2.2     Significant judgments in applying accounting policies (Cont'd)

 

Critical accounting estimates and assumptions used in applying accounting policies (cont'd)

 

Impairment tests for cash-generating units containing goodwill (Note 4) (Cont'd)

 

The recoverable amount of a CGU was determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period were extrapolated using the estimate rates stated in Note 4 to the consolidated financial statements:

 

The key assumptions for the value-in-use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.

 

These assumptions have been used for the analysis of the CGU. Management determines the budgeted gross margin based on past performance and its expectations for market developments. The weighted average growth rates used were consistent with industry reports. The discount rates used pre-tax and reflect specific risks relating to the relevant segments.

 

The carrying amount as at 31 March 2018 was disclosed in Note 4 to the consolidated financial statements.

 

Depreciation of property, plant and equipment (Note 6)

 

Property, plant and equipment are depreciated on a straight line basis over their estimated useful lives. Management estimates the useful lives of property, plant and equipment to be within 3 to 5 years. The carrying amount of the Group's property, plant and equipment as at 31 March 2018 is US$ 3,720,191 (2017 - US$ 2,953,720). Changes in the expected level of usage and technological developments could impact the economic lives and residual value of these assets, therefore depreciation charges could be revised.

 

Impairment of trade and other receivables (Note 11)

 

The Group assess at the end of each reporting period whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.

 

Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. The carrying amount of the Group's trade and other receivables at the end of the reporting period is disclosed in Note 11 to the consolidated financial statements.

 

Valuation of gratuity benefits and long term compensated absences (Note 15)

 

The present value of the post-employment gratuity benefits depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost for gratuity benefits include the standard rates of inflation and salary increase. Any changes in these assumptions will impact the carrying amount of gratuity benefits and long term compensated absences.

 

 

 

 

 

2.2     Significant judgments in applying accounting policies (cont'd)

Critical accounting estimates and assumptions used in applying accounting policies (cont'd)

 

The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the gratuity benefits. In determining the appropriate discount rate, the Group considers the interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related gratuity benefits.

 

Please refer to Note 15 for details on actuarial assumptions used to estimate the Group's defined benefit obligations and the sensitivity analysis of the assumptions. The carrying amount as at 31 March 2018 was disclosed in Note 15 to the financial statements.

 

2.3     New and revised standards that are effective for annual periods beginning on or after 1 January 2017

 

Amendments to IAS-7, 'Statements of Cash Flows'

 

Amendments to IAS-7, 'Statements of Cash Flows', effective 1 January 2017, require the Group to provide disclosures about the changes in liabilities from financing activities. The Group categorizes those changes into changes arising from cash flows and non-cash changes with further sub-categories as required by IAS 7.

 

Amendment to IAS 12 'Income Taxes'

 

The amendments in Recognition of Deferred Tax Assets for unrealized loss clarify the following aspects:

Unrealized losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument's holder expects to recover the carrying amount of the debt instrument by sale or by use.

 

The carrying amount of an asset does not limit the estimation of probable future taxable profits. Estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences.

 

An entity assesses a deferred tax asset in combination with other deferred tax assets. Where tax law restricts the utilization of tax losses, an entity would assess a deferred tax asset in combination with other deferred assets of the same type.

 

The amendments are effective for annual periods beginning on or after 1 January 2017. Earlier application is permitted.

 

2.4 STANDARDS, AMENDMENTS AND INTERPRETATIONS TO EXISTING STANDARDS THAT ARE NOT YET EFFECTIVE AND HAVE NOT BEEN ADOPTED BY THE GROUP.

 

Summarized in the paragraphs below are standards, interpretations or amendments that have been issued prior to the date of approval of these consolidated financial statements and will be applicable for

transactions in the Group but are not yet effective. These have not been adopted early by the Group and accordingly, have not been considered in the preparation of the consolidated financial statements of the Group.

 

Management anticipates that all of these pronouncements will be adopted by the Group in the first accounting period beginning after the effective date of each of the pronouncements. Information on the new standards, interpretations and amendments that are expected to be relevant to the Group's consolidated financial statements is provided below.

