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Accounting Policies of Ashok Leyland Ltd. Company

Mar 31, 2017

IA. General information

Company Background:

Ashok Leyland Limited ("the Company") is a public limited company incorporated and domiciled in India and governed by the Companies Act, 2013 ("Act"). The Company''s registered office is situated at 1, Sardar Patel Road, Guindy, Chennai, Tamil Nadu, India. The main activities of the Company are those relating to manufacture and sale of wide range of commercial vehicles. The Company also manufactures engines for industrial and marine applications.

IB. Significant Accounting Policies

1B.1 Basis of Preparation and Presentation

Compliance with Indian Accounting Standards (Ind AS):

The financial statements have been prepared in accordance with Ind AS notified under the Companies (Indian Accounting Standards) Rules, 2015. Up to the year ended March 31, 2016, the Company prepared its financial statements in accordance with the requirements of previous GAAP, which includes Standards notified under the Companies (Accounting Standards) Rules, 2006. These are the Company''s first Ind AS financial statements. The date of transition to Ind AS is April 1, 2015.

First-time adoption:

In accordance with Ind AS 101 on First time adoption of Ind AS, the Company has prepared its first Ind AS financial statements which include:

(i) Three Balance sheets namely, the opening Balance sheet as at April 1, 2015 (the transition date) by recognizing all assets and liabilities whose recognition is required by Ind AS, not recognizing assets or liabilities which are not permitted by Ind AS, by reclassifying assets and liabilities from previous GAAP as required by Ind AS, and applying Ind AS in measurement of recognized assets and liabilities; and Balance sheets as at March 31, 2017 and 2016; and

(ii) Two statements each of profit and loss; cash flows and changes in equity for the years ended March 31, 2017 and 2016 together with related notes.

The same accounting policies have been applied for all the periods presented except when the Company has made use of certain exceptions and/ or exemptions.

The financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. 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, regardless of whether that price is directly observable or estimated using another valuation technique.

In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/ or disclosure purposes in these financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of Ind AS 102, leasing transactions that are within the scope of Ind AS 17, and measurements that have some similarities to fair value but are not fair value, such as net realizable value in Ind AS 2 or value in use in Ind AS 36.

In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2, or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

- Level 3 inputs are unobservable inputs for the asset or liability.

All assets and liabilities have been classified as current or non-current as per the Company''s normal operating cycle and other criteria set out in the schedule III to the Act. Based on the nature of products and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company has determined its operating cycle as twelve months for the purpose of current - non-current classification of assets and liabilities.

The financial statements are presented in Indian Rupees ('') and all values are rounded to the nearest lakhs, except where otherwise indicated.

The financial statements were approved for issue by the board of directors on May 25, 2017.

The significant accounting policies are detailed below.

1B.2 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable.

Sale of goods:

Revenue from the sale of goods is recognized when the goods are dispatched or appropriated in accordance with the terms of sale at which time the title and significant risks and rewards of ownership pass to the customer. Revenue is recognized when collectability of the resulting receivable is reasonably assured.

Revenue is inclusive of excise duty and is reduced for estimated customer returns, commissions, rebates and discounts, and other similar allowances.

Rendering of services:

Revenue from services is recognized when the services are rendered in accordance with the specific terms of contract and when collectability of the resulting receivable is reasonably assured.

Other Operating Revenues:

Other operating revenues comprise of income from ancillary activities incidental to the operations of the Company and is recognized when the right to receive the income is established as per the terms of the contract.

Dividend and Interest Income:

Dividend income from investments is recognized when the Company''s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably).

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable (provided that it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably).

1B.3 Foreign currency transactions

The Company''s foreign operations (including foreign branches) are an integral part of the Company''s activities. In preparing the financial statements, transactions in currencies other than the entity''s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences on monetary items are recognized in profit or loss in the period in which they arise except for:

- Exchange differences on translation or settlement of long term foreign currency monetary items in respect of loans borrowed before April 1, 2016 at rates different from those at which they were initially recorded or reported in the previous financial statements, insofar as it relates to acquisition of depreciable assets, are adjusted to the cost of the assets and depreciated over remaining useful life of such assets. In other cases of long term foreign currency monetary items, these are accumulated in "Foreign currency monetary item translation difference account" and amortized by recognition as income or expense in each period over the balance term of such items till settlement occurs but not beyond March 31, 2020; and

- Exchange difference on translation of derivative instruments designated as cash flow hedge (see Note 1B.17 below for hedging accounting policies).

1B.4 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

1B.5 Government Grants

Government grants (including export incentives) are recognized only when there is reasonable assurance that the Company will comply with the conditions attaching to them and the grants will be received.

Government grants are recognized in profit or loss on a systematic basis over the periods in which the Company recognizes as expenses the related costs for which the grants are intended to compensate.

The benefit of a government loan at a below market rate of interest is treated as a government grant, measured at the difference between proceeds received and the fair value of the loan based on prevailing market rates.

The Company has applied Ind AS 109 ''Financial Instruments'' and Ind AS 20 ''Accounting for Government Grants and Disclosure of Government Assistance'' prospectively to government loans existing at the date of transition and the Company has not recognized the corresponding benefit of the government loans at the below-market rate of interest as a government grant. Consequently, the Company has used the previous GAAP carrying amounts of the government loans at the date of transition as the carrying amount of these loans in the opening Ind AS Balance Sheet.

1B.6 Employee benefits

Retirement benefit costs and termination benefits:

Payments to defined contribution plans i.e., Company''s contribution to provident fund, superannuation fund, employee state insurance and other funds are determined under the relevant schemes and/ or statute and charged to the Statement of Profit and Loss in the period of incurrence when the services are rendered by the employees.

In respect of provident fund, contributions made to a trust administered by the Company, the interest rate payable to the members of the trust shall not be lower than the statutory rate of interest declared by the Central Government under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and shortfall, if any, shall be contributed by the Company and charged to the Statement of Profit and Loss.

For defined benefit plans i.e. Company''s liability towards gratuity (funded), other retirement/ terminations benefits and compensated absences, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Defined benefit costs are comprised of:

- service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements);

- net interest expense or income; and

- re-measurement.

The Company presents the first two components of defined benefit costs in profit or loss in the line item ''Employee benefits expense''. Curtailment gains and losses are accounted for as past service costs.

Re-measurement of net defined benefit liability/ asset pertaining to gratuity comprise of actuarial gains/ losses (i.e. changes in the present value resulting from experience adjustments and effects of changes in actuarial assumptions) and is reflected immediately in the balance sheet with a charge or credit recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and is not reclassified to profit or loss.

A liability for a termination benefits like expenditure on Voluntary Retirement Scheme is recognized at the earlier of when the Company can no longer withdraw the offer of termination benefit or when the Company recognizes any related restructuring costs.

Short-term and other long-term employee benefits:

A liability is recognized for benefits accruing to employees in respect of salaries, wages, performance incentives, medical benefits and other short term benefits in the period the related service is rendered, at the undiscounted amount of the benefits expected to be paid in exchange for that service.

Liabilities recognized in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the Company in respect of services provided by employees up to the reporting date.

1B.7 Share-based payment arrangements

Equity-settled share-based payments to employees (primarily employee stock option plan) are measured by reference to the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in Note 3.15.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company''s estimate of equity instruments that will eventually vest, with a corresponding increase in equity at the end of the year. At the end of each year, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share options outstanding account.

1B.8 Income Taxes

Income tax expense represents the sum of the tax currently payable and deferred tax. Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively.

Current tax:

Current tax is determined on taxable profits for the year chargeable to tax in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961 including other applicable tax laws that have been enacted or substantively enacted.

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. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax asset is recognized for the carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilized.

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 all or part of the asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

1B.9 Property, plant and equipment

Cost:

Property, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at cost (net of duty/ tax credit availed) less accumulated depreciation and accumulated impairment losses. Cost of all civil works (including electrification and fittings) is capitalized with the exception of alterations and modifications of a capital nature to existing structures where the cost of such alteration or modification is ''100,000 and below.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognized impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Company''s accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Fixtures, plant and equipment (including patterns and dies) where the cost exceeds ''10,000 and the estimated useful life is two years or more, is capitalized and stated at cost (net of duty/ tax credit availed) less accumulated depreciation and accumulated impairment losses.

Deemed cost on transition to Ind AS:

The Company has elected to continue with the carrying value of all of its property, plant and equipment recognized as of April 1, 2015 (the transition date) measured as per the previous GAAP and use such carrying value as its deemed cost as of the transition date.

Depreciation/ amortization:

Depreciation is recognized so as to write off the cost of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Freehold land is not depreciated.

When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of Property, Plant and Equipment.

De-recognition:

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

1B.10 Intangible assets

The Company has elected to continue with the carrying value of all of its intangible assets recognized as of April 1, 2015 (the transition date) measured as per the previous GAAP and use such carrying value as its deemed cost as of the transition date.

Intangible assets acquired separately:

Intangible assets with finite useful lives that are acquired separately, where the cost exceeds ''10,000 and the estimated useful life is two years or more, is capitalized and carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Internally-generated intangible assets - research and development expenditure:

Expenditure on research activities e.g. the design and production of prototypes is recognized as an expense in the period in which it is incurred.

An internally generated intangible assets arising from development (or from development phase of internal project) is recognized, if and only if, all of the following have been demonstrated:

- technical feasibility of completing the intangible asset;

- intention to complete the intangible asset and intention/ ability to use or sell it;

- how the intangible asset will generate probable future economic benefit;

- availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible assets; and

- the ability to measure reliably the attributable expenditure during the development stage.

The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognized, development expenditure is recognized in profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

De-recognition of intangible assets:

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss when the asset is derecognized.

Useful lives of intangible assets:

1B.11 Impairment losses

At the end of each reporting period, the Company determines whether there is any indication that its assets (property, plant and equipment, intangible assets and investments in equity instruments in subsidiaries, joint ventures and associates carried at cost) have suffered an impairment loss with reference to their carrying amounts. If any indication of impairment exists, the recoverable amount (i.e. higher of the fair value less costs of disposal and value in use) of such assets is estimated and impairment is recognized, if the carrying amount exceeds the 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 for which the estimates of future cash flows have not been adjusted.

