Accounting Policies of Paragon Finance Ltd. Company

Mar 31, 2024

NOTE - 2 : SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS

2.01 Revenue recognition
Interest income

The Company recognises interest income using a rate of return that represents the best estimate of a
constant rate of return over the expected life of the loan. Hence, it recognises the effect of potentially
different interest rates charged at various stages, and other characteristics of the product life cycle
(including prepayments, penalty interest and charges). If expectations regarding the cash flows on the
financial asset are revised for reasons other than credit risk. The adjustment is booked as a positive or
negative adjustment to the carrying amount of the asset in the balance sheet with an increase or
reduction in interest income. The adjustment is subsequently amortised through interest income in the
statement of profit and loss.

Dividend income

Dividend income (including from FVOCI investments) is recognised when the Company''s right to
receive the payment is established, it is probable that the economic benefits associated with the
dividend will flow to the entity and the amount of the dividend can be measured reliably. This is
generally when the shareholders approve the dividend.

2.02 Financial instruments
Point of recognition

Financial assets and liabilities, with the exception of loans, debt securities, deposits and borrowings are
initially recognised on the trade date, i.e., the date that the Company becomes a party to the
contractual provisions of the instrument. This includes regular way trades: purchases or sales of
financial assets that require delivery of assets within the time frame generally established by regulation
or convention in the market place. Loans are recognised when funds are transferred to the customers’
account. The Company recognises debt securities, deposits and borrowings when funds reach the
Company.

Initial recognition

The classification of financial instruments at initial recognition depends on their contractual terms and
the business model for managing the instruments, as per the principles of the Ind AS. Financial
instruments are initially measured at their fair value, except in the case of financial assets and financial
liabilities recorded at FVTPL, transaction costs are added to, or subtracted from, this amount. Trade
receivables are measured at the transaction price. When the fair value of financial instruments at initial
recognition differs from the transaction price, the Company accounts mentioned below:

When the transaction price of the instrument differs from the fair value at origination and the fair value
is based on a valuation technique using only inputs observable in market transactions, the Company
recognises the difference between the transaction price and fair value in net gain on fair value
changes. In those cases where fair value is based on models for which some of the inputs are not
observable, the difference between the transaction price and the fair value is deferred and is only
recognised in profit or loss when the inputs become observable, or when the instrument is
derecognised.

Subsequent measurement of financial liabilities

All financial liabilities of the Company are subsequently measured at amortized cost using the effective
interest method. Under the effective interest method, the future cash payments are exactly discounted
to the initial recognition value using the effective interest rate. The cumulative amortization using the
effective interest method of the difference between the initial recognition amount and the maturity
amount is added to the initial recognition value (net of principal repayments, if any) of the financial
liability over the relevant period of the financial liability to arrive at the amortized cost at each reporting
date. The corresponding effect of the amortization under effective interest method is recognized as
interest expense over the relevant period of the financial liability. The same is included under finance
cost in the Statement of Profit and Loss.

Subsequent measurement of financial assets

For subsequent measurement, the Company classifies a financial asset in accordance with the below
criteria:

i. The Company''s business model for managing the financial asset; and

ii. The contractual cash flow characteristics of the financial asset.

Based on the above criteria, the Company classifies its financial assets into the following categories:

(a) Financial assets measured at amortized cost

(b) Financial assets measured at fair value through other comprehensive income (FVTOCI)

(c) Financial assets measured at fair value through profit or loss (FVTPL)

(a) Financial assets measured at amortized cost:

A Financial asset is measured at the amortized cost if both the following conditions are met:

(i) The Company''s business model objective for managing the financial asset is to hold financial assets
in order to collect contractual cash flows; and

(ii) The contractual terms of the Financial asset give rise on specified dates to cash Flows that are
solely payments of principal and interest on the principal amount outstanding.

This category applies to cash and bank balances, trade receivables, loans and other financial assets of
the Company. Such financial assets are subsequently measured at amortized cost using the effective
interest method. Under the effective interest method, the future cash receipts are exactly discounted to
the initial recognition value using the effective interest rate. The cumulative amortization using the
effective interest method of the difference between the initial recognition amount and the maturity
amount is added to the initial recognition value (net of principal repayments, if any) of the financial
asset over the relevant period of the financial asset to arrive at the amortized cost at each reporting
date. The corresponding effect of the amortization under effective interest method is recognized as
interest income over the relevant period of the financial asset. The same is included under other
income in the Statement of Profit and Loss. The amortized cost of a financial asset is also adjusted for
loss allowance, if any.

