of trading;
- I t is due to be settled within twelve months after the reporting period, or
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
The Company classifies all other liabilities as non-current.
The operating cycle is the time between the acquisition of assets for processing and their realization in cash and cash equivalents. The real estate development projects undertaken by the Company generally run over a period ranging up to
5 years. Operating assets and liabilities relating to such projects are classified as current based on an operating cycle of up to 5 years. Borrowings in connection with such projects are classified as short-term (i.e. current) since they are payable over the term of the respective projects. Assets and liabilities, other than those discussed above, are classified as current to the extent they are expected to be realized / are contractually repayable within 12 months from the Balance sheet date and as non-current, in other cases. Deferred tax assets and liabilities are classified as non-current assets and liabilities.
i) Fair value measurement
The Company measures financial instruments, such as investments at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability, or
- In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
- Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
- Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable, or
- Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
j) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition and measurement
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
- Debt instruments at amortized cost Debt instruments at fair value through other comprehensive income (FVTOCI);
- Debt instruments and equity instruments at fair value through profit or loss (FVTPL);
- Equity instruments measured at fair value through other comprehensive income (FVTOCI).
Debt instruments at amortized cost
A âdebt instrument'' is measured at the amortized cost if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
This category is the most relevant to the Company. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the profit or loss. The losses arising from impairment are recognized in the profit or loss. This category generally applies to trade and other receivables.
Debt instrument at FVTOCI
A âdebt instrument'' is classified as at the FVTOCI if both of the following criteria are met:
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b) The asset''s contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI).
Debt instrument at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL. Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the statement of profit and loss.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortized cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as âaccounting mismatch''). The Company has not designated any debt instrument as at FVTPL.
Equity investments in subsidiaries and joint ventures
The Company has availed the option available in Ind AS 27 to carry its investment in subsidiaries and joint ventures at cost. Impairment recognized, if any, is reduced from the carrying value.
De-recognition
A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is primarily de-recognized when:
- The rights to receive cash flows from the asset have expired, or
- The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a âpass-through'' arrangement and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company''s continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, or as payables, as appropriate.
The Company''s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term.
Gains or losses on liabilities held for trading are recognized in the profit or loss.
Loans and borrowings
This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are de-recognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
Trade and other payables
These amounts represent liabilities for goods and services provided to the Company prior to the end of financial year which are unpaid. Trade and other payables are presented as current liabilities unless payment is due within 12 months after reporting period. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
Financial guarantee contracts
Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the amount of loss allowance determined as per impairment requirements of Ind AS 109 and the amount recognized less cumulative amortization.
De-recognition
A financial liability is de-recognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.
k) Borrowing costs
Borrowing costs directly attributable to acquisition/ construction of qualifying assets are capitalized 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/ capitalization are charged to statement of profit and loss.
l) 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 deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts as they are considered an integral part of the Company''s cash management.
m) Retirement and other employee benefits
Retirement benefit in the form of provident fund is a defined contribution scheme and the contributions are charged to the statement of profit and loss for 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 (âthe 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.
Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
Past service costs are recognized in profit or loss on the earlier of:
- The date of the plan amendment or curtailment, and
- The date that the company recognizes related restructuring costs.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Company recognizes the following changes in the net defined benefit obligation as an expense in the statement of profit and loss:
- Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements; and
- Net interest expense or income.
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.
Expense in respect of other short term benefits is recognized on the basis of the amount paid or payable for the period for which the services are rendered by the employee.
n) Provisions
A provision is recognized when an enterprise has a present obligation (legal or constructive) as result of past event and it is probable that an outflow of embodying economic benefits of resources will be required to settle a reliably assessable obligation. Provisions are determined based on best estimate required to settle each obligation at each balance sheet date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
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 control 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 financial statements.
p) 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.
q) Taxes
Tax expense comprises of current and deferred tax.
Current income 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. Current income tax relating to items recognized outside profit or loss is recognized outside profit or loss (either in other comprehensive income or in equity). Current tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity.
Deferred income tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.
Deferred tax assets and liabilities are recognized for all taxable temporary differences, except:
- In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future, and
- When the deferred tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.
Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Minimum Alternative Tax (MAT) may become payable when the taxable profit is lower than the book profit. Taxes paid under MAT are available as a set off against regular corporate tax payable in subsequent years, as per the provisions of Income Tax Act. MAT paid in a year is charged to the statement of profit and loss as current tax. The Company recognizes MAT credit available as an asset only to the extent that there is convincing evidence that the Company will pay normal income tax during the specified period, i.e., the period for which MAT credit is allowed to be carried forward. In the year in which the Company recognizes MAT credit as an asset in accordance with the Guidance Note on Accounting for Credit Available in respect of Minimum Alternative Tax under the Income-tax Act, 1961, the said asset is created by way of credit to the statement of profit and loss and shown as âMAT Credit Entitlement.â The Company reviews the âMAT credit entitlementâ asset at each reporting date and writes down the asset to the extent the Company does not have convincing evidence that it will pay normal tax during the specified period.
r) 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 date. Nonmonetary 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 recognized as income or as expenses in the year in which they arise.
s) Inventories
Related to contractual and real estate activity
Direct expenditure relating to construction activity is inventoried. Other expenditure (including borrowing costs) during construction period is inventoried 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 recognized 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 realizable 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 recognized. Real estate work-in-progress is valued at lower of cost and net realizable value.
iii. Finished goods - Flats: Valued at lower of cost and net realizable value.
iv. Finished goods - Plots: Valued at lower of cost and net realizable value.
v. Building materials purchased, not identified with any specific project are valued at lower of cost and net realizable value. Cost is determined based on a weighted average basis.
vi. Land inventory: Valued at lower of cost and net realizable value.
Related to manufacturing activity
i. Raw materials are valued at lower of cost and net realizable 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 realizable 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 realizable 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.
t) Land
Advances paid by the Company to the seller/ intermediary toward outright purchase of land is recognized 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.
Land/ development rights received under joint development arrangements is measured at the fair value of the estimated construction service rendered to the land owner and the same is accounted on launch of the project. Further, non-refundable deposit amount paid by the Company under joint development arrangements is recognized as land advance under other assets and on the launch of the project, the non-refundable amount is transferred as land cost to work-in-progress.
u) Leases 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 the asset.
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.
v) Cash dividend to equity holders of the Company
The Company recognizes a liability to make cash distributions to equity holders of the Company when the distribution is authorized and the distribution is no longer at the discretion of the Company. Final dividends on shares are recorded as a liability on the date of approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company''s Board of Directors.
3 Significant accounting judgments, estimates and assumptions
The preparation of financial statements in conformity with the recognition and measurement principles of Ind AS requires management to make judgments, estimates and assumptions that affect the reported balances of revenues, expenses, assets and liabilities and the accompanying disclosures, and the disclosure of contingent liabilities. 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.
a) Judgments
In the process of applying the accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the financial statements:
i) Classification of property
The Company determines whether a property is classified as investment property or inventory property:
Investment property comprises land and buildings (principally offices, commercial warehouse and retail property) that are not occupied substantially for use by, or in the operations of, the Company, nor for sale in the ordinary course of business, but are held primarily to earn rental income and capital appreciation. These buildings are substantially rented to tenants and not intended to be sold in the ordinary course of business.
Inventory property comprises property that is held for sale in the ordinary course of business. Principally, this is residential property that the Company develops and intends to sell before or on completion of construction.
b) Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
i) Revenue recognition, contract costs and valuation of unbilled revenue
The Company uses the percentage-of-completion method for recognition of revenue, accounting for unbilled revenue and contract cost thereon for its real estate and contractual projects. The percentage of completion is measured by reference to the stage of the projects and contracts determined based on the proportion of contract costs incurred for work performed to date bear to the estimated total contract costs. Use of the percentage-of-completion method requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Significant assumptions are required in determining the stage of completion, the extent of the contract cost incurred, the estimated total contract revenue and contract cost and the recoverability of the contracts. These estimates are based on events existing at the end of each reporting date.