 

IFRS 9 Financial Instruments Classification and Measurement

 

In July 2014, the IASB completed its project to replace IAS 39, Financial Instruments: Recognition and

Measurement by publishing the final version of IFRS 9: Financial Instruments. IFRS 9 introduces a single approach for the classification and measurement of financial assets according to their cash flow

characteristics and the business model they are managed in, and provides a new impairment model based on expected credit losses. IFRS 9 also includes new guidance regarding the application of hedge accounting to better reflect an entity's risk management activities especially with regard to managing non-financial risks.

The new standard is effective for annual reporting periods beginning on or after 1 January 2018, while early application is permitted. The effect on adoption of IFRS 9 on the consolidated financial statements is insignificant.

 

IFRS 15 Revenue from contracts with customers

 

IFRS 15 supersedes all existing revenue requirements in IFRS (IAS 11 Construction Contracts, IAS 18

Revenue and related interpretations). According to the new standard, revenue is recognized to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. IFRS 15 establishes a five step model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligation; changes in contract asset and liability account balances between periods and key judgments and estimates. The standard permits the use of either the retrospective or cumulative effect transition method. The effective date for adoption of IFRS is annual period beginning on or after 1 January 2018. The effect on adoption of IFRS 15 on the consolidated financial statements is insignificant.

 

IFRS 16 Leases

 

On 13 January 2016, the International Accounting Standards Board issued the final version of IFRS 16,

Leases. IFRS 16 will replace the existing leases Standard, IAS 17 Leases, and related interpretations. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. The Standard also contains enhanced disclosure requirements for lessees. The effective date for adoption of IFRS 16 is annual periods beginning on or after 1 January 2019, though early adoption is permitted for companies applying IFRS 15 Revenue from Contracts with Customers. The management is currently evaluating the impact that this new standard will have on its consolidated financial statements.

 

2.5 Significant accounting policies

 

Overall considerations

 

The consolidated financial accounting policies that have been used in the preparation of these consolidated financial statements are summarized below. The consolidated financial statements have been prepared on a going concern basis. The measurement bases are described in the accounting policies below.

 

 

 

 

Consolidation

 

The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries made up to the end of the financial year. Information on its subsidiaries is given in Note 1 to the consolidated financial statements.

 

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group 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. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date on which control ceases.

 

In preparing the consolidated financial statements, transactions, balances and unrealized gains on transactions between group entities are eliminated. Unrealized losses are also eliminated but are considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognized from the effective date of acquisition, or up to the effective date of disposal, as applicable.

 

Non-controlling interest comprise the portion of a subsidiary's net results of operations and its net assets, which is attributable to the interests that are not owned directly or indirectly by the equity holders of the Company. They are shown separately in the consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and statement of financial position. Total comprehensive income is attributed to the non-controlling interests based on their respective interests in a subsidiary, even if this results in the non-controlling interests having a deficit balance.

 

Business combinations

 

 

The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values.

 

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is an instrument and within the scope of IAS 39 Financial Instrument: Recognition and Measurement, is measured at fair value with the changes in fair value recognized in the statement of profit or loss.

 

Acquisition-related costs are expensed as incurred.

 

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.

 

On an acquisition-by-acquisition basis, the Group recognizes any non-controlling interest in the acquiree at the date of acquisition either at fair value or at the non-controlling interest's proportionate share of the acquiree's net identifiable assets.

 

The excess of (a) the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the (b) fair value of the identifiable net assets acquired is recorded as goodwill.

 

 

Disposals

 

When a change in the Group's ownership interest in a subsidiary results in a loss of control over the subsidiary, the assets and liabilities of the subsidiary including any goodwill are derecognized. Amounts previously recognized in other comprehensive income in respect of that entity are also reclassified to profit or loss or transferred directly to retained earnings if required by a specific standard.

Any retained equity interest in the entity is remeasured at fair value. The difference between the carrying amount of the retained interest at the date when control is lost and its fair value is recognized in profit or loss.

 

Transactions with non-controlling interests

 

Changes in the Company's ownership interest in a subsidiary that do not result in a loss of control over the subsidiary are accounted for as transactions with equity owners of the Group. Any difference between the change in the carrying amounts of the non-controlling interest and the fair value of the consideration paid or received is recognized in a separate reserve within equity attributable to the equity holders of the Company.

