Compilers’ Note: The ICAI has recently given awards for Excellence in Financial Reporting. The Gold award in the category ‘Manufacturing Sector’ was awarded to Grasim Industries Ltd for 2020-21. Below are some major ‘significant accounting policies’ from the Company’s Consolidated Financial Statements, which can be used for reference.
GRASIM INDUSTRIES LIMITED (31st MARCH, 2021)
Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements (CFS) comprises the Financial Statements of Grasim Industries Limited (“the Company”) and its Subsidiaries (herein after referred together as “the Group”), Joint Ventures and Associates. The CFS of the Group have been prepared in accordance with the Indian Accounting Standards on “Consolidated Financial Statements” (Ind AS 110), “Joint Arrangements” (Ind AS 111), “Disclosure of Interest in Other Entities” (Ind AS 112), “Investment in Associates and Joint Ventures” (Ind AS 28) notified under Section 133 of the Companies Act 2013.
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which controls commences until the date on which control ceases.
(ii) Non-Controlling Interest (NCI)
Non-controlling interest in the net assets of the consolidated subsidiaries consists of:
a) The amount of equity attributable to noncontrolling shareholders at the date on which the investments in the subsidiary companies were made.
b) The non-controlling share of movements in equity since the date the Parent-Subsidiary relationship comes into existence.
The total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interest having deficit balance.
(iii) Loss of Control
When the Group loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any interest retained in the former subsidiary is measured at fair value at the date the control is lost. Any resulting gain or loss is recognised in the Statement of Profit and Loss.
(iv) Equity Accounted Investees
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
The considerations made in determining whether significant influence or joint control are similar to those necessary to determine control over the subsidiaries.
The Group’s investments in its associates and joint ventures are accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment.
When the Group’s share of losses of an equity accounted investee exceed the Group’s interest in that associate or joint venture (which includes any long-term interest that, in substance, form part of Group’s net investment in the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligation or made payments on behalf of the associate or joint venture.
Unrealised gains resulting from the transaction between the Group and joint ventures are eliminated to the extent of the interest in the joint venture, and deferred tax is made on the same.
After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognises the loss as ‘Share of profit of an associate and a joint venture’ in the Statement of Profit and Loss.
Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.
(v) Transaction Eliminated on Consolidation
The financial statements of the Company, its Subsidiaries, Joint Ventures and Associates used in the consolidation procedure are drawn upto the same reporting date, i.e., 31st March, 2021.
The financial statements of the Company and its subsidiary companies are combined on a line-by-line basis by adding together of like items of assets, liabilities, income and expenses, after eliminating material intra-group balances and intra-group transactions and resulting unrealised profits or losses on intra-group transactions. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
GOODWILL ON CONSOLIDATION
Goodwill represents the difference between the Group’s share in the net worth of Subsidiaries and Joint Ventures, and the cost of acquisition at each point of time of making the investment in the Subsidiaries and Joint Ventures. For this purpose, the Group’s share of net worth is determined on the basis of the latest financial statements, prior to the acquisition after making necessary adjustments for material events between the date of such financial statements and the date of respective acquisition.
Goodwill that arises out of consolidation is tested for impairment at each reporting date. For the purpose of impairment testing, goodwill is allocated to the respective cash-generating unit (‘CGU’). The impairment loss is recognised if the recoverable amount of the CGU is higher of its value in use and fair value less cost to sell. Impairment losses are immediately recognised in the Statement of Profit and Loss.
PROPERTY, PLANT AND EQUIPMENT (PPE)
On transition to Ind AS, the Group has elected to continue with the carrying value of all its property plant and equipment recognised as at 1st April, 2015 measured as per the previous GAAP, and use that carrying value as the deemed cost of the property, plant and equipment.
Property, plant and equipment are stated at acquisition or construction cost less accumulated depreciation and impairment loss. Cost comprises the purchase price and any attributable cost of bringing the asset to its location and working condition for its intended use, including relevant borrowing costs and any expected costs of decommissioning.
If significant parts of an item of PPE have different useful lives, then they are accounted for as separate items (major components) of PPE.