For revenue recognition for projects executed through joint development arrangements, refer clause (ii) below as regards estimates and assumptions involved.
ii) Accounting for revenue and land cost for projects executed through joint development arrangements (âJDAâ)
For projects executed through joint development arrangements, as explained in note 2.2(a) under significant accounting policies, the revenue from the development and transfer of constructed area/ revenue sharing arrangement and the corresponding land/ development rights received under JDA is measured at the fair value of the estimated construction service rendered to the land owner and the same is accounted on launch of the project. The fair value is estimated with reference to the terms of the JDA (whether revenue share or area share) and the related cost that is allocated to discharge the obligation of the Company under the JDA. Fair value of the construction is considered to be the representative fair value of the revenue transaction and land so obtained. Such assessment is carried out at the launch of the real estate project and is not reassessed at each reporting period. The Management is of the view that the fair value method and estimates are reflective of the current market condition.
iii) Estimation of net realizable value for inventory property (including land advance)
Inventory property is stated at the lower of cost and net realizable value (NRV).
NRV for completed inventory property is assessed by reference to market conditions and prices existing at the reporting date and is determined by the Company, based on comparable transactions identified by the Company for properties in the same geographical market serving the same real estate segment.
NRV in respect of inventory property under construction is assessed with reference to market prices at the reporting date for similar completed property, less estimated costs to complete construction and an estimate of the time value of money to the date of completion.
With respect to Land advance given, the net recoverable value is based on the present value of future cash flows, which depends on the estimate of, among other things, the likelihood that a project will be completed, the expected date of completion, the discount rate used and the estimation of sale prices and construction costs.
Mar 31, 2015
A) Change in accounting policy
I Depreciation on fixed assets
Till the year ended March 31, 2014, Schedule XIV to the Companies Act,
1956, prescribed requirements concerning depreciation of fixed assets.
From the current year, Schedule XIV has been replaced by Schedule II to
the Companies Act, 2013. The applicability of Schedule II has resulted
in the following changes related to depreciation of fixed assets.
i) Useful lives/ depreciation rates
Till the year ended March 31, 2014, depreciation rates prescribed under
Schedule XIV were treated as minimum rates and the Company
was not allowed to charge depreciation at lower rates even if such
lower rates were justified by the estimated useful life of the asset.
Schedule II to the Companies Act, 2013 prescribes useful lives for
fixed assets which, in many cases, are different from lives prescribed
under the erstwhile Schedule XIV. However, Schedule II allows companies
to use higher/ lower useful lives and residual values if such useful
lives and residual values can be technically supported and
justification for difference is disclosed in the financial statements.
Considering the applicability of Schedule II, the management has
re-estimated useful lives and residual values of all its fixed assets.
The management believes that depreciation rates currently used fairly
reflect its estimate of the useful lives and residual values of fixed
assets, though these rates in certain cases are different from lives
prescribed under Schedule II. Accordingly, the carrying amount as at
April 01, 2014 is being depreciated over the revised remaining useful
life of the asset. The carrying value of Rs. 16.66 million, in case of
assets with Nil revised remaining useful life as at April 01, 2014, is
reduced after tax adjustment from the retained earnings as at such
date. Further, had the Company continued with the previously assessed
useful lives, charge for depreciation for the year ended March 31, 2015
would have been lower by Rs. 96 million and the profit before tax for
the year ended March 31, 2015 would have been higher by such amount,
with a corresponding impact on net block of fixed assets as at March
31,2015.
ii) Depreciation on assets costing less than Rs. 5,000/-
Till year ended March 31, 2014, to comply with the requirements of
Schedule XIV to the Companies Act, 1956, the Company was charging 100%
depreciation on assets costing less than Rs. 5,000/- in the year of
purchase. However, Schedule II to the Companies Act 2013, applicable
from the current year, does not recognize such practice. Hence, to
comply with the requirement of Schedule II to the Companies Act, 2013,
the Company has changed its accounting policy for depreciations of
assets costing less than Rs. 5,000/- As per the revised policy, the
Company is depreciating such assets over their useful life as assessed
by the management. The management has decided to apply the revised
accounting policy prospectively from accounting periods commencing on
or after April 1, 2014.
The change in accounting for depreciation of assets costing less than
Rs. 5,000/- did not have any material impact on financial statements of
the Company for the current year.
II Corporate social responsibility (CSR)
Refer note 2.1 (s) and 38 to the financial statements.
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, net realisable value of inventory (including land
advance/ refundable deposits) and provisions for bad and doubtful debts
Any revision to accounting estimates is recognised prospectively.
c) Tangible fixed assets and Intangible 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.
