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Accounting Policies of Bharat Forge Ltd. Company

Mar 31, 2014

A) Use of estimates :

The preparation of financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that afect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. Although these estimates are based on the management''s best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods.

b) Tangible fixed assets :

Fixed assets are stated at cost of acquisition net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria is met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discounts and rebates are deducted in arriving at the purchase price.

Subsequent expenditure (for new projects and in case of substantial modernisation or expansion at the existing units) related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred.Trial run expenditure is also capitalized.

The Company adjusts exchange diferences arising on translation / settlement of long-term foreign currency monetary items pertaining to the acquisition of a depreciable asset to the cost of the asset and depreciates the same over the remaining life of the asset. In accordance with MCA circular dated August 9, 2012, exchange diferences adjusted to the cost of fixed assets are total diferences, arising on long-term foreign currency monetary items pertaining to the acquisition of a depreciable asset, for the period. In other words, the Company does not diferentiate between exchange diferences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost and other exchange diference.

Gains or losses arising from de-recognition of fixed assets are measured as the diference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.

c) depreciation and amortization on tangible assets :

i. Lease hold land:

Premium on leasehold land is amortized on a straight line basis over the period of lease i.e. 95 years.

ii. Power line:

Expenditure on power line is amortized on a straight line basis over a period of six years.

iii. Other fixed assets:

Depreciation on buildings, plant and machinery, railway sidings, electrical installations and aircrafts is calculated on a "Straight Line Method" basis in accordance with the provisions of Section 205(2)(b) of the Companies Act, 1956, in the manner and at the rates specified in Schedule XIV to the said Act or using the rates arrived at based on the useful lives estimated by the management, whichever is higher.

Depreciation in respect of other assets viz. factory equipments, furniture and fixtures, ofce equipments and vehicles is calculated on "Written Down Value" basis in accordance with the provisions of Section 205(2)(a) of the Companies Act, 1956 in the manner and at the rates specified in Schedule XIV to the said Act or using the rates arrived at based on the

d) intangible assets :

acquired intangible assets :

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use.

Intangible assets are amortized on a straight line basis over the estimated useful economic life.The Company uses a rebuttable presumption that the useful life of an intangible asset will not exceed ten years from the date when the asset is available for use. If the persuasive evidence exists to the afect that useful life of an intangible asset exceeds ten years, the Company amortizes the intangible asset over the best estimate of its useful life. Such intangible assets and intangible assets not yet available for use are tested for impairment annually, either individually or at the cash-generating unit level. All other intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired.

The amortization period and the amortization method are reviewed at least at each financial year end. If the expected useful life of the asset is significantly diferent from previous estimates, the amortization period is changed accordingly. If there has been a significant change in the expected pattern of economic benefits from the asset, the amortization method is changed to refect the changed pattern. Such changes are accounted for in accordance with AS 5 Net profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.

Gains or losses arising from disposal of an intangible asset are measured as the diference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is disposed.

Research and development expenditure :

Research expenditure is charged to revenue under the natural heads of account in the year in which it is incurred.

Development expenditure incurred on an individual project is recognized as an intangible asset when the Company can demonstrate all the following:

The technical feasibility of completing the intangible asset so that it will be available for use or sale

d) intangible assets (Contd.):

Research and development expenditure (Contd.):

Its intention to complete the asset

Its ability to use or sell the asset

How the asset will generate future economic benefits

The availability of adequate resources to complete the development and to use or sell the asset

The ability to measure reliably the expenditure attributable to the intangible asset during development.

Following the initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized on a straight line basis over the period of expected future benefit from the related project, i.e. the estimated useful life often years. Amortization is recognized in the statement of profit and loss. During the period of development, the asset is tested for impairment annually.

Fixed assets purchased for research and development are accounted for in the manner stated in note 2.1 (b) above.

e) inventories :

Cost of inventories have been computed to include all cost of purchases, cost of conversion and other costs incurred in bringing the inventories to their present location and condition.

Raw materials and components, stores and spares and loose tools are valued at lower of cost and net realizable value. However, materials and other items held for use in the production of inventories are not written down below cost if the fnished products in which they will be incorporated are expected to be sold at or above cost. Costs are determined on weighted average basis.

Work-in-progress and fnished goods are valued at the lower of cost and net realisable value. Cost includes direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Cost of fnished goods includes excise duty. Cost of work-in-progress and fnished goods are determined on a weighted average basis.