The cost of an item of PPE is recognised as an asset if, and only if, it is probable that the economic benefits associated with the item will flow to the Group in future periods, and the cost of the item can be measured reliably. Expenditure incurred after the PPE have been put into operations, such as repairs and maintenance expenses, are charged to the Statement of Profit and Loss during the period in which they are incurred.
Items such as spare parts, standby equipment and servicing equipment are recognised as PPE when it is held for use in the production or supply of goods or services, or for administrative purpose, and are expected to be used for more than one year. Otherwise, such items are classified as inventory.
An item of PPE is de-recognised upon disposal or when no future economic benefits are expected to arise from the continued use of the assets. Any gain or loss, arising on the disposal or retirement of an item of PPE, is determined as the difference between the sales proceeds and the carrying amount of the asset, and is recognised in the Statement of Profit and Loss.
Capital work-in-progress includes cost of property, plant and equipment under installation/under development as at the reporting date.
TREATMENT OF EXPENDITURE DURING CONSTRUCTION PERIOD
Expenditure, net of income earned, during the construction (including financing cost related to borrowed funds for construction or acquisition of qualifying PPE) period is included under capital work-in-progress, and the same is allocated to the respective PPE on the completion of construction. Advances given towards acquisition or construction of PPE outstanding at each reporting date are disclosed as Capital Advances under “Other Non-Current Assets”.
DEPRECIATION
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life, and is Provided on a straight-line basis, except for Viscose Staple Fibre Division (excluding Power Plants), Nagda, and Corporate Finance Division, Mumbai for which it is provided on written down value method, over the useful lives as prescribed in Schedule II of the Companies Act, 2013, or as per technical assessment.
A. Major assets class where useful life considered as provided in Schedule II:
|
Sr. No.
|
Nature of Assets
|
Estimated Useful
Life of the Assets
|
|
1.
|
Plant and Machinery – Continuous Process
Plant
|
25
Years
|
|
2.
|
Reactors
|
20
Years
|
|
3.
|
Vessel / Storage Tanks
|
20
Years
|
|
4.
|
Factory Buildings
|
30
Years
|
|
5.
|
Building (other than Factory Buildings) RCC
Frame Structure
|
60
Years
|
|
6.
|
Electric Installations and Equipment
(at Factory)
|
10
Years
|
|
7.
|
Computer and other Hardwares
|
3 Years
|
|
8.
|
General Laboratory Equipment
|
10
Years
|
|
9.
|
Railway Sidings
|
15
years
|
|
10.
|
– Carpeted Roads – Reinforced Cement
Concrete (RCC)
– Carpeted Roads – other than RCC
– Non Carpeted Roads
|
10
Years
5 Years
3 Years
|
|
11.
|
Fences, wells, Tube wells
|
5 Years
|
In case of certain class of assets, the Group uses different useful life than those prescribed in Schedule II of the Companies Act, 2013. The useful life has been assessed based on technical advice, taking into account the nature of the asset, the estimated usage of the asset on the basis of the management’s best estimation of getting economic benefits from those classes of assets. The Group uses its technical expertise along with historical and industry trends for arriving the economic life of an asset.
Also, useful life of the part of PPE which is significant to the total cost of PPE, has been separately assessed and depreciation has been provided accordingly.
B. Assets where useful life differs from Schedule II:
|
Sr. No.
|
Nature of Assets
|
Useful
Life as Prescribed by Schedule II of
the Companies Act, 2013
|
Estimated
Useful
Life
of the Assets
|
|
1.
|
Plant and Machinery:
|
|
|
|
1.1
|
Other than Continuous Process Plant (Single
Shift)
|
15
Years
|
15 – 20
Years
|
|
1.2
|
Other than Continuous Process Plant (Double
Shift)
|
Additional
50% depreciation over
single
shift
(10 Years) 20 Years
|
20
Years
|
|
1.3
|
Other than Continuous Process Plant (Triple
Shift)
|
Additional
100% depreciation over
single
shift
(7.5 Years)
|
20
Years
|
|
2.
|
Motor Vehicles
|
6 – 10
Years
|
4 – 5
Years
|
|
3.
|
Electrically Operated Vehicles
|
8 Years
|
5 Years
|
|
4.
|
Electronic Office Equipment
|
5 Years
|
3 – 7
Years
|
|
5.
