The Financial Statements of The Overseas School of Colombo (Guarantee) Limited have been prepared in accordance with Sri Lanka Accounting Standards for Small and Medium-sized Entities (SLFRS for SMEs) issued by The Institute of Chartered Accounts of Sri Lanka.
2.1 Statement of compliance
The Financial Statements have been prepared on a historical cost basis. The Financial Statements are presented in Sri Lankan Rupees. The preparation and presentation of these Financial Statements is in compliance with the Companies Act No. 07 of 2007.
2.1.1 Going concern
Due to the significant uncertainty arising from the COVID-19 pandemic, the Management has assessed the existing and anticipated effects of COVID-19 on the Company and the appropriateness of the use of the going concern basis. The Company evaluated the resilience of its businesses considering a wide range of factors, relating to expected revenue, cost management, profitability, ability to defer non-essential capital expenditure, debt repayment restatements, and the amount of undrawn borrowing facilities, and potential sources of financing facilities.
The Directors, after due consideration of the range and likelihood of outcomes are satisfied that the Company have adequate resources to continue in operational existence for the foreseeable future and continue to adopt the going concern basis in preparing and presenting these Financial Statements.
In determining the above significant management judgements, estimates and assumptions the impact of COVID-19 pandemic has considered as of reporting date.
The Directors have made an assessment of the Company’s ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Therefore, the Financial Statements continue t be prepared on going concern basis.
2.1.2 Comparative information
The accounting policies have been consistently applied by the Company are consistent with those used in previously.
2.1.3 Presentation and functional currency
The Financial Statements are prepared in Sri Lankan Rupees, the Company’s functional and presentation currency, which is the primary economic environment in which the Company operates.
2.2 Significant accounting judgements, estimates and assumptions
2.2.1 Critical judgements in applying the accounting policies
In the process of applying the Company’s accounting policies, Management has made the following judgements, which have the most significant effect on the amounts recognised in the Financial Statements.
(a) Deferred taxation
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax that can be recognised based upon the likely timing and the levels of future taxable profits together with future tax planning strategies.
(b) Allowance for doubtful debts
The Company reviews at each date of the statement of financial position all receivables to assess whether an allowance should be recorded in the profit or loss. The Management uses judgement in estimating such amounts in the light of the duration of outstanding and any other factors Management in aware of that indicate uncertainty in recovery.
2.2.2 Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation of uncertainty at the reporting date, that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities within the next financial year are discussed below:
The Company based its assumptions and estimates on parameters available when the Financial Statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
(a) Defined benefit plans
The cost as well as the present value of the defined benefit plan, gratuity is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, future salary increases and other important related data. Due to the long-term nature of employee benefits, such estimates are subject to significant uncertainty. Further details of assumptions are given in Note 12.
(b) Useful lives of property, plant and equipment
The Company reviews the assets’ residual values, useful lives and methods of depreciation or amortisation at each reporting date; judgement by Management is exercised in the estimation of these values, rates and methods.
2.3 Summary of significant accounting policies
2.3.1 Foreign currency translation
The Financial Statements are presented in Sri Lankan Rupees, which is the Company's functional and presentation currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the date of the statement of financial position. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Income tax is measured at the amounts expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those that are enacted or substantively enacted by the balance sheet date.
The provision for income tax is based on the elements of income and expenditure as reported in the Financial Statements and computed in accordance with the provisions of the Inland Revenue Act.
Deferred income tax is provided, using the liability method, on temporary differences at the date of the statement of financial position between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised.
The carrying amount of deferred income tax assets is reviewed at each date of the statement of financial position and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to 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 date of the statement of financial position.
Revenues, expenses and assets are recognised net of the amount of sales tax except where the sales tax incurred on a purchase of assets or service is not recoverable from the taxation authorities in which case the sales tax is recognised as a part of the cost of the asset or part of the expense items as applicable and receivable and payable that are stated with the amount of sales tax included. The amount of sales tax recoverable and payable in respect of taxation authorities is included as a part of receivables and payables in the statement of financial position.
2.3.3 Borrowing costs
Borrowing costs are recognised as an expense in the period in which they are incurred.
2.3.4 Intangible assets
All computer software cost incurred, licensed for use by the Company which is not integrally related to the associate hardware, can be clearly identified, reliably measured and it is probable that they will lead to future economic benefits are included in the statement of financial position under the category intangible assets and carried at the cost less accumulated amortisation and accumulated impairment losses if any.