                                            

Goodwill

 

Goodwill on acquisitions of subsidiaries on or after 1 January 2010 represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired.

 

Goodwill on acquisition of subsidiaries prior to 1 January 2010 represents the excess of the cost of the acquisition over the fair value of the Group's share of the net identifiable assets acquired.

 

Goodwill on subsidiaries is recognized separately as intangible assets and carried at cost less accumulated impairment losses.

 

Gains and losses on the disposal of subsidiaries include the carrying amount of goodwill relating to the entity sold, except for goodwill arising from acquisitions prior to 1 January 2010. Such goodwill was adjusted against retained profits in the year of acquisition and is not recognized in profit or loss on disposal.

 

Functional currencies

 

Items included in the consolidated financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates ("functional currency"). The functional currency of all the subsidiaries within the Group located in India, United Kingdom, Singapore is Indian Rupees (INR), Great Britain Pounds, and Singapore Dollars respectively.

For the purpose of consolidation, management has chosen to present the consolidated financial information in US$, which is the functional currency of the Company.

 

Conversion of foreign currencies

Transactions and balances

 

Transactions in a currency other than the functional currency ("foreign currency") are translated into the functional currency using the exchange rates at the dates of the transactions. Currency translation differences resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at the reporting date are recognized in profit or loss. However, in the consolidated financial statements, currency translation differences arising from borrowings in foreign currencies and other currency instruments designated and qualifying as net investment hedges and net investment in foreign operations, are recognized in other comprehensive income and accumulated in the currency translation reserve.

 

When a foreign operation is disposed of or any borrowings forming part of the net investment of the foreign operation are repaid, a proportionate share of the accumulated translation differences is reclassified to profit or loss, as part of the gain or loss on disposal.

 

Foreign exchange gains and losses that relate to borrowings are presented in the consolidated statement of profit & loss within "finance cost". Foreign currency gains and losses are reported on a net basis as either other income or other operating expense depending on whether foreign currency movements are in a net gain or net loss position.

 

Non-monetary items measured at fair values in foreign currencies are translated using the exchange rates at the date when the fair values are determined.

 

Group entities

 

The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

 

(i)         Assets and liabilities are translated at the closing exchange rates at the end of reporting period of that statement of financial position;

 

(ii)        Income and expenses for each statement presenting profit or loss and other comprehensive income (i.e. including comparatives) shall be translated at exchange rates at the dates of the transactions; and

(iii)       All resulting currency translation differences are recognized in other comprehensive income and accumulated in the exchange translation reserve.

 

 

 

Other intangible assets

 

The Group's other intangible assets include licence, externally acquired customer relationships, brands and which are further described in Note 5 to the consolidated financial statements.

 

License

 

licenses acquired are initially recognized at cost and are subsequently carried at cost less accumulated amortization and accumulated impairment losses. License is amortized on a straight line basis over 10 years, which is considered the useful life of the asset.

 

 

Customer relationships

 

The customer relationships have been acquired as part of a business combination and thus have been recognized at the fair value at the date of acquisition.

 

These relationships have been amortized on a straight line basis over ten years, which is considered the useful life of the asset.

 

 

Brands

 

The brand was acquired as part of the business combination and thus has been recognized at the fair value at the date of acquisition.

 

Management considers the life of the brand generated at the time of acquisition of Roto Power Projects Private Limited to be indefinite. The brand will not be amortized until its useful life is determined to be finite. It is tested for impairment annually and whenever there is an indication that it may be impaired.

 

Management considers the life of the brand generated at the time of acquisition of Tenon Facility Management Limited (formerly Office and General Group Limited), Frontline Securities Pte Limited & Elite Cleaning &Environmental Services Limited to be five years.

 

Internally developed software

Expenditure on the research phase of projects to develop new customized software is recognized as an expense as incurred. Costs that are directly attributable to a project's development phase are recognized as intangible assets, provided they meet the following recognition requirements:

 

(i)         the development costs can be measured reliably

(ii)         the project is technically and commercially feasible

(iii)        the Group intends to and has sufficient resources to complete the project

(iv)        the Group has the ability to use or sell the software

(v)        the software will generate probable future economic benefits.