|
Furniture, Fixtures and Electrical Fittings
|
10
Years
|
2 – 12
Years
|
|
6.
|
Buildings (other than Factory Buildings)
other than RCC
Frame Structures
|
30
Years
|
3 – 60
Years
|
|
7.
|
Power Plants
|
40
Years
|
25
Years
|
|
8.
|
Servers and Networks
|
6 Years
|
3 – 5 Years
|
|
9.
|
Spares in the nature of PPE
|
|
10 – 30
Years
|
|
10.
|
Assets individually costing less than or
equal to Rs.10,000/-
|
|
Fully depreciated in the year of
purchase
|
|
11.
|
Separately identified Component of Plant
and Machinery
|
|
2 – 30
Years
|
The estimated useful lives, residual values and the depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Continuous process plants, as defined in Schedule II of the Companies Act, 2013, have been classified on the basis of technical assessment and depreciation is provided accordingly.
Depreciation on additions is provided on a prorate basis from the month of installation or acquisition and, in case of a new Project, from the date of commencement of commercial production. Depreciation on deductions/disposals is provided on a pro-rata basis upto the month preceding the month of deduction/disposal.
INTANGIBLE ASSETS ACQUIRED SEPARATELY AND AMORTISATION
On transition to Ind AS, the Group has elected to continue with the carrying value of all its Intangible Assets recognised as at 1st April, 2015 measured as per the previous GAAP and use that carrying value as the deemed cost of the Intangible Assets.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses, if any.
Intangible assets with finite lives are amortised over the useful economic life 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. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the Statement of Profit and Loss unless such expenditure forms part of carrying value of another asset. Intangible assets are amortised on a straight-line basis over their estimated useful lives.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Gains or losses arising from de-recognition 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 and Loss when the asset is derecognised.
Intangible Assets and their Useful Lives are as under:
|
Sr. No.
|
Nature of Assets
|
Estimated Useful Life of
the Assets
|
|
1.
|
Computer Software
|
2 – 6
Years
|
|
2.
|
Trademarks, Technical Know-how
|
5 – 10
Years
|
|
3.
|
Value of License/Right to use
infrastructure
|
10
Years
|
|
4.
|
Mining Rights
|
Over
the period of the respective mining agreement
|
|
5.
|
Mining Reserve
|
On the
basis of material extraction (proportion of material extracted per annum to
total mining reserve)
|
|
6.
|
Jetty Rights
|
Over
the period of the relevant agreement such that the cumulative amortisation is
not less than the cumulative rebate availed by the Group
|
|
7.
|
Customer Relationship
|
15 – 25
Years
|
|
8.
|
Brands
|
10
Years
|
|
9.
|
Production Formula
|
10
Years
|
|
10.
|
Distribution Network (inclusive of
Branch/Franchise/Agency network and Relationship)
|
5 – 25
Years
|
|
11.
|
Right to Manage and operate Manufacturing
Facility
|
15
Years
|
|
12.
|
Value-in-Force
|
15
Years
|
|
13.
|
Group Management Rights
|
Indefinite
|
|
14.
|
Investment Management Rights
|
Over
the period of 10 Years
|
|
15.
|
Order Backlog
|
3
Months – 1 Year
|
|
16.
|
Non-Compete fees
|
3 Years
|
INTERNALLY GENERATED INTANGIBLE ASSETS – RESEARCH AND DEVELOPMENT EXPENDITURE
Revenue expenditure on research is expensed under the respective heads of the account in the period in which it is incurred. Development expenditure is capitalised as an asset, if the following conditions can be demonstrated:
a) The technical feasibility of completing the asset so that it can be made available for use or sell.
b) The Group has intention to complete the asset and use or sell it.
c) In case of intention to sale, the Group has the ability to sell the asset.
d) The future economic benefits are probable.
e) The Group has ability to measure the expenditure attributable to the asset during its development reliably.
Other development costs, which do not meet the above criteria, are expensed out during the period in which they are incurred.
PPE procured for research and development activities are capitalised.
FOREIGN CURRENCY TRANSACTIONS
In preparing the financial statements of the Group, transactions in foreign currencies, other than the Group’s functional currency, are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated at the rate prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.