Subsequent expenditure related to an item of fixed asset is added to
its book value only if it increases the future benefits from the
existing asset beyond its previously assessed standard of performance.
All other expenses on existing fixed assets, including day-to-day
repair and maintenance expenditure and cost of replacing parts, are
charged to the statement of profit and loss for the period during which
such expenses are incurred.
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.
Expenditure directly relating to construction activity is capitalised.
Indirect expenditure incurred during construction period is capitalised
to the extent to which the expenditure is indirectly related to
construction or is incidental thereto. Other indirect expenditure
(including borrowing costs) incurred during the construction period
which is not related to the construction activity nor is incidental
thereto is charged to the statement of profit and loss.
ii. Intangible 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, comprising of software
and intellectual property rights 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 fixed assets is calculated on written down value basis
using the following useful lives prescribed under Schedule II, except
where specified.
Useful lives estimated by the management
(in years)
Tangible fixed assets March 31, 2015 March 31, 2014
Factory 30 28
buildings
Buildings - other than factory
buildings 60 59
Buildings - Temporary
structure 3 3
Plant and
machinery
i. General plant and machinery 15 20
ii. Plant and machinery - Civil
construction 12 20
iii. Plant and Machinery -
Electrical installations 10 20
Furniture and fixtures 10 15
Motor vehicles 8 10
Computers
i. Computer equipment 3 6
ii. Servers and network equipment 6 6
Office equipments 5 20
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
asset by the management based on planned usage and technical advice
thereon. These lives are higher than those indicated in Schedule II.
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.
f) Leases
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
the asset.
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.
g) Investments
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
investments.
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.
h) Inventories
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
value.
iv. Finished goods - Plots: Valued at lower of cost and net realisable
value.
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.
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 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
For projects commenced and period where revenue recognised before April
01, 2012 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
housing]
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/
agreements.
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.
For projects commenced on or after April 01, 2012 and also to projects
which have already commenced but where revenue is being recognised for
the first time on or after April 01, 2012
Revenue from real estate projects including 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. Where the Company still has obligations to perform
substantial acts even after the transfer of all significant risks and
rewards, revenue in such cases is recognised by applying the percentage
of completion method only if the following thresholds have been met:
(a) all critical approvals necessary for the commencement of the
project have been obtained;
(b) the expenditure incurred on construction and development costs
(excluding land cost) is not less than 25 % of the total estimated
construction and development costs;
(c at least 25 % of the saleable project area is secured by
contracts/agreements with buyers; and
(d) at least 10 % of the contracts/ agreements value are realised at
the reporting date in respect of such contracts/agreements.
When the outcome of a real estate project can be estimated reliably and
the conditions above are satisfied, project revenue (including from
sale of undivided share of land) and project costs associated with the
real estate project should be recognised as revenue and expenses by
reference to the stage of completion of the project activity at the
reporting date arrived at with reference to the entire project costs
incurred (including land costs).
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
contracts/ agreements. Revenue from sale of land and development rights
is only recognised when transfer of legal title to the buyer is not a
condition precedent for transfer of significant risks and rewards of
ownership to the buyer.
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 unit holders'' 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 when the same is credited to the Company''s
current account 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 date. 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.
k) Taxes
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
realised
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
period.
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 not deferred.
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.
n) Provisions
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
estimates.
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
control 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
financial statements.
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.
r) Land
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
project.
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) Corporate social responsibility (CSR)
In accordance with the clarification issued by the Institute of
Chartered Accountants of India, vide FAQ''s on the provisions of CSR
applicability under the Comapnies Act, 2013, the Company has adopted
the policy to charge CSR expenditure incurred as an appropriation of
profit with effect from April 01, 2014.
Mar 31, 2013
A) Change in accounting policy
Revenue Recognition
Effective April 1, 2012, the Guidance Note on Accounting for Real
Estate Transactions (Revised 2012) issued by the Institute of Chartered
Accountants of India has become applicable to all projects in real
estate which are commenced on or after April 1, 2012 and also to
projects which have already commenced but where revenue is being
recognised for the first time on or after April 1, 2012. This has
resulted in lower revenue recognition and lower profits before taxes
ofRs. 677 million and Rs. 430 million respectively during the year
ended March 31, 2013.