When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

1B.12 Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Rental expense from operating leases is generally recognized on a straight-line basis over the term of the relevant lease. Where the rentals are structured solely to increase in line with expected general inflation to compensate for the less or’s expected inflationary cost increases, such increases are recognized in the year in which such benefits accrue.

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date, whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in the arrangement.

1B.13 Inventories

Inventories are stated at lower of cost and net realizable value.

Cost of raw materials, stores, spares, consumable tools and traded goods comprises cost of purchases and includes taxes and duties and is net of eligible credits under CENVAT/ VAT schemes. Cost of work-in-progress, work-made components and finished goods comprises direct materials, direct labour and an appropriate proportion of variable and fixed overheads, which is allocated on a systematic basis. Cost of inventories also includes all other related costs incurred in bringing the inventories to their present location and condition.

Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

Cost of inventories are determined as follows:

- Raw materials, stores, spares, consumable tools, traded goods: on moving weighted average basis; and

- Work-in-progress, works-made components and finished goods: on moving weighted average basis plus appropriate share of overheads.

Cost of surplus/ obsolete/ slow moving inventories are adequately provided for.

1B.14 Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursements will be received and the amount of the receivable can be measured reliably.

Warranties:

Provisions for expected cost of warranty obligations under legislation governing sale of goods are recognized on the date of sale of the relevant products at the Management''s best estimate of the expenditure required to settle the obligation which takes into account the empirical data on the nature, frequency and average cost of warranty claims and regarding possible future incidences. 1B.15 Non-current assets held for sale

Non-current assets or disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset and its sale is highly probable.

Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell and disclosed separately in balance sheet. Liabilities associated with assets classified as held for sale are estimated and disclosed separately in the balance sheet.

1B.16 Business Combinations

A common control business combination, involving entities or businesses in which all the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination and where the control is not transitory, is accounted for using the pooling of interests method.

Other business combinations, involving entities or businesses are accounted for using acquisition method.

The Company has elected not to apply Ind AS 103 ''Business Combinations'' retrospectively to past business combinations that occurred before the transition date of April 1, 2015.

1B.17 Financial instruments

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial assets:

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Classification of financial assets

The financial assets are initially measured at fair value. Transaction costs that are directly attributable to the acquisition of financial assets are added to the fair value of the financial assets on initial recognition.

After initial recognition:

(i) Financial assets (other than investments and derivative instruments) are subsequently measured at amortized cost using the effective interest method.

Effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Investments in debt instruments that meet the following conditions are subsequently measured at mortised cost:

- the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and

- the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments on principal and interest on the principal amount outstanding.

Income on such debt instruments is recognized in profit or loss and is included in the "Other Income".

The Company has not designated any debt instruments as fair value through other comprehensive income.

(ii) Financial assets (i.e. derivative instruments and investments in instruments other than equity of subsidiaries, joint ventures and associates) are subsequently measured at fair value.

Such financial assets are measured at fair value at the end of each reporting period, with any gains (e.g. any dividend or interest earned on the financial asset) or losses arising on re-measurement recognized in profit or loss and included in the "Other Income".

Investments in equity instruments of subsidiaries, joint ventures and associates

The Company measures its investments in equity instruments of subsidiaries, joint ventures and associates at cost in accordance with Ind AS 27. At transition date, the Company has elected to continue with the carrying value of such investments measured as per the previous GAAP and use such carrying value as its deemed cost.

Impairment of financial assets:

A financial asset is regarded as credit impaired when one or more events that may have a detrimental effect on estimated future cash flows of the asset have occurred. The Company applies the expected credit loss model for recognizing impairment loss on financial assets (i.e. the shortfall between the contractual cash flows that are due and all the cash flows (discounted) that the Company expects to receive).

De-recognition of financial assets:

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. On de-recognition of a financial asset in its entirety, the difference between the asset''s carrying amount and the sum of the consideration received and receivable is recognized in the Statement of profit and loss.

The Company has applied the de-recognition requirements of financial assets prospectively for transactions occurring on or after April 1, 2015 (the transition date).

Financial liabilities and equity instruments:

Classification as debt or equity

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by a group entity are recognized at the proceeds received, net of direct issue costs.

Repurchase of the Company''s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company''s own equity instruments.

Financial liabilities

All financial liabilities (other than derivative instruments) are subsequently measured at mortised cost using the effective interest method. The carrying amounts of financial liabilities that are subsequently measured at mortised cost are determined based on the effective interest method. Interest expense that is not capitalized as part of costs of an asset is included in the "Finance Costs".

The effective interest method is a method of calculating the mortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument.

Financial guarantee contracts issued by the Company are initially measured at their fair values and are subsequently measured (if not designated as at Fair value though profit or loss) at the higher of:

- the amount of impairment loss allowance determined in accordance with requirements of Ind AS 109; and

- the amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with the principles of Ind AS 18.

De-recognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company''s obligations are discharged, cancelled or have expired. An exchange between with a lender of debt instruments with substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of the terms of an existing financial liability (whether or not attributable to the financial difficulty of the debtor) is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

The Company has applied the de-recognition requirements of financial liabilities prospectively for transactions occurring on or after April 1, 2015 (the transition date).

Derivative financial instruments:

The Company enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts and cross currency interest rate swaps. Further details of derivative financial instruments are disclosed in Note 3.6.

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently premeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedging relationship and the nature of the hedged item.

Embedded derivatives

Derivatives embedded in non-derivative host contracts that are not financial assets within the scope of Ind AS 109 are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at Fair value through profit or loss.

As of the transition date, the Company has assessed whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative on the basis of the conditions that existed on the later of the date of first became a party to the contract and the date when there has been change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract.

Hedge accounting:

The Company designates certain derivatives as hedging instruments in respect of foreign currency risk, as either fair value hedges, cash flow hedges. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk.

Note 3.6 sets out details of the fair values of the derivative instruments used for hedging purposes.

Fair value hedges

Changes in fair value of the designated portion of derivatives that qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

The change in the fair value of the designated portion of hedging instrument and the change in the hedged item attributable to the hedged risk are recognized in profit or loss in the line item relating to the hedged item.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is mortised to profit or loss from that date.

Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, and is included in the "Other Income".

Amounts previously recognized in other comprehensive income and accumulated in equity relating to (effective portion as described above) are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognized hedged item. However, when the hedged forecast transaction results in the recognition of a non-financial asset or a non-financial liability, such gains and losses are transferred from equity (but not as a reclassification adjustment) are included in the initial measurement of the cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognized in other comprehensive income and accumulated in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.

1C. Critical accounting judgments and key sources of estimation uncertainty

The preparation of financial statements in conformity with Ind AS requires the Company''s Management to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities recognized in the financial statements that are not readily apparent from other sources. The judgments, estimates and associated assumptions are based on historical experience and other factors including estimation of effects of uncertain future events that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates (accounted on a prospective basis) and recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods of the revision affects both current and future periods.

The following are the critical judgments and estimations that have been made by the Management in the process of applying the Company''s accounting policies and that have the most significant effect on the amounts recognized in the financial statements and/or key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Provision for impairment loss and other obligations relating to a subsidiary company

As stated in Note 3.23, The Company has significant financial involvement in Optare Plc, U.K., a subsidiary company (Optare), by way of Equity investment, Loans and financial guarantees to Optare''s lenders for loans taken by Optare.

Optare has also made losses in the current year as there have been curtailment in business due to increased competition which has a significant effect on business performance, future cash flows and servicing of third parties liabilities. Based on the Company''s assessment of these factors and business valuation of Optare by an independent valuer, the Company has recognized an impairment loss of Rs,24,414.08 lakhs for loans given to Optare and has made a provision of Rs,28,100.00 lakhs for its obligations towards Potaro’s lenders, and for third party claims and other potential liabilities.

Impairment loss reversal relating to an erstwhile joint venture

As stated in Note 3.22, the uncertainties relating to continuity of the joint venture operations were resolved consequent to an agreement dated September 7, 2016, reached between the Company and the joint venture partner. The settlement resulted in acquisition of balance stake of the joint venture partner by the Company in the erstwhile joint venture entities and the continuity of LCV business thereof.

Subsequently, the Company reformulated its business plan/strategy for LCV business which is expected to enhance its growth prospects. Considering the above developments/factors and business valuation by an independent valuer, the impairment loss of Rs,29,597.51 lakhs recognized in the previous year which no longer required, has been reversed in the books.

Inventories

An inventory provision is recognized for cases where the realizable value is estimated to be lower than the inventory carrying value. The inventory provision is estimated taking into account various factors, including prevailing sales prices of inventory item, changes in the related laws / emission norms and losses associated with obsolete / slow-moving / redundant inventory items. The Company has, based on these assessment, made adequate provision in the books.

Taxation

Tax expense is calculated using applicable tax rate and laws that have been enacted or substantially enacted. In arriving at taxable profit and all tax bases of assets and liabilities, the Company determines the taxability based on tax enactments, relevant judicial pronouncements and tax expert opinions, and makes appropriate provisions which includes an estimation of the likely outcome of any open tax assessments / litigations. Any difference is recognized on closure of assessment or in the period in which the they are agreed.

Deferred income tax assets are recognized to the extent that it is probable that future taxable income will be available against which the deductible temporary differences, unused tax losses, unabsorbed depreciation and unused tax credits could be utilised.

Provision for product warranty

The Company''s product warranty obligations and estimations thereof are determined using historical information on the type of product, nature, frequency and average cost of warranty claims and the estimates regarding possible future incidences of product failures. Changes in estimated frequency and amount of future warranty claims, which are inherently uncertain, can materially affect warranty expense.