(b) Financial assets measured at FVTOCI:

A financial asset is measured at FVTOCI if both of the following conditions are met:

(i) The Company''s business model objective for managing the financial asset is achieved both by
collecting contractual cash flows and selling the financial assets; and

(ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.

This category applies to certain investments in debt and equity instruments. Such financial assets are
subsequently measured at fair value at each reporting date. Fair value changes are recognized in the
Statement of profit and loss under ''Other Comprehensive Income (OCI)''. However, the Company
recognizes interest income and impairment losses and its reversals in the Statement of Profit and Loss.
On de-recognition of such financial assets, cumulative gain or loss previously recognized in OCI is
reclassified from equity to the Statement of Profit and Loss, except for instruments which the Company
has irrevocably elected to be classified as equity through OCI at initial recognition, when such
instruments meet the definition of definition of Equity under Ind AS 32 Financial Instruments:
Presentation and they are not held for trading. The Company has made such election on an instrument
by instrument basis.

Gains and losses on these equity instruments are never recycled to profit or loss. Dividends are
recognised in the statement of profit or loss as dividend income when the right of the payment has
been established, except when the Company benefits from such proceeds as a recovery of part of the
cost of the instrument, in which case, such gains are recorded in OCI. Equity instruments at FVOCI are
not subject to an impairment assessment.

(c) Financial assets measured at FVTPL:

A financial asset is measured at FVTPL unless it is measured at amortized cost or at FVTOCI as
explained above. This is a residual category applied to all other investments of the Company. Such
financial assets are subsequently measured at fair value at each reporting date. Fair value changes are

De-recognition:

(a) Financial asset:

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial
assets) is derecognized (i.e. removed from the Company''s balance sheet) when any of the following
occurs:

i. The contractual rights to cash flows from the financial asset expires;

ii. The Company transfers its contractual rights to receive cash flows of the financial asset and has
substantially transferred all the risks and rewards of ownership of the financial asset. A regular way
purchase or sale of financial assets has been derecognised, as applicable, using trade date
accounting.

iii. The Company retains the contractual rights to receive cash flows but assumes a contractual
obligation to pay the cash flows without material delay to one or more recipients under a ''pass-through''
arrangement (thereby substantially transferring all the risks and rewards of ownership of the financial
asset);

iv. The Company neither transfers nor retains substantially all risk and rewards of ownership and does
not retain control over the financial asset.

In cases where Company has neither transferred nor retained substantially all of the risks and rewards
of the Financial asset, but retains control of the financial asset, the Company continues to recognize
such financial asset to the extent of its continuing involvement in the financial asset. In that case, the
Company also recognizes an associated liability. The financial asset and the associated liability are
measured on a basis that reflects the rights and obligations that the Company has retained.

On de-recognition of a financial asset, (except as mentioned in ii above for financial assets measured
at FVTOCI), the difference between the carrying amount and the consideration received is recognized
in the Statement of Profit and Loss.

(b) Financial liability:

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or
expires. Where an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, such an
exchange or modification is treated as a derecognition of the original liability and the recognition of a
new liability. The difference between the carrying value of the original financial liability and the
consideration paid is recognised in profit or loss.

Impairment of financial assets:

In accordance with Ind AS 109, the Company applies expected credit loss (''ECL'') model for
measurement and recognition of impairment loss for financial assets.

ECL is the weighted-average of difference between all contractual cash flows that are due to the
Company in accordance with the contract and all the cash flows that the Company expects to receive,
discounted at the original effective interest rate, with the respective risks of default occurring as the
weights. When estimating the cash flows, the Company is required to consider:

''- All contractual terms of the financial assets (including prepayment and extension) over the expected
life of the assets.

- Cash flows from the sale of collateral held or other credit enhancements that are integral to the
contractual terms.

Trade receivables

In respect of trade receivables, the Company applies the simplified approach of Ind AS 109, which
requires measurement of loss allowance at an amount equal to lifetime expected credit losses. Lifetime
expected credit losses are the expected credit losses that result from all possible default events over
the expected life of a financial instrument.

Other financial assets:

In respect of its other financial assets, the Company assesses if the credit risk on those financial
assets has increased significantly since initial recognition. If the credit risk has not increased
significantly since initial recognition, the Company measures the loss allowance at an amount equal to
12-month expected credit losses, else at an amount equal to the lifetime expected credit losses.

When making this assessment, the Company uses the change in the risk of a default occurring over
the expected life of the financial asset. To make that assessment, the Company compares the risk of a
default occurring on the financial asset as at the balance sheet date with the risk of a default occurring
on the financial asset as at the date of initial recognition and considers reasonable and supportable
information, that is available without undue cost or effort, that is indicative of significant increases in
credit risk since initial recognition. The Company assumes that the credit risk on a financial asset has
not increased significantly since initial recognition if the financial asset is determined to have low credit
risk at the balance sheet date.