Expenditure incurred on intangible assets is capitalised only when it future economic benefits embodied in the specific assets to which it relates. All other expenditure is expensed as incurred.
Intangible assets are amortised on a straight-line basis over a period of three years in the statements of comprehensive income from the date when the asset is available for use, over the best estimate of its useful economic life. The amortisation period and the amortisation method for intangible assets are reviewed at least at each financial year end.
Receivables are stated at the amounts they are estimated to realise net of provisions for doubtful receivables.
2.3.6 Cash and cash equivalents
Cash and short-term deposits are cash in hand, demand deposits and short-term highly liquid investments, readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
For the purpose of cash flow statement, cash and cash equivalents consist of cash in hand and deposits in banks net of outstanding bank overdrafts. Investments with short maturities i.e. three months or less from the date of acquisition are also treated as cash equivalents.
2.3.7 Property, plant and equipment
Property, plant and equipment except for freehold land and buildings are stated at cost, excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the plant and equipment when that cost is incurred, if the recognition criteria are met.
Revaluation of land and buildings are carried out with sufficient frequency to ensure that the fair value of the land does not materially differ from its carrying amount and professionally qualified valuer undertakes it.
Depreciation is calculated on a straight-line basis over the useful life of the assets.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognising of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income in the year the asset is derecognised.
The asset's residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year-end.
2.3.8 Leasehold rights
Leasehold rights represent a contract in which the right-of-use of a land is conveyed for a period of a time in exchange for consideration. At the date of commencement of a lease, the lessee recognised in the statement of financial position as right-of-use of land and a liability to make lease payments. Leasehold rights are amortised over the remaining leased period.
2.3.9 Short-term investments
Short-term Investments comprise investments in fixed deposits and are initially measured at transaction cost.
2.3.10 Project funds
Project funds wholly consist of funds collected by the pupils and teachers of the school for various social activities and projects which are maintained by the school, for administrative purposes of collection, retention and disbursement as required by the projects.
2.3.11 Employee benefits
(a) Defined benefit plan – Gratuity
Defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company's obligation in respect of defined benefit plans is calculated by estimating the amount of future benefits that employees have earned in return for their service in the current and prior periods. The benefit is discounted to determine its present value.
The discounted rate is yield at the reporting date on government bonds that have maturity dates approximating to the terms of the Company’s obligations. The calculation is performed by a qualified actuary using the Project Unit Credit Method.
However, under the Payment of Gratuity Act No. 12 of 1983, liability to an employee arises only on completion of five years of continual service.
The liability is not externally funded.
(b) Defined contribution plans – Employees’ Provident Fund and Employees’ Trust Fund
Employees are eligible for Employees’ Provident Fund contributions and Employees’ Trust Fund contributions in line with the respective statutes and regulations. The Company contributes 12% and 3% of gross emoluments of employees to Employees’ Provident Fund and Employees’ Trust Fund respectively.
2.3.12 Impairment of non-financial assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Impairment losses of continuing operations are recognised in the statement of profit or loss and other comprehensive income in those expense categories consistent with the function of the impaired asset. For assets, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Company makes an estimate of recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss and other comprehensive income.
2.3.13 Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable net of trade discounts and sales taxes. The following specific criteria are used for the purpose of recognition of revenue.
(a) Tuition fee income
The main source of revenue for the Company is tuition fee which is recognised on accrual basis for each semester.
Interest income is recognised on an accrual basis.
Other Income is recognised on an accrual basis.
Net gains and losses of a revenue nature on the disposal of property, plant and equipment are accounted for in the income statement, having deducted from proceeds on disposal, the carrying amount of the assets and related selling expenses.
Gains and losses arising from incidental activities to main revenue generating activities and those arising from a group of similar transactions which are not material, are aggregated, reported and presented on a net basis.
2.3.14 Expenditure recognition
(a) Expenses in carrying out the school and other activities of the Company are recognised in the statement of comprehensive income during the year in which they are incurred. Other expenses incurred in administering and running the trust and in restoring and maintaining the property, plant and equipment to perform at expected levels are accounted for on an accrual basis and charged to the statement of comprehensive income.
(b) For the purpose of presentation of the statement of comprehensive income, the Management is of the opinion that the function of expenses method, presents fairly the elements of the Company’s performance, and hence such a presentation method is adopted.