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 fixed assets and Intangible 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 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
asset.
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 oftangible 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.
f) Leases
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
the asset.
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.
g) Investments
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
investments.
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.
h) Inventories
Related to contractual and realestate 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.
Hi. Finished goods - Flats: Valued at lower of cost and net realisable
value.
iv. Finished goods - Plots: Valued at lower of cost and net realisable
value.
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
asset.
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
For projects commenced and period where revenue recognised beforeApnl
1,2012
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 forwork 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
housing]
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/
agreements.
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.
For projects commenced on or after Aprii 7, 2012 and also to projects
which have already commenced but where revenue is being recognised for
the first time on or after Aprii 1, 2012.
Revenue from real estate projects including 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. Where the Company still has obligations to perform
substantial acts even after the transfer of all significant risks and
rewards, revenue in such cases is recognised by applying the percentage
of completion method only if the following thresholds have been met:
(a) all critical approvals necessary for the commencement of the
project have been obtained;
(b) the expenditure incurred on construction and development costs
(excluding land cost) is not less than 25% of the total estimated
construction and development costs;
(c) at least 25% of the saleable project area is secured by
contracts/agreements with buyers; and
(d) at least 10% of the contracts/agreements value are realised at the
reporting date in respect of such contracts/agreements.
When the outcome of a real estate project can be estimated reliably and
the conditions above are satisfied project revenue (including from sale
of undivided share of land) and project costs associated with the real
estate project should be recognised as revenue and expenses by
reference to the stage of completion of the project activity at the
reporting date arrived at with reference to the entire project costs
incurred (including land costs).
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
contracts/ agreements. Revenue from sale of land and development rights
is only recognised when transfer of legal title to the buyer is not a
condition precedent for transfer of significant risks and rewards of
ownership to the buyer.
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 when the same is credited to account ofthe
company''s current account 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 date. 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.
k) Taxes
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
realised.
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
period.
I) 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
not deferred.
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.
n) Provisions
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
estimates.
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
control 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
financial statements.
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.
r) Land
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
project.
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.
Mar 31, 2012
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
asset.
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
f) Leases
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
the asset.
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.
g) Investments
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
investments.
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.
h) Inventories
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
value.
iv. Finished goods - Plots: Valued at lower of cost and net realisable
value.
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
asset.
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
housing]
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/
agreements.
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
contracts/ agreements.
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.
k) Taxes
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
realised.
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
period.
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
not deferred.
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.
n) Provisions
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
estimates.
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
financial statements.
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.
r) Land
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
project.
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
operations.
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.
Mar 31, 2011
A) Basis of preparation
The financial statements have been prepared to comply in all material
respects with the accounting standards notified by Companies
(Accounting Standards) Rules 2006, (as amended) and the relevant
provisions of the Companies Act, 1956 (Ãthe ActÃ). The financial
statements have been prepared under the historical cost convention on
an accrual basis in accordance with accounting principles generally
accepted in India. The accounting policies have been consistently
applied by the Company and are consistent with those used in previous
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 managementÃs 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, estimates of the economic useful lives of
fixed assets, provisions for bad and doubtful debts. Any revision to
accounting estimates is recognised prospectively.
c) Fixed assets
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.
Borrowing costs relating 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.
d) Depreciation/ amortisation
Depreciation on assets 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
asset.
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.
Intangible assets à Expenditure incurred on software is amortised using
straight line method over a period of 3 years, which is estimated to be
the useful life of the asset.
e) Impairment
The Company assesses at each balance sheet date whether there is any
indication that an asset may be impaired based on internal/ external
factors. If any such indication exists, the Company estimates the
recoverable amount of the asset. An impairment loss is recognized
wherever the carrying amount of an asset exceeds its recoverable
amount. The recoverable amount is the greater of the assetÃs net
selling price and value in use. In assessing value
in use, the estimated future cash flows are discounted to their present
value at the weighted average cost of capital.
f) Leases
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 recognised as an expense
in the profit and loss account on a straight-line basis over the lease
term.
Finance leases, which effectively transfer to the Company substantially
all the risks and benefits incidental to ownership of the leased item,
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 charged directly against income.
g) Investments
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. 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 investments.
h) Inventories
Related to contractual and real estate activity
Direct expenditure relating to construction activity is inventorised.