 

Development costs not meeting these criteria for capitalisation are expensed as incurred. Directly attributable costs include employee costs incurred on software development along with an appropriate portion of relevant overheads and borrowing costs

 

This software will be amortized on a straight line basis over five years, which is considered the useful life of the asset.

 

Any capitalized internally developed software that is not yet complete is not amortized but is subject to impairment testing. Subsequent expenditure on the maintenance of computer software is expensed as incurred.

 

When an intangible asset is disposed of, the gain or loss on disposal is determined as the difference between the proceeds and the carrying amount of the asset, and is recognized in profit or loss within other income or other expenses.

 

 

Property, plant and equipment and depreciation

 

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated using the straight-line method to allocate their depreciable amount over their useful lives as follows:

 

Computers                                                 3 years

Office equipment                                       5 years

Plant and machinery                                   5 years

Furniture and fixtures                                 5 years

Vehicles                                                      5 years

Leasehold improvements                            3 years

 

The cost of property, plant and equipment includes expenditure that is directly attributable to the acquisition of the items. Dismantlement, removal or restoration costs are included as part of the cost of property, plant and equipment if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the asset. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

 

 

Capital work-in-progress is not depreciated until the assets are completed and ready for intended use.

Subsequent expenditure relating to property, plant and equipment that have been recognized is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the standard of performance of the asset before the expenditure was made, will flow to the Group and the cost can be reliably measured. Other subsequent expenditure is recognized as an expense during the financial year in which it is incurred.

 

For acquisitions and disposals during the financial year, depreciation is provided from the day of acquisition to the day before disposal respectively. Fully depreciated property, plant and equipment are retained in the books of accounts until they are no longer in use.

 

Depreciation methods, useful lives and residual values are reviewed, and adjusted as appropriate at each reporting date as a change in estimates.

 

Financial assets

 

Financial assets, other than hedging instruments, can be divided into the following categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the assets were acquired. The designation of financial assets is re-evaluated and classification may be changed at the reporting date with the exception that the designation of financial assets at fair value through profit or loss is not revocable.

 

All financial assets are recognized on their trade date - the date on which the Company and the Group commit to purchase or sell the asset. Financial assets are initially recognized at fair value, plus directly attributable transaction costs except for financial assets at fair value through profit or loss, which are recognized at fair value.

 

Derecognition of financial instruments occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least at the end of each reporting period whether or not there is objective evidence that a financial asset or a group of financial assets is impaired.

 

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company and the Group currently has a legally enforceable right to set off the recognized amounts; and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

 

Non-compounding interest and other cash flows resulting from holding financial assets are recognized in profit or loss when received, regardless of how the related carrying amount of financial assets is measured.

 

As at 31 March 2018, the Group has loans and receivables on the statements of financial position. The Group does not designate any financial assets as held-to-maturity investments, financial assets at fair value through profit or loss and available-for-sale financial assets.

 

 

Loans and receivables

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group and the Company provide money, goods or services directly to a debtor with no intention of trading the receivables. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets.

 

Loans and receivables include cash and bank balances, trade and other receivables, long-term and short-term financial assets. They are subsequently measured at amortized cost using the effective interest method, less provision for impairment. If there is objective evidence that the asset has been impaired, the financial asset is measured at the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset's recoverable amount can be related objectively to an event occurring after the impairment was recognized, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. The impairment or write back is recognized in profit or loss.

 

 

Inventories

 

Inventories are stated at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis, and includes all costs in bringing the inventories to their present location and condition.

Provision is made of obsolete, slow-moving and defective inventories in arriving at the net realizable value.

 

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

 

Cash and cash equivalents

 

Cash and cash equivalents comprise cash on hand, in current accounts and deposits accounts with an original maturity of three months or less that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

 

 

For the purpose of the consolidated statement of cash flows, cash and cash equivalents are presented net of any pledged bank deposits.

 

Equity capital

 

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares are deducted against the equity capital account.

 

Financial liabilities

 

The Group's and the Company's financial liabilities include bank borrowings, employee benefit obligations, trade and other payables.

 

Financial liabilities are recognized when the Group and the Company become a party to the contractual agreements of the instrument. All interest-related charges are recognized as an expense in "finance cost" in the profit or loss. Financial liabilities are derecognized if the Group's obligations specified in the contract expire or are discharged or cancelled.