Offsetting of financial instruments:

Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if
there is a currently enforceable legal right to offset the recognised amounts and there is an intention to
settle on a net basis, to realise the assets and settle the liabilities simultaneously.

2.03 Fair Value

The Company measures its financial instruments at fair value in accordance with the accounting
policies mentioned above. Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. The
fair value measurement is based on the presumption that the transaction to sell the asset or transfer
the liability takes place either:

• In the principal market for the asset or liability, or

• In the absence of a principal market, in the most advantageous market for the asset or liability.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorized within the fair value hierarchy that categorizes into three levels, described as follows, the
inputs to valuation techniques used to measure value. The fair value hierarchy gives the highest priority
to quoted prices in active markets for identical assets or liabilities (Level I inputs) and the lowest priority
to unobservable inputs (Level 3 inputs).

- Level 1 (unadjusted) - Those where the inputs used in the valuation are unadjusted quoted prices
from active markets for identical assets or liabilities that the Company has access to at the
measurement date. The Company considers markets as active only if there are sufficient trading
activities with regards to the volume and liquidity of the identical assets or liabilities and when there are
binding and exercisable price quotes available on the balance sheet date.

- Level 2 - Those where the inputs that are used for valuation and are significant, are derived from
directly or indirectly observable market data available over the entire period of the instrument’s life.
Such inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for
identical instruments in inactive markets and observable inputs other than quoted prices such as
interest rates and yield curves, implied volatilities, and credit spreads. In addition, adjustments may be
required for the condition or location of the asset or the extent to which it relates to items that are
comparable to the valued instrument. However, if such adjustments are based on unobservable inputs
which are significant to the entire measurement, the Company will classify the instruments as Level 3.

''- Level 3 - Those that include one or more unobservable input that is significant to the measurement
as whole.

For assets and liabilities that are recognized in the financial statements at fair value on a recurring
basis, the Company determines whether transfers have occurred between levels in the hierarchy by re¬
assessing categorization at the end of each reporting period and discloses the same.

2.04 Income Taxes

Tax expense is the aggregate amount included in the determination of profit or loss for the period in
respect of current tax and deferred tax.

Current tax

Current tax is the amount of income taxes payable in respect of taxable profit for a period. Taxable
profit differs from ''profit before tax'' as reported in the Statement of Profit and Loss because of items of
income or expense that are taxable or deductible in other years and items that are never taxable or
deductible under the Income Tax Act, 1961. Current tax is measured using tax rates that have been
enacted by the end of reporting period for the amounts expected to be recovered from or paid to the
taxation authorities.

Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss
(either in other comprehensive income or in equity). Current tax items are recognised in correlation to
the underlying transaction either in OCI or directly in equity. Management periodically evaluates
positions taken in the tax returns with respect to situations in which applicable tax regulations are
subject to interpretation and establishes provisions where appropriate.

Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of
taxable profit under Income tax Act, 1961.

Deferred tax liabilities are generally recognized for all taxable temporary differences. However, in case
of temporary differences that arise from initial recognition of assets or liabilities in a transaction (other
than business combination) that affect neither the taxable profit nor the accounting profit, deferred tax
liabilities are not recognized. Also, for temporary differences if any that may arise from initial
recognition of goodwill, deferred tax liabilities are not recognized.

Deferred tax assets are generally recognized for all deductible temporary differences to the extent it is
probable that taxable profits will be available against which those deductible temporary difference can
be utilized. In case of temporary differences that arise from initial recognition of assets or liabilities in a
transaction (other than business combination) that affect neither the taxable profit nor the accounting
profit, deferred tax assets are not recognized. The carrying amount of deferred tax assets is reviewed
at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow the benefits of part or all of such deferred tax assets to be
utilized.

Deferred tax assets and liabilities are measured at the tax rates that have been enacted or
substantively enacted by the balance sheet date and are expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss
(either in other comprehensive income or in equity). Deferred tax items are recognised in correlation to
the underlying transaction either in OCI or directly in equity.

Presentation of current and deferred tax:

Current and deferred tax are recognized as income or an expense in the Statement of Profit and Loss,
except when they relate to items that are recognized in Other Comprehensive Income, in which case,
the current and deferred tax income/expense are recognized in Other Comprehensive Income. The
Company offsets current tax assets and current tax liabilities, where it has a legally enforceable right to
set off the recognized amounts and where it intends either to settle on a net basis, or to realize the
asset and settle the liability simultaneously. In case of deferred tax assets and deferred tax liabilities,
the same are offset if the Company has a legally enforceable right to set off corresponding current tax
assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to
income taxes levied by the same tax authority on the Company.