Exchange differences on monetary items are recognised in the Statement of Profit and Loss in the period in which these arise, except for:
• Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;
• Exchange differences relating to qualifying effective cash flow hedges and
• Exchange difference arising on re-statement of long-term monetary items that in substance forms part of Group’s net investment in foreign operations, is accumulated in Foreign Currency Translation Reserve (component of OCI) until the disposal of the investment, at which time such exchange difference is recognised in the Statement of Profit and Loss.
FOREIGN OPERATIONS
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on Acquisition are translated into Indian Rupees, the functional currency of the Group, at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into Indian Rupee at the exchange rates at the dates of the transactions or an average rate, if the average rate approximates the actual rate at the date of the transaction. Exchange differences are recognised in OCI and accumulated in other equity (as exchange differences on translating the financial statements of a foreign operation), except to the extent that the exchange differences are allocated to non-controlling interest.
When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount of exchange differences related to that foreign operation recognised in OCI, is re-classified to the Statement of Profit and Loss as part of the gain or loss on disposal. If the Group disposes of part of its interest in a subsidiary, but retains control, then the relevant proportion of the cumulative amount of foreign exchange differences is re-allocated to NCI. When the Group disposes of only a part of its interest in an Associate or a Joint Venture, while retaining Significant influence or joint control, the relevant proportion of the cumulative amount of foreign exchange differences is reclassified to Statement of Profit and Loss.
REVENUE RECOGNITION
(a) Revenue from Contracts with Customers
• Revenue is recognised on the basis of approved contracts regarding the transfer of goods or services to a customer for an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
• Revenue is measured at the fair value of consideration received or receivable taking into account the amount of discounts, incentives, volume rebates, outgoing taxes on sales. Any amounts receivable from the customer are recognised as revenue after the control over the goods sold are transferred to the customer which is generally on dispatch of goods.
• Variable consideration – This includes incentives, volume rebates, discounts etc. It is estimated at Contract inception considering the terms of various schemes with customers and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. It is reassessed at end of each reporting period.
• Significant financing component – Generally, the Company receives short-term advances from its customers. Using the practical expedient in Ind AS 115, the Company does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and when the customer pays for that good or service will be one year or less.
(b) Revenue from services are recognised as they are rendered based on agreements/arrangements with the concerned parties and recognised net of Service Tax or Goods and Service Tax (GST).
(c) If only one service is identified, the Group recognises revenue when the service is performed. If an ongoing service is identified, as a part of the agreement the period over which revenue is recognised for that service generally determined by the terms of agreement with the customer. For practical purposes, where services are performed by an indeterminate number of acts over a specified period of time, revenue is recognised on a straight line basis over the specified period unless there is evidence that some other method better represents the stage of completion. When a specific act in much more significant than any other acts, the recognition of revenue is postponed until the significant act is executed.
(d) Dividend income is accounted for when the right to receive the income is established.
(e) For all financial instruments measured at amortised cost or at fair value through Other Comprehensive Income, interest income is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument to the gross carrying amount of the financial asset.
(f) Insurance, railway and other claims, where quantum of accruals cannot be ascertained with reasonable certainty, are accounted on acceptance basis.
For Life Insurance Business, revenue is recognised as follows:
Premium Income of Insurance Business
Premium income on Insurance contracts and Investment Contracts with Discretionary Participative Feature (DPF) is recognised as income when due from policyholders. For unit-linked business, premium income is recognized when the associated units are created. Premium on lapsed policies is recognised as income when such policies are reinstated. In case of linked business, top-up premium paid by policyholders are considered as single premium and are unitised as prescribed by the regulations. This premium is recognised when the associated units are created.
Fees and Commission Income of Insurance Business
Insurance and investment contract policyholders are charged for policy administration services, investment management services, surrenders and other contract fees. These fees are recognised as revenue over the period in which the related services are performed. If the fees are for services provided in future periods, then they are deferred and recognised over those future periods.
Reinsurance Premium
Reinsurance premium ceded is accounted for at the time of recognition of the premium income in accordance with the terms and conditions of the relevant treaties with the re-insurers. Impact on account of subsequent revisions to or cancellations of premium is recognised in the year in which they occur.