 

 

Borrowings are recognized initially at the fair value less attributable transaction costs, if any. Borrowings are subsequently stated at amortized cost which is the initial fair value less any principal repayments. Any difference between the proceeds (net of transaction costs) and the redemption value is taken to the profit or loss over the period of the borrowings using the effective interest method. The interest expense is chargeable on the amortized cost over the period of the borrowings using the effective interest method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the amortization process.

 

Borrowings which are due to be settled within 12 months after the end of reporting date are included in current borrowings in the statement of financial position. Even though the original term was for a period longer than 12 months, an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the end of reporting date. Borrowings to be settled within the Group's operating cycle are classified as current. Other borrowings due to be settled more than 12 months after the end of reporting date are included in non-current borrowings in the statement of financial position.

 

Trade and other payables

 

Payables, which represent the consideration for goods and services received, whether or not billed to the Group and the Company, are initially measured at fair value plus transaction costs, and subsequently measured at amortized cost, using the effective interest method. Payables include trade and the other payables in the statement of financial position.

 

 

 

 

 

 

Leases

Where the Group is the lessee,

 

Finance leases

 

Where assets are financed by lease agreements that transfers risks and rewards incidental to ownership, the assets are capitalized as if they had been purchased outright at values equivalent to the lower of the fair value of the leased assets and the present value of the total minimum lease payments determined at the inception of the lease. The corresponding lease commitments are included under liabilities except for any initial direct costs of the lessee that are added to the amount recognized as an asset. The excess of lease payments over the recorded lease obligations are treated as finance charges which are amortized over each lease term to give a constant effective rate of charge on the remaining balance of the obligation.

 

The leased assets are depreciated on a straight-line basis over their estimated useful lives as detailed in the accounting policy on "Property, plant and equipment".

 

Finance lease liabilities are measured at initial value less the capital element of lease repayments (see policy on finance leases).

 

Operating leases

Leases of assets in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Rentals on operating lease are charged to profit or loss on a straight-line basis over the lease term. Lease incentives, if any, are recognized as an integral part of the net consideration agreed for the use of the leased asset. Penalty payments on early termination, if any, are recognized in the profit or loss when incurred.

 

Income taxes

 

Current income tax for the current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the end of reporting date.

 

Deferred tax is recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements 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 or taxable profit or loss at the time of the transaction.

 

A deferred tax liability is recognized on temporary differences arising on investments in subsidiaries, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

 

A deferred tax asset is recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilized.

 

Deferred tax is measured:

 

(i)         at the tax rates that are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the date of the financial position; and

 

(ii)        based on the tax consequence that will follow from the manner in which the Group expects, at the date of the financial position, to recover or settle the carrying amounts of its assets and liabilities.

 

Current and deferred income taxes are recognized as income or expense in the profit or loss, except to the extent that the tax arises from a business combination or a transaction which is recognized either in other comprehensive income or directly in equity. Deferred tax arising from a business combination affects goodwill on acquisition.

 

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets against current income tax liabilities and when the deferred income taxes relate to the same fiscal authority.

 

Employee benefits

 

The Company and the Group participates in the defined contribution plan as provided by the laws of the countries in which it has operations and defined benefit plan.

 

Defined contribution plan

 

A defined contribution plan is a plan under which the Group pays fixed contributions into an independent fund administered by the government. The Group has no legal or constructive obligations to pay further contributions after its payment of the fixed contribution. The Group contributes to a state-run provident fund according to eligibility of the individual employees. The contributions recognized in respect of defined contribution plans are expensed as they fall due.

 

Defined benefit plan

 

The defined benefit plans sponsored by the Group defines the amount of the benefit that an employee will receive on completion of services by reference to length of service and last drawn salary. The legal obligation for any benefits remains with the Group. The Group's defined benefit plans include amounts provided for gratuity obligations.

 

The liability recognized in the statement of financial position of a defined benefit plans is the present value of the defined benefit obligation (DBO) at the reporting date less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs.

 

 

Management estimates the present value of the DBO annually through valuations by an independent actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows based on management's assumptions.