Fair value measurements and valuation processes

Some of the Company''s assets and liabilities are measured at fair value for financial reporting purposes. The Management determines the appropriate valuation techniques and inputs for the fair value measurements. In estimating the fair value of an asset or a liability, the Company used market-observable data to the extent it is available. Where Level 1 inputs are not available, the Company engaged third party qualified valuers to perform the valuations in order to determine the fair values based on the appropriate valuation techniques and inputs to fair value measurements. Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in Note 3.6.


Mar 31, 2015

1. Accounting convention

1.1 The Financial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards specified under Section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014 and the relevant provisions of the Companies Act, 2013 ("the 2013 Act")/ Companies Act, 1956 ("the 1956 Act"), as applicable. The financial statements have been prepared on accrual basis under the historical cost convention except for certain categories of fixed assets that are carried at re-valued amounts.

1.2 All assets and liabilities have been classified as current or non-current as per the Company''s normal operating cycle and other criteria set out in the schedule III to the 2013 Act. Based on the nature of products and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has determined its operating cycle as twelve months for the purpose of current - non current classification of assets and liabilities.

1.3 Use of estimates

The preparation of the financial statements, in conformity with the generally accepted accounting principles, requires management to make estimates and assumptions that are considered in the reported amounts of assets including decline in carrying value of investments and liabilities on the date of the financial statements, disclosure of contingent liabilities and reported amounts of revenues and expenses for the year. Estimates are based on historical experience, where applicable and other assumptions that management believes are reasonable under the circumstances. Actual results could vary from these estimates and any such differences are dealt with in the period in which the results are known / materialize.

2. Tangible and Intangible Fixed assets and depreciation / amortisation

2.1 Cost of all civil works (including electrification and fittings) is capitalised with the exception of alterations and modifications of a capital nature to existing structures where the cost of such alteration or modification is Rs. 100,000 and below. Other fixed assets, including intangible assets and assets given on lease, where the cost exceeds Rs. 10,000 and the estimated useful life is two years or more, is capitalised. Cost of initial spares and tools is capitalised along with the respective assets. Cost of fixed assets is net of eligible credits under CENVAT / VAT Scheme. Expenditure directly related and incidental to construction / development and borrowing costs in para 3 below are capitalised upto the date the assets are ready for their intended use. Exchange differences are capitalised to the extent dealt with in para 6.2 below.

Certain categories of fixed assets were revalued and are carried at the revalued amounts less accumulated depreciation and impairment loss, if any. Increase in the net book value on such revaluation is credited to "Revaluation Reserve Account". Upon the sale, disposal, extinguishment of the revalued assets the amount of revaluation reserve against such assets is adjusted against their carrying values and the difference between the sale proceeds of such assets and the adjusted carrying value are recognised in the Statement of Profit and Loss.

2.2 Tangible fixed assets and Intangible assets, that are not yet ready for their intended use, are carried at costs, comprising direct cost, and other incidental / attributable expenses and reflected under Capital work in progress / Intangible assets under development, respectively.

2.3 Assets are depreciated / amortised on straight line basis over their estimated useful life as below:

a) Leasehold land over the period of lease;

b) Leasehold land and buildings as revalued, is calculated on the respective revalued amounts, over the balance useful life as determined by the valuers in the case of buildings and as per (a) above in the case of land;

c) Assets subject to impairment, on the asset''s revised carrying amount, over its remaining useful life.

d) All other tangible and intangible assets (including assets given on lease and assets in leased / customer premises) are depreciated / amortised over their estimated useful lives. Estimated useful life of assets are determined based on internal technical parameters / assessment and supported by external technical advice obtained periodically.

The aforesaid estimated useful life for computing depreciation / amortisation are different in certain cases from the life specified in the Schedule II to the 2013 Act and such differences are disclosed in Note 3.2.9 to the financial statements.

2.4 Depreciation / amortisation is provided on a pro-rata basis from the month the assets are put to use during the financial year. In respect of assets sold or disposed off during the year, depreciation / amortisation is provided upto the month of sale or disposal of the assets.

2.5 The carrying values of assets / cash generating units at each balance sheet date are reviewed for impairment. If any indication of impairment exists, the recoverable amount of such assets is estimated and impairment is recognised, if the carrying amount exceeds the recoverable amount.

3. Borrowing costs

Borrowing costs attributable to the acquisition, construction or production of qualifying assets, are added to the cost of those assets, upto the date when the assets are ready for their intended use. Expenditure incurred on issue of debentures is adjusted against Securities Premium Account. Expenditure incurred on raising loans is amortised over the period of such borrowings. Premium paid on prepayment of borrowing is amortised over the unexpired period thereof or six months, whichever is less. All other borrowing costs are recognised in the Statement of Profit and Loss in the period in which they are incurred.

4. Investments

Long term investments are carried individually at cost. However, provision for diminution is made to recognise a decline, if any, other than temporary, in the carrying value of the investment. Current investments are carried individually at lower of cost and fair value.

5. Inventories

5.1 Inventories are valued at lower of cost and net realisable value; cost being ascertained on the following basis:

- Stores, raw materials and components and work-in-progress: On monthly moving weighted average basis.

- spares, consumable tools : weighted average basis

In respect of works-made components, cost includes applicable production overheads.

- Finished / trading goods: under absorption costing method.

5.2 Cost includes taxes and duties and is net of eligible credits under CENVAT / VAT Schemes.

5.3 Cost of patterns and dies is amortised over a period of five years.

5.4 Surplus / obsolete / slow moving inventories are adequately provided for.

6. Foreign currency transactions and derivatives

The Company''s foreign operations (including foreign branches) are an integral part of the Company''s activities. The foreign currency transactions / foreign currency monetary and non-monetary items in such operations and others are recorded / translated as mentioned below:

6.1 Foreign currency transactions are recorded at the rates prevailing on the date of the transaction. Monetary assets and liabilities in foreign currency are translated at closing rate. Exchange differences arising on settlement or translation of monetary items other than those mentioned in para 6.2 below are recognised as income or expense in the Statement of Profit and Loss in the period it arises.

6.2 Exchange differences on translation or settlement of long term foreign currency monetary items (i.e. whose term of settlement exceeds twelve months from date of its origination) at rates different from those at which they were initially recorded or reported in the previous financial statements, insofar as it relates to acquisition of depreciable assets are adjusted to the cost of the assets and depreciated over remaining useful life of such assets. In other cases, these are accumulated in "Foreign currency monetary item translation difference account" and amortised by recognition as income or expense in each period over the balance term of such items till settlement occurs but not beyond March 31, 2020.

6.3 The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to firm commitments and highly probable forecast transactions. The company designates such forward contracts in a cash flow hedging relationship by applying the hedge accounting principles set out in Accounting Standard - 30 "Financial Instruments

- Recognition and measurement" issued by ICAI. Gains and losses on these forward contracts designated as "effective Cash flow hedges" are recognised in the "Hedge Reserve Account" till the underlying forecasted transaction occurs. Any ineffective portion however, is recognised immediately in the Statement of Profit and Loss.

6.4 Gains and losses on all other derivatives (including forward contracts not designated as Cash flow hedge) are recognised in the Statement of Profit and Loss in the period it arises. Premium or discount on forward contracts is amortized over the life of the contract.

6.5 Non-monetary items of the Company''s integral foreign operations are carried at historical cost.

6.6 Investments in equity capital of companies registered outside India are carried in the Balance Sheet at the rates prevailing on the date of the transaction.

7. Segment Reporting

The Company''s primary segment is identified as business segment based on nature of product, risks, returns and the internal business reporting system and secondary segment is identified based on geographical location of the customers as per Accounting Standard - 17. The Company is principally engaged in a single business segment viz. Commercial vehicles and related components.

8. Revenue recognition

a) Sale of goods

Revenue from sale of products net of returns, is recognised on despatch or appropriation of goods in accordance with the terms of sale and is inclusive of excise duty. Price escalation claims are recognised to the extent there is reasonable certainty of its realisation.

b) Sale of Services

Revenue from services is recognised in accordance with the specific terms of contract on performance.

c) Other operating revenues

Other operating revenues comprise of income from ancillary activities incidental to the operations of the Company and is recognised when the right to receive the income is established as per the terms of the contract.

d) Other Income

Interest income is accounted on accrual basis. Dividend income is accounted as and when the right to receive the dividend is established.

9. Leases

Where the company is a lessor

a) Leases in which the Company transfers substantially all the risks and rewards of ownership of the asset are classified as finance leases. Assets given under finance lease are recognised as a receivable at an amount equal to the net investment in the lease. After the initial recognition, the Company apportions lease rentals between principal repayment and interest income so as

to achieve a constant periodic rate of return on the net investment outstanding in respect of the finance lease. The interest income is recognised in the Statement of Profit and Loss. Initial direct costs such as legal costs, brokerage costs, etc., are recognised immediately in the Statement of Profit and Loss.

b) Leases in which the company does not transfer substantially all the risks and rewards of ownership of the asset are classified

as operating leases. Assets subject to operating leases are included in fixed assets. Lease income on an operating lease is recognised in the Statement of Profit and Loss on a straight line basis over the lease terms. Costs, including depreciation, are recognised as an expense in the Statement of Profit and Loss. Initial direct costs such as legal costs, brokerage costs etc. are charged to the Statement of Profit and Loss in the period of incurrence.

10. Government grants

Grants in the form of capital / investment subsidy are treated as Capital reserve. Export incentives and incentives in the nature of subsidies given by the Government are reckoned in revenue in the year of eligibility.

11. Research and Development Costs

Expenditure on the design and production of prototypes is charged to the Statement of Profit and Loss as and when incurred.

Product development costs, including know how developed / acquired, incurred on new vehicle / engine platforms, variants on existing platforms and aggregates are recognised as Intangible assets only when product''s technical feasibility is established and amortised over their estimated useful life.

12. Employee benefits

12.1 Employee benefit expenses include salary, wages, performance incentives, compensated absences, medical benefits and other perquisites. It also includes post-employment benefits such as provident fund, superannuation fund, gratuity, pensionary benefits etc.

