Arohan Annual Report FY 20-21

Arohan Financial Services Limited Summary of significant accounting policies and other explanatory information for the year ended 31 March 2021 (Contd.) rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Initial recognition and measurement Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted for transaction costs. Subsequent measurement of financial assets and financial liabilities are described below. Non-derivative financial assets: Subsequent measurement Financial assets carried at amortised cost A financial asset is measured at the amortised 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 cashflows, 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 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 interest income in the Statement of Profit and Loss. Non-performing financial assets are carried at amortised cost in the financial statement. Financial assets carried at fair value through other comprehensive income (FVOCI) A financial asset is measured at FVOCI 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 selling financial assets (b) The contractual terms of the financial asset meet the SPPI test. FVOCI instruments are subsequently measured at fair value with gains and losses arising due to changes in fair value recognised in OCI. Interest income are recognised in profit or loss in the same manner as for financial assets measured at amortised cost. Investments Investment in mutual funds are measured at fair value through profit and loss (FVTPL). Investment in equity are measured at fair value to other comprehensive income (FVOCI) De-recognition of financial assets Financial assets or a part of financial asset are derecognised when the contractual rights to receive the cash flows from the financial asset have expired, or when the financial asset and substantially all the risks and rewards are transferred. Further, if the Company has not retained control, it shall also de-recognise the financial asset and recognise separately as assets or liabilities any rights and obligations created or retained in the transfer. Non-derivative financial liabilities: Subsequent measurement Subsequent to initial recognition, all non-derivative financial liabilities are measured at amortised cost using the effective interest method. De-recognition of financial liabilities A financial liability is de-recognised when the obligation under the liability is discharged or cancelled or expired. When an existing financial liability is replacedby another fromthe 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. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there are a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. Financial 143