 

The estimate of its post-retirement benefit obligations is based on standard rates of inflation and mortality. Discount rate is based upon the market yield available on high quality corporate bonds at the reporting date with a term that matches that of the liabilities and the salary increase taking into account inflation, seniority, promotion and other relevant factors.

 

Service cost and interest expense on the net defined benefit liability is included in employee benefits expense.

 

Re-measurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

 

Short-term employee benefits

 

Short term benefits comprising of employee costs such as salaries, bonuses, and paid annual leave and sick leave are accrued in the year in which the associated services are rendered by employees of the Group.

 

 

The liability in respect of compensated absences becoming due or expected to be available within one year from the reporting period are considered short term benefits and are recognized on the basis of undiscounted value of estimated amount required to be paid or estimated value of benefit expected to be available to the employees.

 

Long-term employee benefits

 

The liability for employee's compensated absences which become due or expected to be available after more than one year from the reporting date are considered long term benefits and are recognized through valuation by an independent actuary using the projected unit credit method at each reporting date. Actuarial gains and losses are recognized immediately in the statement of financial position with a corresponding debit or credit to retained earnings through statement of profit and loss in the period in which they occur.

 

Key management personnel

 

 

Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the activities of the entity. Directors of the Company and certain directors of subsidiaries are considered key management personnel.

 

Impairment of non-financial assets

 

The carrying amounts of the Company's and the Group's non-financial assets subject to impairment are reviewed at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated.

 

If it is not possible to estimate the recoverable amount of the individual asset, then the recoverable amount of the cash-generating unit to which the assets belong will be identified.

 

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors goodwill.

 

Individual assets or cash-generating units that include goodwill and other intangible assets with an indefinite useful life or those not available for us are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

 

An impairment loss is recognized for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount, which is the higher of fair value, reflecting market conditions less costs to sell and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group's latest approved budget, adjusted as necessary to exclude the effects of future reorganizations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect their respective risk profiles as assessed by management.

 

Impairment losses recognized for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist.

 

Any impairment loss is charged to profit or loss unless it reverses a previous revaluation in which case it is charged to equity.

 

With the exception of goodwill,

 

•      An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount or when there is an indication that the impairment loss recognized for the asset no longer exists or decreases.

 

•      An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognized.

 

•      A reversal of an impairment loss on a revalued asset is credited directly to equity under the heading revaluation surplus. However, to the extent that an impairment loss on the same revalued asset was previously recognized as an expense in the profit or loss, a reversal of that impairment loss is recognized as income in the profit or loss.

 

An impairment loss in respect of goodwill is not reversed, even if it relates to impairment loss recognized in an interim period that would have been reduced or avoided had the impairment assessment been made at a subsequent reporting or end of reporting period.

 

 

Related party

A related party is defined as follows:

 

a)   A person or a close member of that person's family is related to the Group and Company if that person:

i)    has control or joint control over the Company;

ii)   has significant influence over the Company; or

 

iii)   is a member of the key management personnel of the Group or Company or of a parent of the Company.

b)   An entity is related to the Group and the Company if any of the following conditions applies:

 

i)    the entity and the Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

 

ii)   one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

iii)   both entities are joint ventures of the same third party.

 

iv)  one entity is a joint venture of a third entity and the other entity is an associate of the third entity.

 

v)   the entity is a post-employment benefit plan for the benefit of employees of either the Company or an entity related to the Company. If the Company is itself such a plan, the sponsoring employers are also related to the Company;

vi)  the entity is controlled or jointly controlled by a person identified in (a);

 

vii)  a person identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

 

Related parties may be individuals or corporate entities.

 

The Group's related parties include subsidiaries, key management, and entities over which the key management are able to exercise significant influence. Unless otherwise stated, none of the transactions incorporate special terms and conditions and no guarantees were given or received. Outstanding balances are usually settled in cash.

 

Revenue recognition

 

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and rendering of services in the ordinary course of the Group's activities. Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer. Revenue excludes goods and services taxes and is arrived at after deduction of trade discounts, and after eliminating sales within the Group. No revenue is recognized if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.