Minimum Alternate Tax (MAT) credit is recognised as an asset only when and to the extent there is
convincing evidence that the Company will pay normal income tax during the specified period. Such
asset is reviewed at each Balance Sheet date and the carrying amount of the MAT credit asset is
written down to the extent there is no longer a convincing evidence to the effect that the company will
pay normal income tax during the specified period. Further, the MAT credit is not set-off against the
deferred tax liabilities, since the Company does not have a legally enforceable right to set-off.

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Mar 31, 2014

(1) Nature of Operation

The company is engaged in providing loan against security of vahicles, investment in shares & mutual fund, and finance business concerns,individuals, companies, etc, as per the directions prescribed by the Reserve Bank Of India (RBI) for Non-Banking Financial Companies (NBFC).

(2) Basis of Preparation

The financial statements have been prepared to comply in all material respects with the mandatory Accounting Standards issued by the Institute of Chartered Accountants of India,the relevant provision of the Companies Act.1956 and the guidelines issued by the RBI as applicable to Non-Deposit accepting NBFC.

The financial statements have been prepared under the historical cost convention on an accrual basis unless otherwise stated. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year.

(3) Fixed Assets and Depreciation

Fixed assets are stated at Cost less Depreciation.

The depreciation has been provided in accordance with the provisions of the Schedule XIV of Companies Act, 1956 on Written Down Value Method.

(4) Revenue Recognition

I. Income from operation represents earnings from Loan against security of vehicles arrived at by amortising the installment containing the interest, as and when these become due, as per the related agreement.Such amortisation being based on Even Spread Method on individual agreements.

II. Additional Interest for Delayed payment and rebate allowed on timely payment are recognised as and when received / paid.

III. As a part of prudent financial management, the Company had decided to progessively follow the international accepted accounting principles on revenue recognition, provisioning and assets classification. These principles stipulate de-recognition income on 5 (Five) installment dues progressive provisioning and recognition of the contracts with 365 days past dues as loss assets. These principles are more stringent than the guidelines prescribed by the Reserve Bank of India for compliance.

In accordance with these prudent accounting policies, all contracts with 365 days past dues treated as loss assets and written off as bad debts. Any subsequent recoveries made out of these contracts will be treated as income for the year during which the same is received.

IV. Prudential Norms

Subject to Para III above, the Company has followed the Prudential Norms issued by Reserve Bank of India, as applicable, and revenue / assets have been represented (considering adjustments / written - off / net - off, as applicable) keeping in line therewith and management prudence.

V. Dividend income on investment is accounted for when the company''s right to receive dividend is establised.

VI. The Company makes provision of 0.25% on Standard Assets in accordance with RBI Guidelines issued on 17th january, 2011.

(5) Expenses

All the expenses have been accounted for on accrual basis.

(6) Investment Valuation

Investment being Long term Investments are stated at cost. Provisions for dimunition in value of investments are made only when such dimunition is permanent in nature.

(7) Income Tax

a) Provision for Current Income Tax is made on the basis of relevant provisions of the Income Tax Act, 1961 as applicable to the financial year.

b) Deferred Taxon timing differences is measured based on the Tax Rates and the Tax laws enacted or substantively enacted as on the Balance Sheet date. Deferred Tax Assets are recognized only to the extent that there is virtual certainty with convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realized.

(8) Gratuity

The company has been legally advised that Payment of Gratuity Act, 1972 is not applicable to the company during the year.

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Mar 31, 2013

(1) Nature of Operation

The company is engaged in providing loan against security of vehicles, investment in shares & mutual fund, and finance business concerns, individuals, companies, etc, as per the directions prescribed by the Reserve Bank of India (RBI) for Non-Banking Financial Companies (NBFC).

(2) Basis of Preparation

The financial statements have been prepared to comply in all material respects with the mandatory Accounting Standards issued by the Institute of Chartered Accountants of India, the relevant provision of the Companies Act, 1956 and the guidelines issued by the RBI as applicable to Non-Deposit accepting NBFC.

The financial statements have been prepared under the historical cost convention on an accrual basis unless otherwise stated. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year.

(3) Fixed Assets and Depreciation

Fixed assets are stated at Cost less Depreciation.

The depreciation has been provided in accordance with the provisions of the Schedule XIV of Companies Act, 1956 on Written Down Value Method.