For Health Insurance Business, Revenue is recognised as follows:
Gross Premium
Premium (net of service tax) in respect of insurance contracts is recognised as income over the contract period or the period of risk, whichever is appropriate, after adjusting for reserve for unexpired risk. Any subsequent revisions to or cancellations of premiums are recognized in the year in which they occur.
Reinsurance Premium
Premium (net of service tax) in respect of insurance contracts is recognised as income over the contract period or the period of risk, whichever is appropriate, after adjusting for reserve for unexpired risk. Any subsequent revisions to or cancellations of premiums are recognised in the year in which they occur.
Income from items other than to which Ind AS 109 Financial Instruments and Ind AS 104 Insurance Contracts are applicable
Revenue (other than for those items to which Ind AS 109 Financial Instruments are applicable) is measured at fair value of the consideration received or receivable. Ind AS 115 Revenue from contracts with customers outlines a single comprehensive model of accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance found within Ind ASs.
The Group recognises revenue from contracts with customers based on a five step model as set out in Ind AS 115:
Step 1: Identify contract(s) with a customer: A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met.
Step 2: Identify performance obligations in the contract: A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer.
Step 3: Determine the transaction price: The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
Step 4: Allocate the transaction price to the performance obligations in the contract: For a contract that has more than one performance obligation, the Group allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Group expects to be entitled in exchange for satisfying each performance obligation.
Step 5: Recognise revenue when (or as) the Group satisfies a performance obligation.
GOVERNMENT GRANTS AND SUBSIDIES
Government grants are recognised when there is a reasonable assurance that the same will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised in the Statement of Profit and Loss by way of a deduction to the related expense on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income on a systematic basis over the expected useful life of the related asset.
Government grants, that are receivable towards capital investments under State Investment Promotion Scheme, are recognised in the Statement of Profit and Loss when they become receivable.
The benefit of a government loan at a below-market rate of interest is treated as a government grant, measured as the difference between proceeds received and the fair value of the loan based on prevailing market interest rates, and is being recognised in the Statement of Profit and Loss.
When the Group receives grants of non-monetary assets, the asset and the grant are recorded at fair value amounts and released to profit or loss over the expected useful life in a pattern of consumption of the benefit of the underlying asset.
PROVISION FOR CURRENT AND DEFERRED TAX
Current Income Tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Group operates and generates taxable income.
Current income tax, relating to items recognised outside of statement of profit and loss, is recognised outside profit or loss (either in Other Comprehensive Income or in other equity). Current tax items are recognised in correlation to the underlying transaction either in OCI or directly in other equity. The management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and established provisions, where appropriate.
Deferred 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 liabilities are recognised for all taxable temporary differences, except:
When the deferred tax liability 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.
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.
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised 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 utilised, except:
• When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of 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.
• In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
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 utilised. Unrecognised deferred tax assets are re-assessed at each reporting date, and are recognised 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 realised or the liability is settled, based on tax rates (and tax laws), that have been enacted or substantively enacted at the reporting date.
Deferred tax, relating to items recognised outside profit or loss, is recognised outside profit or loss (either in Other Comprehensive Income or in other equity). Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in other equity. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities, and the deferred taxes relate to the same taxable entity and the same taxation authority.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognised subsequently if new information about facts and circumstances change. Acquired deferred tax benefits recognised within the measurement period reduce goodwill related to that acquisition if they result from new information obtained about facts and circumstances existing at the acquisition date. If the carrying amount of goodwill is zero, any remaining deferred tax benefits are recognised in OCI / capital reserve depending on the principle explained for bargain purchase gains. All other acquired tax benefits realised are recognised in profit or loss.
MINIMUM ALTERNATE TAX (MAT)
MAT is recognised as an asset only when and to the extent there is convincing evidence that the Group will pay normal Income Tax during the specified period. In the year in which the MAT credit becomes eligible to be recognised, it is credited to the Statement of Profit and Loss and is considered as MAT Credit Entitlement. The Group reviews the same at each Balance Sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent that there is no longer convincing evidence to the effect that the Group will pay normal Income Tax during the specified period. Minimum Alternate Tax (MAT) Credit are in the form of unused tax credits, that are carried forward by the Group for a specified period of time, hence, it is presented with Deferred Tax Asset.