12.2 Short term employee benefit obligations are estimated and provided for.

12.3 Post-employment benefits and other long term employee benefits

- Defined contribution plans:

Company''s contribution to provident fund, superannuation fund, employee state insurance and other funds are determined under the relevant schemes and/ or statute and charged to the Statement of Profit and Loss in the period of incurrence when the services are rendered by the employees.

In respect of provident fund, contributions made to a trust administered by the Company, the interest rate payable to the members of the trust shall not be lower than the statutory rate of interest declared by the Central Government under the Employees Provident Fund and Miscellaneous Provisions Act 1952 and shortfall, if any, shall be contributed by the Company and charged to the Statement of Profit and Loss.

- Defined benefit plans and compensated absences:

Company''s liability towards gratuity, other retirement benefits and compensated absences are actuarially determined at each balance sheet date using the projected unit credit method. Actuarial gains and losses are recognised in the Statement of Profit and Loss in the period of occurrence.

12.4 Termination benefits

Expenditure on termination benefits (including expenditure on Voluntary Retirement scheme) is recognised in the Statement of Profit and Loss in the period of incurrence.

13. Provisions and Contingencies

A provision is recognised when the Company has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimates. Contingent liabilities are disclosed in the notes. Contingent assets are neither recognised nor disclosed in the financial statements.

Provision for product warranties is made for contractual obligations in accordance with the policy in force and is estimated for the unexpired period.

14. Income taxes

14.1 Income tax expenses comprise current and deferred taxes. Current tax is determined on income for the year chargeable to tax in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961 and other applicable tax laws and after considering credit for Minimum Alternate Tax (MAT) available under the said Act. MAT paid in accordance with the tax laws which gives future economic benefits in the form of adjustments to future tax liability, is considered as an asset if there is convincing evidence that the future economic benefit associated with it will flow to the Company resulting in payment of normal income tax.

14.2 Deferred tax is recognised on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversing in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date.

Deferred tax assets are recognised for timing differences other than unabsorbed depreciation and carry forward losses only to the extent that there is a reasonable certainty that there will be sufficient future taxable income to realise the assets. Deferred tax asset pertaining to unabsorbed depreciation and carry forward of losses are recognised only to the extent there is a virtual certainty of its realisation.

15. Cash Flow statement

Cash flow statements are reported using the indirect method, whereby profit / (loss) before extra-ordinary items / exceptional items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipt or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on available information including taxes paid relating to these activities.


Mar 31, 2014

1. Accounting convention

1.1 Financial statements are prepared in accordance with the Generally Accepted Accounting Principles in India to comply with the Accounting Standards notifi ed under Section 211 (3C) of the Companies Act 1956 ("the 1956 Act") [which continues to be applicable in respect of section 133 of the Companies Act''2013("the 2013 Act") in terms of general circular 15/2013 dated 13th September, 2013 of the Ministry of Corporate Aff airs] and the relevant provision of the 1956 Act/ 2013 Act as applicable. The fi nancial statements have been prepared on accrual basis under historical cost convention except for certain categories of fi xed assets that are carried at re-valued amounts.

1.2 All assets and liabilities have been classifi ed as current or non-current as per the Company''s normal operating cycle and other criteria set out in the revised schedule VI to the Companies Act, 1956. Based on the nature of products and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has determined its operating cycle as twelve months for the purpose of current - non current classifi cation of assets and liabilities.

1.3 Use of estimates

The preparation of the fi nancial statements, in conformity with the generally accepted accounting principles, requires management to make estimates and assumptions that are considered in the reported amounts of assets and liabilities on the date of the fi nancial statements, disclosure of contingent liabilities and reported amounts of revenues and expenses for the year. Estimates are based on historical experience, where applicable and other assumptions that management believes are reasonable under the circumstances. Actual results could vary from these estimates and any such diff erences are dealt with in the period in which the results are known/ materialize.

2. Tangible and Intangible Fixed assets and depreciation / amortisation

2.1 Cost of all civil works (including electrifi cation and fittings) is capitalised with the exception of alterations and modifi cations of a capital nature to existing structures where the cost of such alteration or modifi cation isRs. 100,000 and below. Other fi xed assets, including intangible assets and assets given on lease, where the cost exceeds Rs. 10,000 and the estimated useful life is two years or more, is capitalised. Cost of initial spares and tools is capitalised along with the respective assets. Cost of fi xed assets is net of eligible credits under CENVAT / VAT Scheme. Expenditure directly related and incidental to construction / development and borrowing costs in para 3 below are capitalised upto the date the assets are ready for their intended use. Exchange diff erences are capitalised to the extent dealt with in para 6.2 below.

Certain categories of fi xed assets were revalued and are carried at the revalued amounts less accumulated depreciation and impairment loss, if any. Increase in the net book value on such revaluation is credited to "Revaluation Reserve Account". Upon the sale, disposal, extinguishment of the revalued assets the amount of revaluation reserve against such assets is adjusted against their carrying values and the diff erence between the sale proceeds of such assets and the adjusted carrying value are recognised in the Statement of Profi t and Loss.

2.2 Tangible fi xed assets and Intangible assets, that are not yet ready for their intended use, are carried at costs, comprising direct cost, and other incidental / attributable expenses and refl ected under Capital work-in-progress / Intangible assets under development, respectively.

2.2 Assets are depreciated / amortised, as below, on straight line basis:

a) Leasehold land over the period of lease;

b) Leasehold land and buildings, as revalued, is calculated on the respective revalued amounts, over the balance useful life as determined by the valuers in the case of buildings and as per (a) above in the case of land;

c) Buildings, plant and machinery (except assets subject to impairment) and other assets, including assets given on lease and assets in leased premises / customer premises, over their estimated useful lives or lives derived from the rates prescribed in Schedule XIV to the Companies Act, 1956, whichever is lower;

d) Assets subject to impairment, on the asset''s revised carrying amount, over its remaining useful life.

e) Intangible assets are amortized over their estimated useful life.

2.3 Depreciation / amortisation is provided on a pro-rata basis from the month the assets are put to use during the fi nancial year. In respect of assets sold or disposed off during the year, depreciation / amortisation is provided upto the month of sale or disposal of the assets.

2.4 The carrying values of assets / cash generating units at each balance sheet date are reviewed for impairment. If any indication of impairment exists, the recoverable amount of such assets is estimated and impairment is recognised, if the carrying amount exceeds the recoverable amount.

3. Borrowing costs

Borrowing costs attributable to the acquisition, construction or production of qualifying assets, are added to the cost of those assets, upto the date when the assets are ready for their intended use. Expenditure incurred on issue of debentures is adjusted against Securities Premium Account. Expenditure incurred on raising loans is amortised over the period of such borrowings. Premium paid on prepayment of borrowing is amortised over the unexpired period thereof or six months, whichever is less. All other borrowing costs are recognised in the Statement of Profi t and Loss in the period in which they are incurred.

4. Investments

Long term investments are carried individually at cost, However, provision for diminution is made to recognise a decline, if any, other than temporary, in the carrying value of the investment. Current investments are carried individually at lower of cost and fair value.

5. Inventories

5.1 Inventories are valued at lower of cost and net realisable value; cost being ascertained on the following basis:

Stores, raw materials and components and work-in-progress: On monthly moving weighted average basis. Spares, consumable tools : weighted average basis In respect of works-made components, cost includes applicable production overheads. Finished / trading goods: under absorption costing method.

5.2 Cost includes taxes and duties and is net of eligible credits under CENVAT / VAT Schemes.

5.3 Cost of patterns and dies is amortised over a period of fi ve years.

5.4 Surplus / obsolete / slow moving inventories are adequately provided for.

6. Foreign currency transactions and derivatives

6.1 Foreign currency transactions are recorded at the rates prevailing on the date of the transaction. Monetary assets and liabilities in foreign currency are translated at closing rate. Exchange diff erences arising on settlement or translation of monetary items other than those mentioned in para 6.2 below are recognised as income or expense in the Statement of Profi t and Loss in the period it arises.

6.2 Exchange diff erences on translation or settlement of long term foreign currency monetary items (i.e. whose term of settlement exceeds twelve months from date of its origination) at rates diff erent from those at which they were initially recorded or reported in the previous fi nancial statements, insofar as it relates to acquisition of depreciable assets are adjusted to the cost of the assets and depreciated over remaining useful life of such assets.In other cases, these are accumulated in "Foreign currency monetary item translation diff erence account" and amortised by recognition as income or expense in each period over the balance term of such items till settlement occurs but not beyond March 31, 2020.

6.3 The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fl uctuations relating to fi rm commitments and highly probable forecast transactions. The Company designates such forward contracts in a cash fl ow hedging relationship by applying the hedge accounting principles set out in Accounting Standard- 30 "Financial Instruments-Recognition and measurement" issued by ICAI. Gains and losses on these forward contracts designated as "eff ective Cash fl ow hedges" are recognised in the "Hedge Reserve Account" till the underlying forecasted transaction occurs. Any ineff ective portion however, is recognised immediately in the Statement of profi t and loss.

6.4 Gains and losses on all other derivatives (including forward contracts not designated as Cash fl ow hedge) are recognised in the Statement of Profi t and Loss in the period it arises. Premium or discount on forward contracts is amortized over the life of the contract.

6.5 Investments in equity capital of companies registered outside India are carried in the Balance Sheet at the rates prevailing on the date of the transaction.

6.6 Income / expenditure of overseas branches are recognised at the average rate prevailing during the month in which transaction occurred.

7. Segment Reporting

The Company''s primary segment is identifi ed as business segment based on nature of product, risks, returns and the internal business reporting system and secondary segment is identifi ed based on geographical location of the customers as per Accounting Standard - 17. The Company is principally engaged in a single business segment viz. Commercial vehicles and related components.

8. Revenue recognition

a) Sale of goods

Revenue from sale of products net of returns, is recognised on despatch or appropriation of goods in accordance with the terms of sale and is inclusive of excise duty. Price escalation claims are recognised to the extent there is reasonable certainty of its realisation.

b) Sale of Services

Revenue from services is recognised in accordance with the specifi c terms of contract on performance.

c) Other operating revenues

Other operating revenues comprise of income from ancillary activities incidental to the operations of the Company and is recognised when the right to receive the income is established as per the terms of the contract.

d) Other Income

Interest income is accounted on accrual basis. Dividend income is accounted as and when the right to receive the dividend is established.