Scrap is valued at net realizable value.

Dies are amortized over their productive life. Expenditure incurred to repair the dies from time to time is charged to statement of profit and loss.

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

f) foreign currency translation :

Foreign currency transactions and balances:

i. initial recognition :

Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

ii. Conversion :

Foreign currency monetary items are retranslated using the exchange rate prevailing at the reporting date. Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction.

iii. exchange diferences :

The Company accounts for exchange diferences arising on translation / settlement of foreign currency monetary items as below:

a. Exchange diferences arising on long-term foreign currency monetary items related to acquisition of a fixed asset are capitalized and depreciated over the remaining useful life of the asset.

b. Exchange diferences arising on other long-term foreign currency monetary items are accumulated in the "Foreign Currency Monetary Item Translation Diference Account" and amortized over the remaining life of the concerned monetary item.

c. All other exchange diferences are recognized as income or as expenses in the period in which they arise.

For the purpose of (a) and (b) above, the Company treats a foreign monetary item as "long-term foreign currency monetary item", if it has a term of 12 months or more at the date of its origination. In accordance with MCA circular dated August 9, 2012, exchange diferences for this purpose, are total diferences arising on long-term foreign currency monetary items for the period. In other words, the Company does not diferentiate between exchange diferences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost and other exchange diference.

f) foreign currency translation (Contd.):

iv. options and forward exchange contracts not intended for trading or speculation purposes, classifed as derivative instruments

Pursuant to the announcement made by the Institute of Chartered Accountants of India (ICAI) regarding "Accounting for Derivatives", options and forward exchange contracts are classifed as derivatives and are marked to market on a portfolio basis at the balance sheet date. The resultant net losses after considering the ofsetting efect on the underlying hedge items are recognised in the statement of profit and loss on the principle of prudence. The resultant net gains, if any, on such derivatives are not recognised in financial statements. Any profit or loss arising on cancellation or renewal of such forward exchange contract is recognised as income or expense for the year.

g) investments :

Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classifed as current investments. All other investments are classifed as long-term investments.

On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties.

Current investments are carried in the financial statement at lower of cost of acquisition and fair value determined on an individual investment basis.

Long-term investments are carried at cost. However, provision for diminution in value of investments is made to recognize a decline other than temporary in the value of investment.

On disposal of an investment, the diference between its carrying amount and net disposal proceeds is charged or credited to the statement of profit and loss.

h) revenue recognition :

Revenue is recognized to the extent that it is probable that the economic benefits will fow to the Company and the revenue can be reliably measured. The following specifc recognition criteria must also be met before revenue is recognized:

i. Sale of goods:

a. Revenue from domestic sales are recognized when all the significant risks and rewards of ownership of the goods have been passed to the buyer, usually on dispatch from the point of sale, consequent to property in goods being transferred. The Company collects sales taxes and value added taxes (VAT) on behalf of the government and, therefore, these are not economic benefits fowing to the Company. Hence, they are excluded from revenue. Excise duty deducted from revenue (gross) is the amount that is included in the revenue (gross) and not the entire amount of liability arising during the year.

b. Revenue from export sales are recognized when all the significant risks and rewards of ownership of the goods have been passed on to the buyer, usually on the basis of dates of bill of lading.

ii. Export incentives:

Revenue from export incentives are accounted for on export of goods if the entitlements can be estimated with reasonable assurance and conditions precedent to claim is fulfilled.

iii. Sale of services:

Revenues from sales of services are recognized pro-rata over the period of the contract as and when services are rendered. The Company collects service tax on behalf of the government and, therefore, it is not an economic benefit fowing to the Company. Hence, it is excluded from revenue.

iv. Die design and preparation charges:

Revenues from die design and preparation charges are recognized as per the terms of the contract as and when services are rendered. The Company collects service tax and value added tax (VAT) on behalf of the government and, therefore, it is not an economic benefit fowing to the Company. Hence, it is excluded from revenue. Excise duty deducted from revenue (gross) is the amount that is included in the revenue (gross) and not the entire amount of liability arising during the year.

v. Sale of electricity – Windmill:

Revenue from sales of electricity is recognized when all the significant risks and rewards of ownership have been passed to the buyer, usually on transmission of electricity, based on the data provided by the electricity department.

vi. Interest income:

Interest income is recognized on a time proportion basis taking into account the amount outstanding and the applicable interest rate.