Indirect expenditure (including borrowing costs) during construction
period is inventorised to the extent the expenditure is related to
construction or is incidental thereto. Other indirect expenditure
(including borrowing costs) incurred during the construction period
which is neither related to the construction activity nor is
incidental thereto is charged to the profit and loss account. 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
value.
iv. Finished goods - Plots: Valued at lower of cost and net realisable
value.
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.
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. Income from operations (gross) is gross of sales
tax/ value added tax and net of adjustment on account of cancellation/
returns.
i. Recognition of revenue from contractual projects
Revenue from fixed price contractual projects 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.
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
buyersà commitment to make the complete payment.
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 signifi cant 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
housing]
Revenue from sale of undivided share of land [group housing] is
recognised upon transfer of allsignifi cant 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 /
agreements.
Revenue from real estate projects include charges collected from
clients 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
contracts/ agreements.
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 shareholdersà or unitholdersà right to
receive payment is established by the balance sheet date.
v. Share in profits of partnership firm investments
The CompanyÃs share in profits from a firm where the Company is a
partner, is recognised on the basis of such firmÃs 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
closing rate. 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.
k) Taxes
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
realised.
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 profit and loss account 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
period.
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 profit and
loss account 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 (Ãthe trustÃ) to discharge the gratuity liability to employees.
Payments to the trust are charged to the profit and loss account in the
year of payment. Provision towards gratuity, 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 actuarial
valuation is performed using the projected unit credit method.
Provision in respect of compensated absences is made based on the
extent of leave credit available to the employees as at the year end.
Short-term compensated absences are provided for on based on estimates.
Long- term compensated absences are provided for based on actuarial
valuation. The actuarial valuation is done as per projected unit credit
method.
Actuarial gains/ losses are immediately taken to profit and loss
account 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.
n) Provisions
A provision is recognised when an enterprise 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 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 estimates.
o) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank
and in hand and short-term, highly liquid investments that are readily
convertible into known amounts of cash and which are subject to an
insignificant risk of changes in value.
p) Borrowing costs
Borrowing costs relating 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 revenue.
q) Land
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 work-in-progress.
Deposits paid by the Company to the seller towards right for
development of land in exchange of constructed area are recognised as
land advance under loans and advances, unless they are non-refundable,
wherein they are transferred to work-in-progress on the launch of
project.
The Company has entered into agreements with land owners/ possessor to
develop properties on such land in lieu which, the Company has agreed
to transfer certain percentage of constructed area. The development and
transfer of constructed area in exchange of such development rights/
land is being settled on a net basis.
Mar 31, 2010
A) Basis of preparation
The financial statements have been prepared to comply in all material
respects with the accounting standards notified by Companies
(Accounting Standards) Rules 2006, (as amended) and the relevant
provisions of the Companies Act, 1956 (Ãthe ActÃ). The financial
statements have been prepared under the historical cost convention on
an accrual basis in accordance with accounting principles generally
accepted in India. The accounting policies have been consistently
applied by the Company and are consistent with those used in previous
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 managementÃs 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, estimates of the economic useful lives of
fixed assets, provisions for bad and doubtful debts. Any revision to
accounting estimates is recognised prospectively.
c) Fixed assets
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.
Borrowing costs relating 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.
d) Depreciation/ amortisation
Depreciation on assets 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 scafolding items are depreciated using straight line method over
a period of 6 years, which is estimated to be the useful life of the
asset.
Assets individually costing less than or equal to Rs.5,000 are fully
depreciated in the year of purchase.
Leasehold land 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.
Intangible assets à Expenditure incurred on software is amortised using
straight line method over a period of 3 years, which is estimated to be
the useful life of the asset.
e) Impairment
The Company assesses at each balance sheet date whether there is any
indication that an asset may be impaired based on internal/ external
factors. If any such indication exists, the Company estimates the
recoverable amount of the asset. An impairment loss is recognized
wherever the carrying amount of an asset exceeds its recoverable
amount. The recoverable amount is the greater of the assetÃs net
selling price and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value at
the weighted average cost of capital.
f) Leases
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 recognised as an expense
in the profit and loss account on a straight-line basis over the lease
term.