9. Leases

Where the company is a lessor

a) Leases in which the company transfers substantially all the risks and rewards of ownership of the asset are classifi ed as finance leases. Assets given under fi nance lease are recognised as a receivable at an amount equal to the net investment in the lease. After the initial recognition, the company apportions lease rentals between principal repayment and interest income so as to achieve a constant periodic rate of return on the net investment outstanding in respect of the fi nance lease. The interest income is recognised in the Statement of Profi t and Loss. Initial direct costs such as legal costs, brokerage costs, etc., are recognised immediately in the Statement of Profi t and Loss.

b) Leases in which the company does not transfer substantially all the risks and rewards of ownership of the asset are classifi ed as operating leases. Assets subject to operating leases are included in fi xed assets. Lease income on an operating lease is recognised in the Statement of Profi t and Loss on a straight line basis over the lease terms. Costs, including depreciation, are recognised as an expense in the Statement of Profi t and Loss. Initial direct costs such as legal costs, brokerage costs etc. are charged to the Statement of Profi t and Loss in the period of incurrence.

10. Government grants

Grants in the form of capital/investment subsidy are treated as Capital reserve. Export incentives and incentives in the nature of subsidies given by the Government are reckoned in revenue in the year of eligibility.

11. Research and Development Costs

Expenditure on the design and production of prototypes is charged to the Statement of Profi t and Loss as and when incurred. Product development costs, including knowhow developed / acquired, incurred on new vehicle/ engine platforms, variants on existing platforms and aggregates are recognised as Intangible assets only when product''s technical feasibility is established and amortised over their estimated useful life.

12. Employee benefi ts

12.1 Employee benefi t expenses include salary, wages, performance incentives, compensated absences, medical benefi ts, and other perquisites. It also includes post employment benefi ts such as provident fund, superannuation fund, gratuity, pensionary benefi ts etc.

12.2 Short term employee benefi t obligations are estimated and provided for.

12.3 Post-employment benefi ts and other long term employee benefi ts

Defi ned contribution plans:

Company''s contribution to provident fund, superannuation fund, employee state insurance and other funds are determined under the relevant schemes and / or statute and charged to the Statement of Profi t and Loss in the period of incurrence when the services are rendered by the employees.

In respect of provident fund contributions made to a trust administered by the Company, the interest rate payable to the members of the trust shall not be lower than the statutory rate of interest declared by the Central Government under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and shortfall, if any, shall be contributed by the Company and charged to the Statement of Profi t and Loss.

Defi ned benefi t plans and compensated absences:

Company''s liability towards gratuity, other retirement benefi ts and compensated absences are actuarially determined at each balance sheet date using the projected unit credit method. Actuarial gains and losses are recognised in the Statement of Profi t and Loss in the period of occurrence.

12.4 Termination benefi ts

Expenditure on termination benefi ts (including expenditure on Voluntary Retirement scheme) is recognised in the Statement of Profi t and Loss in the period of incurrence.

13. Provisions and Contingencies

A provision is recognised when the Company has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions are reviewed at each balance sheet date and adjusted to refl ect the current best estimates. Contingent liabilities are disclosed in the notes. Contingent assets are neither recognised nor disclosed in the fi nancial statements. Provision for product warranties is made for contractual obligations in accordance with the policy in force and is estimated for the unexpired period.

14. Income taxes

14.1 Income tax expenses comprise current and deferred taxes. Current tax is determined on income for the year chargeable to tax in accordance with the Income Tax Act, 1961 and after considering credit for Minimum Alternate Tax (MAT) available under the said Act. MAT paid in accordance with the tax laws which gives future economic benefi ts in the form of adjustments to future tax liability, is considered as an asset if there is convincing evidence that the future economic benefi t associated with it will fl ow to the company resulting in payment of normal income tax.

14.2 Deferred tax is recognised on timing diff erences, being the diff erence between taxable income and accounting income that originate in one period and are capable of reversing in one or more subsequent periods. Deferred tax assets are recognised for timing diff erences other than unabsorbed depreciation and carry forward losses only to the extent that there is a reasonable certainty that there will be suffi cient future taxable income to realise the assets. Deferred tax asset pertaining to unabsorbed depreciation and carry forward of losses are recognised only to the extent there is a virtual certainty of its realisation.

15. Cash Flow Statement

Cash Flow statements are reported using the indirect method, whereby profi t/(loss) before extra-ordinary items/exceptional items and tax is adjusted for the eff ects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipt or payments. The cash fl ows from operating, investing and fi nancing activities of the Company are segregated based on available information including taxes paid relating to these activities.


Mar 31, 2013

1. Accounting convention

1.1 Financial statements are prepared in accordance with the generally accepted accounting principles in India including accounting standards referred to in Section 211 (3C) of the Companies Act 1956, under historical cost convention except so far as they relate to revaluation of certain land and buildings.

1.2 All assets and liabilities have been classified as current or non-current as per the Company''s normal operating cycle and other criteria set out in the revised schedule VI to the Companies Act, 1956. Based on the nature of products and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has determined its operating cycle as twelve months for the purpose of current - non current classification of assets and liabilities.

1.3 Use of estimates

The preparation of the financial statements, in conformity with the generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities on the date of the financial statements, disclosure of contingent liabilities and reported amounts of revenues and expenses for the year. Estimates are based on historical experience, where applicable and other assumptions that management believes are reasonable under the circumstances. Actual results could vary from these estimates and any such differences are dealt with in the period in which the results are known / materialize.

2. Tangible and intangible fixed assets and depreciation / amortisation

2.1 Cost of all civil works (including electrification and fittings) is capitalised with the exception of alterations and modifications of a capital nature to existing structures where the cost of such alteration or modification is Rs. 100,000 and below. Other fixed assets, including intangible assets and assets given on lease, where the cost exceeds Rs. 10,000 and the estimated useful life is two years or more, is capitalised. Cost of initial spares and tools is capitalised along with the respective assets. Cost of fixed assets is net of eligible credits under CENVAT / VAT Scheme. Expenditure directly related and incidental to construction / development and borrowing costs in para 3 below are capitalised upto the date the assets are ready for their intended use. Exchange differences are capitalised to the extent dealt with in para 6.2 below.

2.2 Assets are depreciated / amortised, as below, on straight line basis:

a) Leasehold land over the period of lease;

b) Leasehold land and buildings subject to revaluation, is calculated on the respective revalued amounts, over the balance useful life as determined by the valuers in the case of buildings and as per (a) above in the case of land;

c) Buildings, plant and machinery (except assets subject to impairment) and other assets, including assets given on lease and assets in leased premises / customer premises, over their estimated useful lives or lives derived from the rates prescribed in Schedule XIV to the Companies Act, 1956, whichever is lower;

d) Assets subject to impairment, on the asset''s revised carrying amount, over its remaining useful life.

e) Intangible assets are amortized over their estimated useful life.

2.3 Depreciation / amortisation is provided on a pro-rata basis from the month the assets are put to use during the financial year. In respect of assets sold or disposed off during the year, depreciation / amortisation is provided upto the month of sale or disposal of the assets.

3. Borrowing costs

Borrowing costs attributable to the acquisition, construction or production of qualifying assets, are added to the cost of those assets, upto the date when the assets are ready for their intended use. Expenditure incurred on issue of debentures is adjusted against Securities Premium Account. Expenditure incurred on raising loans is amortised over the period of such borrowings. Premium paid on prepayment of borrowing is amortised over the unexpired period thereof or six months, whichever is less. All other borrowing costs are recognised in the Statement of Profit and Loss in the period in which they are incurred.

4. Investments

Long term investments are stated at cost. However, provision for diminution is made to recognise a decline, if any, other than temporary, in the carrying value of the investment. Current investments are valued at lower of cost and fair value.

5. Inventories

5.1 Inventories are valued at lower of cost and net realisable value; cost being ascertained on the following basis:

- Stores, spares, consumable tools, raw materials and components and work-in-progress: On monthly moving weighted average basis.

In respect of works-made components, cost includes applicable production overheads.

- Finished / trading goods: under absorption costing method.

5.2 Cost includes taxes and duties and is net of eligible credits under CENVAT / VAT Schemes.

5.3 Cost of patterns and dies is amortised over a period of five years.

5.4 Surplus / obsolete / slow moving inventories are adequately provided for.

6. Foreign currency transactions and derivatives

6.1 Foreign currency transactions are recorded at the rates prevailing on the date of the transaction. Monetary assets and liabilities in foreign currency are translated at closing rate. Exchange differences arising on settlement or translation of monetary items other than those mentioned in para 6.2 below are recognised as income or expense in the Statement of Profit and Loss in the period it arises.

6.2 Exchange differences on translation or settlement of long term foreign currency monetary items (i.e. whose term of settlement exceeds twelve months from date of its origination) at rates different from those at which they were initially recorded or reported in the previous financial statements, insofar as it relates to acquisition of depreciable assets are adjusted to the cost of the assets. In other cases, these are accumulated in "Foreign currency monetary item translation difference account" and amortised by recognition as income or expense in each period over the balance term of such items till settlement occurs but not beyond March 31, 2020.

6.3 Gains and losses on certain forward contracts designated as "effective Cash Flow Hedges" are recognised in the "Hedge Reserve Account" till the underlying forecasted transaction occurs.

6.4 Gains and losses on all other derivatives (including forward contracts not designated as Cash Flow hedge) are recognised in the Statement of Profit and Loss in the period it arises. Premium or discount on forward contracts is amortised over the life of the contract.

6.5 Investments in equity capital of companies registered outside India are carried in the Balance Sheet at the rates prevailing on the date of the transaction.

6.6 Income / expenditure of overseas branches are recognised at the average rate prevailing during the month in which transaction occurred.