vii. Dividend income:

Dividend income is recognized when the Company''s right to receive is established by the reporting date.

viii. profit/ loss on sale of investment:

profit/ loss on sale of investment is recognized when all the significant risks and rewards of ownership in investment is transferred.

ix. certified emission reduction units / renewal energy certifcates:

Revenue from certified emission reduction units / renewal energy certifcates is recognized when there is reasonable assurance that the entity will comply with the conditions attached to it and the grants will be received. At a minimum, these conditions will only be met when the actual emission reductions have been realized and the entity has reasonable assurance that these reductions will be confirmed during the verifcation and certification process by the respective independent authority.

i) retirement and other employee benefits :

i Provident fund:

The Company operates two plans for its employees to provide employee benefit in the nature of provident fund.

Eligible employees receive benefits from a provident fund, which is a Defined benefit plan. Both the employee and the Company make monthly contributions to the provident fund plan equaltoa specified percentage of the covered employee''s salary. The Company contributes a part of the contributions to the "Bharat Forge Company Limited Staf Provident Fund Trust". The rate at which the annual interest is payable to the benefciaries by the trust is being administered by the government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notifed interest rate. The guidance note on implementing AS-15 (revised 2005) "Employee benefits", states that, benefits involving employer established provident funds, which requires interest shortfalls to be provided, are to be considered as Defined benefit plans.

Actuarial valuation of this provident fund interest shortfall has been done as per the guidance note issued in this respect by the Institute of Actuaries of India.

The employee which are not covered under the above scheme, their portion of provident fund is contributed to the government administered pension fund which is a Defined contribution scheme.The Company has no obligation, other than the contribution payable to the provident fund. The Company recognizes contribution payable to the provident fund scheme as expenditure, when an employee renders the related service. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid, the defcit payable to the scheme is recognized as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the balance sheet date, then excess is recognized as an asset to the extent that the pre payment will lead to, for example, a reduction in future payment or a cash refund.

ii Gratuity:

The Company operates two Defined benefits plan for its employees viz. gratuity and special gratuity scheme. Payment for present liability of future payment of gratuity is being made to approved gratuity funds, which fully cover the same under cash accumulation policy of the Life Insurance Corporation of India. The special gratuity scheme is unfunded. The cost of providing benefits underthese plans is determined on the basis of actuarial valuation at each yearend. Separate actuarial valuation is carried out for each plan using the project unit credit method. Actuarial gains and losses for both Defined benefit plans are recognized in full in the period in which they occur in the statement of profit and loss.

iii Superannuation:

Retirement benefit in the form of superannuation plan is a Defined contribution plan. Defined contributions to Life Insurance Corporation of India for employees covered under Superannuation scheme are accounted at the rate of 15% of such employees'' basic salary. The Company recognizes expense toward the contribution paid/ payable to the Defined contribution plan as and when an employee renders the relevant service. If the contribution already paid exceeds the contribution due for service before the balance sheet date, the Company should recognise that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or cash refund. If the contribution already paid is lower than the contribution due for service before the balance sheet date, the Company recognises that diference excess as a liability.The Company has no obligation, other than the contribution payable to the superannuation fund.

i) retirement and other employee benefits (Contd.):

iv Privilege leave benefits:

Accumulated leave, which is expected to be utilized within the next 12 months, is treated as short-term employee benefit The Company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date.

The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefit for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains / losses are immediately taken to the statement of profit and loss and are not deferred. The Company presents the leave as a current liability in the balance sheet, to the extent it does not have an unconditional right to defer its settlement for 12 months after the reporting date. Where the Company has the unconditional legal and contractual right to defer the settlement for a period beyond 12 months, the same is presented as non-current liability.

v Termination benefits:

The Company recognizes termination benefit as a liability and an expense when the Company has a present obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

j) borrowing costs :

Borrowing costs includes interest and amortization ofancillary costs incurred in connection with the arrangement of borrowings.

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur.

k) income taxes :

Tax expense comprises current and deferred tax. Current income-tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income-Tax Act, 1961 enacted in India and tax laws prevailing in the respective tax jurisdictions where the Company operates. The tax rates and tax laws used to compute the amount are those that are enacted, at the reporting date. Current income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit and loss.

Deferred income taxes refect the impact of timing diferences between taxable income and accounting income originating during the current year and reversal of timing diferences for the earlier years. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted at the reporting date. Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit and loss.