(4) Revenue Recognition

I. Income from operation represents earnings from Loan against security of vehicles arrived at by amortising the installment containing the interest, as and when these become due, as per the related agreement. Such amortisation being based on Even Spread Method on individual agreements.

II. Additional Interest for Delayed payment and rebate allowed on timely payment are recognised as and when received / paid,

III. As apart of prudent financial management, the Company had decided to progressively follow the international accepted accounting principles on revenue recognition, provisioning and assets classification. These principles stipulate de-recognition income on 5 (Five) installment dues, progressive provisioning and recognition of the contracts with 365 days past dues as loss assets. These principles are more stringent than the guidelines prescribed by the Reserve Bank of India for compliance.

In accordance with these prudent accounting policies, all contracts with 365 days past dues are treated as loss assets and written off as bad debts. Any subsequent recoveries made out of these contracts will be treated as income for the year during which the same is received.

IV. Prudential Norms

Subject to Para III above, the Company has followed the Prudential Norms issued by Reserve Bank of India, as applicable, and revenue / assets have been represented (considering adjustments / written - off / net - off, as applicable) keeping in line therewith and management prudence.

V. Dividend income on investment is accounted for when the company''s right to receive dividend is established.

VI. The Company makes provision of 0.25% on Standard Assets in accordance with RBI Guidelines issued on 17th January, 2011.

(5) Expenses

All the expenses have been accounted for on accrual basis.

(6) Investment Valuation

Investment being Long term Investments are stated at cost. Provisions for dimunition in value of investments are made only when such dimunition is permanent in nature.

(7) Income Tax

a) Provision for Current Income Tax is made on the basis of relevant provisions of the Income Tax Act, 1961 as applicable to the financial year.

b) Deferred Tax on timing differences is measured based on the Tax Rates and the Tax laws enacted or substantively enacted as on the Balance Sheet date. Deferred Tax Assets are recognized only to the extent that there is virtual certainty with convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realized.

(8) Gratuity

The company has been legally advised that Payment of Gratuity Act, 1972 is not applicable to the company during the year.

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Mar 31, 2010

(1) Nature of Operation

The Company is engaged in providing loan against security of vehicles, investment in shares & mutual funds, and finance business concerns, individuals, companies, etc, as per the directions prescribed by the Reserve Bank of India (RBI) for Non Banking Financial Companies {NBFC).

(2) Basis of Preparation

The financial statements have been prepared to comply in all material respects with the mandatory Accounting Standards issued by the Institute of Chartered Accountants of India, the relevant provisions of the Companies Act, 1956 and the guidelines issued by the RBI as applicable to Non-Deposit accepting NBFC.

The financial statements have been prepared under the historical cost convention on an accrual basis unless otherwise stated. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year.

(3) Fixed Assets and Depreciation

Fixed assets are stated at Cost less Depreciation.

The depreciation has been provided in accordance with the provisions of the Schedule XIV of the Companies Act, 1956 on Written Down Value Method.

(4) Revenue Recognition

I. Income from operation represents earnings from Loan against security of vehicles arrived at by amortising the installments containing the interest, as and when these become due, as per the related agreement. Such amortisation being based on Even Spread Method on individual agreements.

II. Delayed payment charges and rebate allowed on timely payments are recognised as and when received /paid.

III. As a part of prudent financial management, the Company had decided to progressively follow the internationally accepted accounting principles on revenue recognition, provisioning and assets classification. These principles stipulate de recognition of income on 5 (Five) installment dues, progressive provisioning and recognition of contracts with 365 days past dues as loss assets. These principles are more stringent than the guidelines prescribed by the Reserve Bank of India for compliance.

In accordance with these prudent accounting policies, all contracts with 365 days past dues treated as loss assets and written off as bad debts. Any subsequent recoveries made out of these contracts will be treated as income for the year during which the same is received.

IV. Prudential Norms

Subject to Para III above, the Company has followed the Prudential Norms issued by Reserve Bank of India, as applicable, and revenue / assets have been represented {considering adjustments / written off / net off, as applicable) keeping in line therewith and management prudence.

V. Profit / Loss on Repossessed Assets represent the profit / loss due to repossession of the vehicles.

VI. Dividend income on investment is accounted for when the companys right to receive dividend is established.

(5) Expenses

All the expenses have been accounted for on accrual basis.

(6) Investment Valuation

Investments being Long term Investments are stated at cost. Provisions for diminution in value of investments are made only when such diminution is permanent in nature.

(7) Gratuity

The company has been legally advised that Payment of Gratuity Act, 1972 is not applicable to the company during the year.