7. Segment Reporting

The Company''s primary segment is identified as business segment based on nature of product, risks, returns and the internal business reporting system and secondary segment is identified based on geographical location of the customers as per Accounting Standard - 17. The Company is principally engaged in a single business segment viz. commercial vehicles and related components.

8. Revenue recognition

a) Sale of goods

Revenue from sale of products is recognised on despatch or appropriation of goods in accordance with the terms of sale and is inclusive of excise duty. Price escalation claims are recognised to the extent there is reasonable certainty of its realisation.

b) Sale of Services

Revenue from services is recognised in accordance with the specific terms of contract on performance.

c) Other operating revenues

Other operating revenues comprise of income from ancillary activities incidental to the operations of the Company and is recognised when the right to receive the income is established as per the terms of the contract.

9. Leases

Where the Company is a lessor

a) Leases in which the Company transfers substantially all the risks and rewards of ownership of the asset are classified as finance leases. Assets given under finance lease are recognised as a receivable at an amount equal to the net investment in the lease. After the initial recognition, the Company apportions lease rentals between principal repayment and interest income so as to achieve a constant periodic rate of return on the net investment outstanding in respect of the finance lease. The interest income is recognised in the Statement of Profit and Loss. Initial direct costs such as legal costs, brokerage costs, etc., are recognised immediately in the Statement of Profit and Loss.

b) Leases in which the Company does not transfer substantially all the risks and rewards of ownership of the asset are classified as operating leases. Assets subject to operating leases are included in fixed assets. Lease income on an operating lease is recognised in the Statement of Profit and Loss on a straight line basis over the lease terms. Costs, including depreciation, are recognised as an expense in the Statement of Profit and Loss. Initial direct costs such as legal costs, brokerage costs etc. are charged to the Statement of Profit and Loss in the period of incurrence.

10. Government grants

Grants in the form of capital / investment subsidy are treated as Capital reserve. Export incentives and incentives in the nature of subsidies given by the Government are reckoned in revenue in the year of eligibility.

11. Research and Development costs

Expenditure on the design and production of prototypes is charged to the Statement of Profit and Loss as and when incurred. Product development costs, including knowhow developed / acquired, incurred on new vehicle / engine platforms, variants on existing platforms and aggregates are recognised as intangible assets and amortised over their estimated useful life.

12. Employee benefits

12.1 Short term employee benefit obligations are estimated and provided for.

12.2 Post-employment benefits and other long term employee benefits

- Defined contribution plans:

Company''s contribution to provident fund, superannuation fund, employee state insurance and other funds are determined under the relevant schemes and / or statute and charged to the Statement of Profit and Loss in the period of incurrence.

- Defined benefit plans and compensated absences:

Company''s liability towards gratuity, other retirement benefits and compensated absences are actuarially determined at each balance sheet date using the projected unit credit method. Actuarial gains and losses are recognised in the Statement of Profit and Loss in the period of occurrence.

12.3 Termination benefits

Expenditure on termination benefits (including expenditure on Voluntary Retirement scheme) is recognised in the Statement of Profit and Loss in the period of incurrence.

13. Product warranties

Provision for product warranties is made for contractual obligations in accordance with the policy in force and is estimated for the unexpired period.

14. Income taxes

14.1 Income tax expenses comprise current and deferred taxes. Current tax is determined on income for the year chargeable to tax in accordance with the Income Tax Act, 1961 and after considering credit for Minimum Alternate Tax available under the said Act.

14.2 Deferred tax is recognised on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversing in one or more subsequent periods.

Deferred tax asset pertaining to unabsorbed depreciation and carry forward of losses are recognised only to the extent there is a virtual certainty of its realisation.


Mar 31, 2012

1. Accounting convention

1.1 Financial statements are prepared in accordance with the generally accepted accounting principles including accounting standards in India under historical cost convention except so far as they relate to revaluation of certain land and buildings.

1.2 All assets and liabilities have been classified as current or non-current as per the Company's normal operating cycle and other criteria set out in the Revised Schedule VI to the Companies Act, 1956. Based on the nature of products and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company has determined its operating cycle as twelve months for the purpose of current - noncurrent classification of assets and liabilities.

1.3 Use of estimates

The preparation of the financial statements in conformity with the generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities on the date of the financial statements, disclosure of contingent liabilities and reported amounts of revenues and expenses for the year. Estimates are based on historical experience, where applicable and other assumptions that management believes are reasonable under the circumstances. Actual results could vary from these estimates and any such differences are dealt with in the period in which the results are known/ materialize.

2. Fixed assets and depreciation / amortization

2.1 Cost of all civil works (including electrification and fittings) is capitalized with the exception of alterations and modifications of a capital nature to existing structures where the cost of such alteration or modification is Rs 1,00,000 and below. Other fixed assets, including intangible assets and assets given on lease, where the cost exceeds Rs. 10,000 and the estimated useful life is two years or more, is capitalized. Cost of initial spares and tools is capitalized along with the respective assets. Cost of fixed assets is net of eligible credits under CENVAT / VAT Scheme. Expenditure directly related and incidental to construction / acquisition of tangible / intangible assets are capitalized up to the date the assets are ready for their intended use. Interest and other related costs, including amortized cost of borrowings attributable only to major projects are capitalized as part of the cost of the respective assets. Exchange differences are capitalized to the extent dealt with in para 5.2 below.

2.2 Assets are depreciated / amortized, as below, on straight line basis:

a) Leasehold land over the period of lease

b) Leasehold land and buildings subject to revaluation, is calculated on the respective revalued amounts, over the balance useful life as determined by the valuers in the case of buildings and as per (a) above in the case of land;

c) Buildings, plant and machinery (except assets subject to impairment) and other assets, including assets given on lease and assets in leased premises / customer premises, over their estimated useful lives or lives derived from the rates prescribed in Schedule XIV to the Companies Act, 1956, whichever is lower and in the case of intangible assets, over their estimated useful life;

d) Assets subject to impairment, on the asset's revised carrying amount, over its remaining useful life.

2.3 Depreciation / amortization is provided on a pro-rata basis from the month the assets are put to use during the financial year. In respect of assets sold or disposed off during the year, depreciation / amortization is provided till the month of sale or disposal of the assets.

3. Investments

Non-current investments are stated at cost. However, provision for diminution is made to recognize a decline, other than temporary, in the value of the investment, if any. Current investments are valued at lower of cost and fair value.

4. Inventories

4.1 Inventories are valued at lower of cost and net realizable value; cost being ascertained on the following basis:

- Stores, spares, consumable tools, raw materials and components and work-in-progress: On monthly moving weighted average basis.

- In respect of works-made components, cost includes applicable production overheads.

- Finished / trading goods: under absorption costing method.

4.2 Cost includes taxes and duties and is net of eligible credits under CENVAT / VAT Schemes.

4.3 Cost of patterns and dies is amortized equally over five years.

4.4 Surplus / obsolete / slow moving inventories are adequately provided for.

5. Foreign currency transactions and derivatives

5.1 Foreign currency transactions are recorded at the rates prevailing on the date of the transaction. Monetary assets and liabilities in foreign currency are translated at closing rate. Exchange differences arising on settlement or translation of monetary items other than those mentioned in para 5.2 below are recognized as income or expense in the Statement of Profit and Loss.

5.2 Exchange differences on translation or settlement of long term foreign currency monetary items (i.e. whose term of settlement exceeds twelve months from date of its origination) at rates different from those at which they were initially recorded or reported in the previous financial statements, in so far as it relates to acquisition of depreciable assets are adjusted to the cost of the assets. In other cases, these are accumulated in "Foreign currency monetary item translation difference account" and amortized by recognition as income or expense in each period over the balance term of such items till settlement occurs but not beyond March 31, 2020.

5.3 Gains and losses on certain forward contracts designated as effective Cash flow hedges are recognized in the Hedge Reserve Account till the underlying forecasted transaction occurs.

5.4 Gains and losses on all other derivatives (including forward contracts not designated as Cash flow hedge) are recognized in the Statement of Profit and Loss. Premium or discount on forward contracts is amortized over the life of the contract.

5.5 Investments in equity capital of companies registered outside India are carried in the Balance Sheet at the rates prevailing on the date of the transaction.

5.6 Income / expenditure of overseas branches are recognized at the average rate prevailing during the month in which transaction occurred.

6. Amortization of deferred expenditure

Expenditure incurred on raising loans is amortized over the period of such borrowings. Premium paid on prepayment of any borrowing is amortized over the unexpired period thereof or sixty months, whichever is less. Expenditure incurred on issue of debentures is adjusted against Securities Premium Account.

7. Segment Reporting

The Company's primary segment is identified as business segment based on nature of product, risks, returns and the internal business reporting system and secondary segment is identified based on geographical location of the customers. As per Accounting Standard - 17, the Company is principally engaged in a single business segment viz. Commercial vehicles and related components.

8. Revenue recognition

8.1 Revenue from sale of products is recognized on dispatch or appropriation of goods in accordance with the terms of sale and is inclusive of excise duty. Revenue arising due to price escalation claim is recognized in the period when such claim is made in accordance with terms of sale.

8.2 Revenue from services is recognized in accordance with the specific terms of contract on performance.

8.3 Other operating revenues comprise of income from ancillary activities incidental to the operations of the Company and is recognized when the right to receive the income is established as per the terms of the contract.

9. Leases

9.1 Leases in which the Company transfers substantially all the risks and rewards of ownership of the asset are classified as finance leases. Assets given under finance lease are recognized as a receivable at an amount equal to the net investment in the lease. After the initial recognition, the Company apportions lease rentals between principal repayment and interest income so as to achieve a constant periodic rate of return on the net investment outstanding in respect of the finance lease. The interest income is recognized in the Statement of Profit and Loss. Initial direct costs such as legal costs, brokerage costs, etc., are recognized immediately in the Statement of Profit and Loss.