 

 

The Group recognizes revenue when the specific criteria for each of the Group's activities are met as follows:

 

 

Rendering of services

 

Revenue from guarding and provision of facility management and other manpower services is recorded net of trade discounts, rebates and applicable taxes and is recognized upon performance of services and when there is a reasonable certainty regarding collection at the fair value of the consideration received or receivable.

 

Revenue from contracts with customers

 

In respect of installation projects which overlap two reporting periods, revenue is recognized based on the percentage of project completion method. Percentage completion of the project is determined by comparing actual cost incurred till reporting date to the estimate of total cost for completion of the project.

 

Sale of goods

 

Revenue from sale of goods is recognized when all the significant risks and rewards of ownership are transferred to the buyer and the Company retains no effective control of the goods transferred to a degree usually associated with ownership; and no significant uncertainty exists regarding the amount of the consideration that will be derived from sale of goods.

 

No revenue is recognized if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.

 

 

Interest income

Interest income is recognized on a time-apportioned basis using the effective interest method.

 

Operating segments

 

In identifying its operating segments, management follows the Group's service lines, which represent the main products and services provided by the Group, as reported to the Group Chief Executive.

 

The activities undertaken by the Guarding segment includes the provision of guarding services. Facility management services are undertaken by the Facility Management segment. The activities undertaken in respect sale and installation of safety equipment do not meet the quantitative thresholds under IFRS 8 and thus have been disclosed under the segment 'Others'.

 

Each of these operating segments is managed separately as each of these service lines requires different technologies and other resources as well as marketing approaches. All inter-segment transfers are carried out at arm's length prices.

 

The measurement policies the Group uses for segment reporting under IFRS 8 are the same as those used in its financial statements. Corporate assets which are not directly attributable to the business activities of any operating segment are not allocated to a segment.

 

 

3          Acquisitions in 2017-18

 

Elite Cleaning &Environmental Services Limited (Elite)

On 21 April 2017, Tenon Facility Management UK Limited, a wholly-owned subsidiary of Mortice, group acquired the 100% voting interest in Elite Cleaning & Environmental Services Limited (Elite) a London-based property services company. The business acquisition was conducted by entering into a share purchase agreement for a cash consideration of GBP 3,350,000 (equivalent USD 4,290,681) and 1,458,333 new ordinary shares of Mortice Limited (initial consideration shares) issued to the vendor at guaranteed price of GBP 1.20. The earn-out consideration was estimated to be GBP 1,000,000 subject to meeting the conditions as specified in the share purchase agreement.

The vendor shall not be entitled to sell, transfer or otherwise disposed of the consideration share at any time prior to 31 March 2019 (lock in period). The vendor shall be entitled to an option to sell the consideration shares to Mortice Limited for GBP 1.2 per share during the period of 3 months following the expiry of lock in period. 

Assets acquired and liabilities assumed

 

	Elite Cleaning & Environmental Services Limited (Elite)
Assets acquired
Property, plant and equipment	651,249
Intangible assets	3,786,438
Inventories	77,281
Trade and other receivables	2,381,699
Cash and cash equivalents	1,966,074
Other assets	1,599,442
Total assets	10,462,183
Liabilities acquired
Other liabilities (including deferred tax)	2,651,551
Trade and other payables	527,749
Total liabilities	3,179,300
Identifiable net assets at fair value	7,282,883
Goodwill on acquisition	358,352
Purchase consideration transferred	7,641,235
Purchase Consideration
Consideration transferred settled in cash	4,290,681
Fair value of put option	2,183,532
Fair value of contingent consideration	1,167,022
Total consideration	7,641,235

 

Analysis of cash flow on acquisitions

 

	Elite Cleaning & Environmental Services Limited (US $)
Transaction cost of acquisition (included in cash flow from operating activities)	173,697
Net cash acquired (Included in cash flow from investing activities)	1,966,074

 

The fair value of trade receivables and other receivable amounted to US$ 2,381,699. None of the trade receivables have been impaired and it is expected that the full contractual amount can be collected.

 

Deferred tax liability amounted to US$ 604,557 have been recognized on the fair value of intangible assets acquired.

 

The goodwill of US$ 358,352 comprised of value of expected synergies arising from acquisition which was not separately recognized. The goodwill accounted on acquisition of Elite Cleaning & Environmental Services Limited was entirely allocated to facility management Goodwill recognized on acquisition is not expected to be deductible for tax purposes.