Finance leases, which effectively transfer to the Company substantially
all the risks and benefits incidental to ownership of the leased item,
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 charged directly against income. Other
initial direct costs are capitalised.
g) Investments
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. 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 investments.
h) Inventories
Related to contractual and real estate activity
Direct expenditure relating to construction activity is inventorised.
Indirect expenditure (including borrowing costs) during construction
period is inventorised to the extent the expenditure is related to
construction or is incidental thereto. Other indirect expenditure
(including borrowing costs) incurred during the construction period
which is neither related to the construction activity nor is incidental
thereto is charged to the profit and loss account. 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.
ii. Work-in-progress - Real estate projects: 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.
iii. Finished goods - Flats: Valued at lower of cost and net realisable
value.
iv. Finished goods - Plots: Valued at lower of cost and net realisable
value.
v. Building materials purchased, not identified with any specific
project are valued at cost determined on a weighted average basis.
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. Income from operations (gross) is gross of sales
tax/ value added tax and net of adjustment on account of cancellation/
returns.
i. Recognition of revenue from contractual projects
Revenue from fixed price contractual projects 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.
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
buyersà commitment to make the complete payment.
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 significant level which
is estimated to be atleast 25% of the total estimated construction cost
of the project. 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
housing]
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/
agreements.
Revenue from real estate projects include charges collected from
clients towards registration, electricity and water charges, property
taxes, khata charges and other charges, which are accounted based upon
the contracts/ agreements entered into by the Company with it
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
contracts/ agreements.
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 shareholdersà or unitholdersà right to
receive payment is established by the balance sheet date.
v. Share in profits of partnership firm investments
The CompanyÃs share in profits from a firm where the Company is a
partner, is recognised on the basis of such frmÃs 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
closing rate. 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.
The Company uses derivative financial instruments such as forward
exchange contracts to hedge its risks associated with foreign currency
fluctuations. The premium or discount on forward exchange contracts is
recognised in the profit and loss account over the period of the
contract. Exchange differences on such contracts are recognised in the
statement of profit and loss in the year in which the exchange rates
change. As per the ICAI Announcement, accounting for derivative
contracts, other than those covered under AS-11, are marked to market
on a portfolio basis, and the net loss after considering the offsetting
effect on the underlying hedge item is charged to the income statement.
Net gains are ignored.
k) Taxes
Tax expense comprises of current, deferred and fringe benefits tax.
Current income tax and fringe benefits 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 refects 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
realised.
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 profit and loss account 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
period.
The Company provides for and discloses the fringe benefits tax (FBT) in
accordance with the provisions of section 115WC of the Income Tax Act,
1961. The Finance Act, 2009 has withdrawn FBT with effect from April 1,
2009.
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 profit and
loss account 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 (Ãthe trustÃ) to discharge the gratuity liability to employees.
Payments to the trust are charged to the profit and loss account in the
year of payment. Provision towards gratuity, 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 actuarial
valuation is performed using the projected unit credit method.
Provision in respect of compensated absences is made based on the
extent of leave credit available to the employees as at the year end.
Short-term compensated absences are provided for on based on estimates.
Long- term compensated absences are provided for based on actuarial
valuation. The actuarial valuation is done as per projected unit credit
method.
Actuarial gains/ losses are immediately taken to profit and loss
account 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.
n) Provisions
A provision is recognised when an enterprise 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 best estimate required to
settle the obligation at the balance sheet date. These are reviewed at
each balance sheet date and adjusted to refect the current best
estimates.
o) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank
and in hand and short-term, highly liquid investments that are readily
convertible into known amounts of cash and which are subject to an
insignificant risk of changes in value.
p) Borrowing costs
Borrowing costs relating 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 revenue.
q) Land
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 work-in-progress.
Deposits paid by the Company to the seller towards right for
development of land in exchange of constructed area are recognised as
land advance under loans and advances, unless they are non-refundable,
wherein they are transferred to work-in-progress on the launch of
project.
The Company has entered into agreements with land owners/ possessor to
develop properties on such land in lieu which, the Company has agreed
to transfer certain percentage of constructed area. The development and
transfer of constructed area in exchange of such development rights/
land is being settled on a net basis.
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