9.2 Leases in which the Company does not transfer substantially all the risks and rewards of ownership of the asset are classified as operating leases. Assets subject to operating leases are included in fixed assets. Lease income on an operating lease is recognized in the Statement of Profit and Loss on a straight line basis over the lease terms. Costs, including depreciation, are recognized as an expense in the Statement of Profit and Loss. Initial direct costs such as legal costs, brokerage costs etc. are recognized immediately in the Statement of Profit and Loss.

10. Government grants

Grants in the form of capital/investment subsidy are treated as Capital reserve. Export incentives and incentives in the nature of subsidies given by the Government are reckoned in revenue in the year of eligibility.

11. Research and Development Costs

Expenditure on the design and production of prototypes is charged to revenue as incurred. Product development costs, including knowhow developed / acquired, incurred on new vehicle/ engine platforms, variants on existing platforms and aggregates are recognized as Intangible assets and amortized.

12. Employee benefits

12.1 Short term employee benefit obligations are estimated and provided for.

12.2 Post-employment benefits and other long term employee benefits

- Defined contribution plans:

Company's contribution to provident fund, superannuation fund, employee state insurance and other funds are determined under the relevant schemes and / or statute and charged to revenue.

- Defined benefit plans and compensated absences:

Company's liability towards gratuity, other retirement benefits and compensated absences are actuarially determined at each balance sheet date using the projected unit credit method. Actuarial gains and losses are recognized in revenue.

13. Product warranties

Provision for product warranties is made for contractual obligations in accordance with the policy in force and is estimated for the unexpired period.

14. Deferred tax

Deferred tax is recognized on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversing in one or more subsequent periods.

Deferred tax asset pertaining to unabsorbed depreciation and carry forward of losses are recognized only to the extent there is a virtual certainty of its realization.


Mar 31, 2011

1. Accounting convention

1.1. Financial statements are prepared in accordance with the generally accepted accounting principles including accounting standards in India under historical cost convention except so far as they relate to revaluation of certain land and buildings.

1.2. Use of estimates

The preparation of the financial statements in conformity with the generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities on the date of the financial statements, disclosure of contingent liabilities and reported amounts of revenues and expenses for the year. Estimates are based on historical experience, where applicable and other assumptions that management believes are reasonable under the circumstances. Actual results could vary from these estimates and any such differences are dealt within the period in which the results are known / materialize.

2. Fixed assets and depreciation / amortisation

2.1. Cost of all civil works (including electrification and fittings) is capitalised with the exception of alterations and modifications of a capital nature to existing structures where the cost of such alteration or modification is Rs. 1,00,000 and below. Other fixed assets, including intangible assets and assets given on lease, where the cost exceeds Rs. 10,000 and the estimated useful life is two years or more, is capitalised. Cost of initial spares and tools is capitalised along with the respective assets. Cost of fixed assets is net of eligible credits under CENVAT / VAT Scheme. Expenditure directly related and incidental to construction are capitalised upto the date of attainment of commercial production. Interest and other related costs, including amortised cost of borrowings attributable only to major projects are capitalised as part of the cost of the respective assets. Exchange differences are capitalised to the extent dealt with in para 5.2 below.

2.2. Assets are depreciated / amortised, as below, on straight line basis:

a) Leasehold land, over 40 years or the period of the lease, whichever is less;

b) Leasehold land and buildings subject to revaluation, is calculated on the respective revalued amounts, over the balance useful life as determined by the valuers in the case of buildings and as per (a) above in the case of land;

c) Buildings, plant and machinery (except assets subject to impairment) and other assets, including assets given on lease and assets in leased premises / customer premises, over their estimated useful lives or lives derived from the rates prescribed in Schedule XIV to the Companies Act, 1956, whichever is lower and in the case of intangible assets, over their estimated useful life;

d) Assets subject to impairment, on the assets revised carrying amount, over its remaining useful life.

2.3. Depreciation / amortisation is provided on a pro-rata basis from the month the assets are put to use during the financial year. In respect of assets sold or disposed off during the year, depreciation / amortisation is provided till the month of sale or disposal of the assets.

3. Investments

Long term investments are stated at cost less provision for diminution other than temporary, if any. Current investments are valued at lower of cost and fair value.

4. Inventories

4.1. Inventories are valued at lower of cost and net realisable value; cost being ascertained on the following basis:

- Stores, spares, consumable tools, raw materials and components: on monthly moving weighted average basis. In respect of works-made components, cost includes applicable production overheads.

- Work-in-progress, finished / trading goods: under absorption costing method.

4.2. Cost includes taxes and duties and is net of eligible credits under CENVAT / VAT Schemes.

4.3. Cost of patterns and dies is amortised equally over five years.

4.4. Surplus / obsolete / slow moving inventories are adequately provided for.

5. Foreign currency transactions and derivatives

5.1. Foreign currency transactions are recorded at the rates prevailing on the date of the transaction. Monetary assets and liabilities in foreign currency are translated at closing rate. Exchange differences arising on settlement or translation of monetary items other than those mentioned in para 5.2 below are recognized as income or expense in the Profit and Loss Account.

5.2. Exchange differences on translation or settlement of long term foreign currency monetary items (i.e. whose term of settlement exceeds twelve months from date of its origination) at rates different from those at which they were initially recorded or reported in the previous financial statements, insofar as it relates to acquisition of depreciable assets are adjusted to the cost of the assets. In other cases, these are accumulated in "Foreign currency monetary item translation difference account" and amortised by recognition as income or expense in each period over the balance term of such items till settlement occurs but not beyond March 31, 2011.

5.3. Gains and losses on certain forward contracts designated as effective Cash flow hedges as per Accounting Standard 30 - "Financial Instruments" are recognised in the Hedge Reserve Account till the underlying forecasted transaction occurs.

5.4. Gains and losses on all other derivatives (including forward contracts not designated as Cash flow hedge) are recognised in the Profit and Loss Account. Premium or discount on forward contracts is amortized over the life of the contract.

5.5. Investments in equity capital of companies registered outside India are carried in the Balance Sheet at the rates prevailing on the date of the transaction.

5.6. Income / expenditure of overseas branches are recognized at the average rate prevailing during the month in which transaction occurred.

6. Amortisation of deferred expenditure

Expenditure incurred on issue of debentures / raising loans is amortised over the period of such borrowings. Premium paid on prepayment of any borrowing is amortised over the unexpired period thereof or sixty months, whichever is less.

7. Revenue recognition

Revenue from sale of products is recognised on despatch or appropriation of goods in accordance with the terms of sale and is inclusive of excise duty and export incentives, but net of incentive on sales including

commission, rebates and discounts. Revenue arising due to price escalation claim is recognised in the period when such claim is made in accordance with terms of sale.

Revenue from services is recognised in accordance with the specific terms of contract on performance.

8. Government grants

Grants in the form of capital / investment subsidy are treated as Capital reserve. Export incentives and incentives in the nature of subsidies given by the Government are reckoned in revenue in the year of eligibility.

9. Research and Development Costs

Expenditure on the design and production of prototypes is charged to revenue as incurred. Product development costs, including knowhow developed / acquired, incurred on new vehicle/ engine platforms, variants on existing platforms and aggregates are recognised as Intangible assets and amortised.

10. Employee benefits

10.1. Short term employee benefit obligations are estimated and provided for.

10.2. Post-employment benefits and other long term employee benefits

Defined contribution plans:

Companys contribution to provident fund, superannuation fund, employee state insurance and other funds are determined under the relevant schemes and / or statute and charged to revenue.

Defined benefit plans and compensated absences:

Companys liability towards gratuity, other retirement benefits and compensated absences are actuarially determined at each balance sheet date using the projected unit credit method. Actuarial gains and losses are recognised in revenue.

10.3. Termination benefits

Compensation under voluntary retirement scheme is amortised over lesser of thirty six months and the period from incurrence of expenditure to March 31, 2011.

11. Product warranties

Provision for product warranties is made for contractual obligations in accordance with the policy in force and is estimated for the unexpired period.

12. Deferred tax

Deferred tax is recognised on timing differences; being the difference between taxable income and accounting income that originate in one period and are capable of reversing in one or more subsequent periods.

Deferred tax assets on unabsorbed depreciation and carry forward of losses are recognised only to the extent there is a virtual certainty of its realisation.

Of the above,

1. 1,47,88,880 (2010: 1,47,88,880) Equity shares were allotted under an agreement without payment being received in cash.

2. 6,23,08,110 (2010: 6,23,08,110) Equity shares were allotted as fully paid up by way of bonus shares by capitalisation out of General reserve and from Securities premium account.

3. Hinduja Automotive Limited, the holding company, holds 51,36,18,712 (2010: 51,36,18,712) equity shares and 54,86,669 (2010: 54,86,669) Global depository receipts equivalent to 16,46,00,070 (2010: 16,46,00,070) Equity shares.

1.2 RESERVES AND SURPLUS

1. a) D ebentures and term loans from banks aggregating Rs. 1,16,000 lakhs (2010: Rs. 66,666.67 lakhs) are secured by a first paripassu charge created / to be created on certain immovable properties and movable assets of the company. External commercial borrowing from bank aggregating to Rs. 2,229.75 lakhs (2010: Rs. 4,490.01 lakhs) is secured by a first charge on the Aircraft of the company.

b) C ash credit facility is secured by a first charge on certain movable assets and goods-in-transit and book debts (excluding deferred receivables).

1.5 Fixed ASSETS

1. Buildings include installations of gross value Rs. 10,582.38 lakhs (2010: Rs. 9,714.61 lakhs)

2. Land and Buildings, other than those given on lease and installations, were revalued as at March 31, 2009 after considering depreciation / amortisation upto that date as per external valuers report, on the governing principles of current cost. The amount of increase on such revaluation was Rs. 1,36,486.44 lakhs. This valuation superseded the previous valuation done as at December 31, 1984.

3. A portion of buildings in Bhandara revalued at Rs. 950.00 lakhs is on a land, title for which is yet to be transferred to the company.

4. Additions to Land - Freehold include Rs. 0.42 lakhs (2010: Rs. Nil), title for which is yet to be transferred to the company.