The fair value measurement was based on significant input that is not observable in the market. The fair value estimate based on;

·     Annual discount rate of 15.4%.

·     Terminal value based on the long term sustainable growth rate for the industry is 2%.

 

Contingent consideration is payable after completion of earn out period i.e. 31 March 2018. The consideration shall be reduced by the greater of:

·     The percentage by which the Revenue is less than GBP 11,200,000 in the earn out period; or

·     The percentage by which EBITDA is less than GBP 1,000,000 in the earn out period.

The contingent consideration could range between GBP Nil to GBP 1,000,000 depending on achieving the target as stated above.

From the date of acquisition Elite Cleaning & Environmental Services Limited contributed $17,461,288 of revenue and profit after tax $940,314 for the year ended 31 March 2018. If the combination had taken place at 1 April 2017 revenue from continuing operations would have been $ 18,473,536 and the profit after tax for the year ended 31 March 2018 would have been $ 994,825

 

 

4

Goodwill

 

The movements in the net carrying amount of goodwill are as follows:

           

	2018	2017
Gross carrying amount	US $	US $
Balance 1 April 2017	9,720,662	10,778,246
Acquired through business combination	358,352	-
Net exchange difference	1,100,393	(1,057,584)
Balance 31 March 2018	11,179,407	9,720,662
Accumulated impairment	-	-
Carrying amount at 31 March 2018	11,179,407	9,720,662

 

 

Impairment testing of goodwill

 

For the purpose of annual impairment testing, goodwill is allocated to the operating segments expected to benefit from the synergies of the business combinations in which the goodwill arises, as follows:

 

	2018	2017
	US $	US $
Guarding Services	2,431,680	2,281,939
Facilities Management	8,747,727	7,438,723
	11,179,407	9,720,662

 

The recoverable amount of each segment was determined based on value-in-use calculations, covering a detailed five-year forecast, followed by an extrapolation of expected cash flows for the remaining useful lives using a declining growth rate determined by management. The recoverable amount of each operating segment is set out below:

 

	2018	2017
	US $	US $
Guarding Services	18,092,568	14,492,229
Facilities Management	28,256,330	35,975,530

 

 

 

 

 

 

Key assumptions used for value-in-use calculations: (Year 2018)

	Tenon Facility Management Limited (formerly Office and General Group Limited (O&G)	Frontline Security Pte. Limited	Roto Power Projects Private Limited
Segment	Facilities Management	Guarding Services	Facilities Management
	2018	2018	2018
Net margin (1)	2%-3%	10%-12%	5%-7%
Annual Growth rate (2) Long term Growth rate (2)	3%-6% 1.7%	15% 2%	15%   5%
Discount rate (3)	10.68%	14.05%	19.95%

 

 

Key assumptions used for value-in-use calculations: (Year 2017)

	Tenon Facility Management Limited (formerly Office and General Group Limited (O&G)	Frontline  Security Pte. Limited	Roto Power Projects Private Limited
Segment	Facilities Management	Guarding Services	Facilities Management
	2017	2017	2017
Net margin (1)	2%-3%	12%-14%	5%-7%
Annual Growth rate (2) Long term Growth rate (2)	9%-10% 2%	4%-5% 2%	6%-10%   5%
Discount rate (3)	10%	12%	20%

 

¹⁾     Budgeted net margin based on past experience in the market.        

²⁾     Forecasted growth rate based on management estimation derived from past experience and external source of information available.

³⁾     Pre-tax discount rate applied to the pre-tax cash flow projections based on management's estimates of the risks specific to the business.

 

These assumptions were used for the analysis of the CGU within the operating segment. Management determined budgeted net margin based on past performance and its expectations of the market developments. The weighted average growth rates used were consistent with the forecasts included in industry reports. The discount rates used were pre-tax and reflected specific risks relating to the relevant segments.

 

As at 31 March 2018, goodwill in respect of the acquisition of Roto Power Projects Private Limited, Tenon Facility Management Limited (formerly Office and General Group Limited), Elite Cleaning &Environmental Services Limited and Frontline Securities Pte Limited was not impaired