5. Cost of Buildings as at March 31, 2011 includes:

a) Rs. 3.42 lakhs (2010: Rs. 3.42 lakhs) being cost of shares in Housing Co-operative Society representing ownership rights in residential flats and furniture and fittings thereat.

b) Rs.132.38 lakhs (2010: Rs. 132.38 lakhs) representing cost of residential flats including undivided interest in land.

6. Depreciation / amortisation / impairment for the year is disclosed in Schedules 2.3(C) and 2.4 to the Profit and Loss account.

7. Additions to fixed assets and capital work in progress include:

a) Exchange gain of Rs. 879.51 lakhs (2010: Rs. 14,934.34 lakhs)

b) Borrowing cost of Rs. 175.34 lakhs (2010: Rs. 3,613.27 lakhs) and

c) Other expenses capitalised Rs. 2,178.10 lakhs (2010: Rs. 1,499.93 lakhs).

8. Consequent to the cancellation of lease in respect of windmills during the year, Rs. 5,703.70 lakhs has been reclassified from assets given on lease to Plant and Machinery.

3. Other financial information

b) depreciation for the year computed on assets revalued as on March 31, 2009 over the balance useful life on straight line method includes a net charge of Rs. 2,685.06 lakhs (2010: Rs. 2,982.47 lakhs) [Rs. 1,514.71 lakhs (2010: Rs. 1,658.93 lakhs) in schedule 2.3 and Rs. 1,170.35 lakhs (2010: Rs. 1,323.53 lakhs) in schedule 2.4] respectively being the excess over the depreciation computed by the method followed by the company prior to revaluation and the same has been transferred from Revaluation reserve to the profit and Loss Account.

6. Segment information

The companys primary segment is identified as business segment based on nature of products, risks, returns and the internal business reporting system and secondary segment is identified based on the geographical location of the customers as per Accounting standard 17. the company is principally engaged in a single business segment viz., commercial vehicles and related components.

7. Related party disclosure

a) List of parties where control exists

Holding company

Hinduja Automotive Limited, united Kingdom

Machen Holdings SA (Holding company of Hinduja Automotive Limited, united Kingdom)

Machen development corporation, panama (Holding company of Machen Holdings SA)

Amas Holdings SA (Holding company of Machen development corporation, Panama)

b) Other related parties

Fellow subsidiary

Hinduja foundries Limited, a company under the same management

Hinduja Auto components Limited

Hinduja Automotive (UK) Limited

Associates

Albonair GmbH, Germany

Albonair India private Limited

Ashley Airways Limited (under liquidation)

Ashley Bio-fuels Limited

Ashley Holdings Limited

Ashley investments Limited

Ashley transport services Limited

Ashok Leyland defence systems Limited

Ashok Leyland (UAE) LLC, Ras Al Khaimah, UAE

Automotive coaches and components Limited

Avia Ashok Leyland Motors s.r.o, czech Republic

Defiance technologies Limited

Defiance testing and engineering services, inc. USA

Gulf Ashley Motor Limited

Hinduja Leyland finance Limited

Irizar TVS Limited

Lanka Ashok Leyland Limited, Sri Lanka

Mangalam Retail services Limited

Optare plc, UK

Joint Ventures

Ashley Alteams India Limited

Automotive Infotronics private Limited

Ashok Leyland John Deere construction equipment company private Limited

Ashok Leyland Nissan Vehicles Limited

Nissan Ashok Leyland Powertrain Limited

Nissan Ashok Leyland Technologies Limited

Key management personnel

Mr. R Seshasayee, Managing director

Mr. Vinod K Dasari, Managing director (Designate)


Mar 31, 2010

1. Accounting convention

1.1 Financial statements are prepared in accordance with the generally accepted accounting principles including accounting standards in India under historical cost convention except so far as they relate to revaluation of certain land and buildings.

1.2 Use of estimates

The preparation of the fnancial statements in conformity with the generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities on the date of the fnancial statements, disclosure of contingent liabilities and reported amounts of revenues and expenses for the year. Estimates are based on historical experience, where applicable and other assumptions that management believes are reasonable under the circumstances. Actual results could vary from these estimates and any such differences are dealt within the period in which the results are known/ materialise.

2. Fixed assets and depreciation / amortisation

2.1 Cost of all civil works (including electrifcation and fttings) is capitalised with the exception of alterations and modifcations of a capital nature to existing structures where the cost of such alteration or modifcation is Rs.1,00,000 and below. Other fxed assets, including intangible assets and assets given on lease, where the cost exceeds Rs.10,000 and the estimated useful life is two years or more, is capitalised. Cost of initial spares and tools is capitalised along with the respective assets. Cost of fxed assets is net of eligible credits under Cenvat / Vat Scheme. Expenditure directly related and incidental to construction are capitalised upto the date of attainment of commercial production. Interest and other related costs, including amortised cost of borrowings attributable only to major projects are capitalised as part of the cost of the respective assets. Exchange differences are captialised to the extent dealt with in para 5.2 below.

2.2 Assets are depreciated / amortised, as below, on straight line basis:

a) Leasehold land, over 40 years or the period of the lease, whichever is less;

b) Leasehold land and buildings subject to revaluation, is calculated on the respective revalued amounts, over the balance useful life as determined by the valuers in the case of buildings and as per (a) above in the case of land;

c) Buildings, plant and machinery (except assets subject to impairment) and other assets, including assets given on lease, over their estimated useful lives or lives derived from the rates prescribed in Schedule XIV to the Companies Act, 1956, whichever is lower and in the case of intangible assets, over their estimated useful life.

d) Assets subject to impairment, on the asset’s revised carrying amount, over its remaining useful life.

2.3 Depreciation / amortisation on additions during the year is provided on a pro rata basis from the month the assets are put to use. In respect of assets sold or disposed off during the year, depreciation / amortisation is provided till the month of sale or disposal of the assets.

3. Investments

Long term investments are stated at cost less provision for diminution other than temporary, if any. Current investments are valued at lower of cost and fair value.

4. Inventories

4.1 Inventories are valued at lower of cost and net realisable value; cost being ascertained on the following basis:

- Stores, spares, consumable tools, raw materials and components: on monthly moving weighted average basis. In respect of works-made components, cost includes applicable production overheads.

- Work-in-progress, fnished / trading goods: under absorption costing method.

4.2 Cost includes taxes and duties and is net of eligible credits under Cenvat / Vat Schemes.

4.3 Cost of patterns and dies is amortised equally over fve years.

4.4 Surplus / obsolete / slow moving inventories are adequately provided for.

5. Foreign currency transactions and derivatives

5.1 Foreign currency transactions are recorded at the rates prevailing on the date of the transaction. Monetary assets and liabilities in foreign currency are translated at closing rate. Exchange differences arising on settlement or translation of monetary items other than those mentioned in para 5.2 below are recognised as income or expense in the profit and Loss Account.

5.2 Exchange differences on translation or settlement of long term foreign currency monetary items (i.e. whose term of settlement exceeds twelve months from date of its origination) at rates different from those at which they were initially recorded or reported in the previous fnancial statements, insofar as it relates to acquisition of depreciable assets are adjusted to the cost of the assets. In other cases, these are accumulated in “Foreign currency monetary item translation difference account” and amortised by recognition as income or expense in each period over the balance term of such items till settlement occurs but not beyond March 31, 2011.

5.3 Gains and losses on certain forward contracts designated as effective cash fow hedges as per Accounting Standard 30 - “Financial Instruments” are recognised in the Hedge Reserve Account till the underlying forecasted transaction occurs.

5.4 Gains and losses on all other derivatives (including forward contracts not designated as cash fow hedge) are recognised in the profit and Loss Account. Premium or discount on forward contracts is amortised over the life of the contract.

5.5 Investments in equity capital of companies registered outside India are carried in the Balance Sheet at the rates prevailing on the date of the transaction.

5.6 Income / expenditure of overseas branches are recognised at the average rate prevailing during the month in which transaction occurred.

6. Amortisation of deferred expenditure

Expenditure incurred on issue of debentures / raising loans is amortised over the period of such borrowings. Premium paid on prepayment of any borrowing is amortised over the unexpired period thereof or sixty months, whichever is less.

7. Revenue recognition

Revenue from sale of products is recognised on despatch or appropriation of goods in accordance with the terms of sale and is inclusive of excise duty and export incentives, but net of incentive on sales including commission, rebates and discounts. Revenue arising due to price escalation claim is recognised in the period when such claim is made in accordance with terms of sale.

Revenue from services is recognised in accordance with the specifc terms of contract on performance.

8. Government grants

Grants in the form of capital / investment subsidy are treated as Capital reserve. Export incentives and incentives in the nature of subsidies given by the Government are reckoned in revenue in the year of eligibility.

9. Research and Development Costs

Expenditure on the design and production of prototypes is charged to revenue as incurred. Product development costs, including knowhow developed / acquired, incurred on new vehicle / engine platforms, variants on existing platforms and aggregates are recognised as intangible assets and amortised.

10. Employee benefts

10.1 Short term employee beneft obligations are estimated and provided for.

10.2 Post employment benefts and other long term employee benefts

defined contribution plans:

Company’s contribution to provident fund, superannuation fund, employee state insurance and other funds are determined under the relevant schemes and / or statute and charged to revenue.

Defined beneft plans and compensated absences:

Company’s liability towards gratuity, other retirement benefts and compensated absences are actuarially determined at each balance sheet date using the projected unit credit method. Actuarial gains and losses are recognised in revenue.

10.3 Termination benefts

Compensation under voluntary retirement scheme is amortised over lesser of thirty-six months and the period from incurrence of expenditure to March 31, 2010.

11. Product warranties

Provision for product warranties is made for contractual obligations in accordance with the policy in force and is estimated for the unexpired period.

12. Deferred tax

Deferred tax is recognised on timing differences; being the difference between taxable income and accounting income that originate in one period and are capable of reversing in one or more subsequent periods.

Deferred tax assets on unabsorbed depreciation and carry forward of losses are recognised only to the extent there is a virtual certainty of its realisation.

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