Deferred tax liabilities are recognized for all taxable timing diferences. Deferred tax assets are recognized for deductible timing diferences only to the extent that there is reasonable certainty that sufcient future taxable income will be available against which such deferred tax assets can be realized. In situations where the Company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits.

At each reporting date, the Company re-assesses unrecognized deferred tax assets. It recognizes unrecognized deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be that sufcient future taxable income will be available against which such deferred tax assets can be realized.

The carrying amount of deferred tax assets are reviewed at each reporting date. The Company writes-down the carrying amount of deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufcient future taxable income will be available against which deferred tax asset can be realized. Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufcient future taxable income will be available.

Deferred tax assets and deferred tax liabilities are ofset, if a legally enforceable right exists to set-of current tax assets against current tax liabilities and the deferred tax assets and deferred taxes relate to the same taxable entity and the same taxation authority.

Minimum alternate tax (MAT) paid in a year is charged to the statement of profit and loss as current tax.The Company recognizes MAT credit available as an asset only to the extent that there is convincing evidence that the Company will pay normal income tax during the specified period, i.e. the period for which MAT credit is allowed to be carried forward. In the year in which the

Company recognizes MAT credit as an asset in accordance with the guidance note on "Accounting for Credit Available in respect of Minimum Alternative Tax" under the Income-Tax Act, 1961, the said asset is created by way of credit to the statement of profit and loss and shown as "MAT Credit Entitlement. " The Company reviews the "MAT Credit Entitlement" asset at each reporting date and writes down the asset to the extent the Company does not have convincing evidence that it will pay normal tax during the specified period.

l) Provisions :

A provision is recognized when the Company has a present obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to refect the current best estimates.

Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of profit and loss net of any reimbursement.

m) impairment of tangible asset :

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset''s recoverable amount. An asset''s recoverable amount is the higher of an asset''s or cash-generating unit''s (CGU) net selling price and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that refects current market assessments of the time value of money and the risks specifc to the asset. In determining net selling price, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used.

The Company bases its impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of the Company''s CGU to which the individual assets are allocated. These budgets and forecast calculations are generally covering a period of five years. For longer periods, a long term growth rate is calculated and applied to project future cash flows after the ffth year.

Impairment losses of continuing operations, including impairment on inventories, are recognized in the statement of profit and loss, except for previously revalued tangible fixed assets, where the revaluation was taken to revaluation reserve. In this case, the impairment is also recognized in the revaluation reserve upto the amount of any previous revaluation.

After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.

An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset''s or cash- generating unit''s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset''s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit and loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.

n) Leases :

Where the Company is the lessee

Leases, where the lessor efectively retains substantially all the risks and benefits of ownership of the leased item, are classifed as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.

o) government grants and subsidies :

Grants and subsidies from the government are recognized when there is reasonable assurance that (i) the Company will comply with the conditions attached to them, and (ii) the grant/ subsidy will be received.

When the grant or subsidy relates to revenue, it is recognized as income on a systematic basis in the statement of profit and loss over the periods necessary to match them with the related costs, which they are intended to compensate. Where the grant relates to an asset, it is recognized as deferred income and is allocated to statement of profit and loss over the periods and in the proportions in which depreciation on those assets is charged.

Where the Company receives non-monetary grants, the asset is accounted for on the basis of itsacquisition cost. In case a non- monetary asset is given free of cost, it is recognized at a nominal value.

Government grants of the nature of promoters'' contribution are credited to capital reserve and treated as a part of the shareholders'' funds.

p) earnings per share :

Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they are entitled to participate in dividends relative to a fully paid equity share during the reporting period. The weighted average number of equity shares outstanding during the period is adjusted for events such as bonus issue, bonus element in a rights issue, share split and reverse share split (consolidation of shares) that have changed the number of equity shares outstanding, without a corresponding change in resources.

For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the efects of all dilutive potential equity shares.

q) Contingent liabilities :

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the financial statements.

r) Cash and cash equivalents :

Cash and cash equivalents for the purposes of cash fow statement comprise cash at bank and in hand and short-term investments with an original maturity of three months or less.

s) derivative instruments and hedge accounting :

The Company uses derivative financial instruments, such as, foreign currency forward contracts to hedge foreign currency risk arising from future transactions in respect of which firm commitments are made or which are highly probable forecast transactions. The Company designates these forward contracts in a hedging relationship by applying the hedge accounting principles of AS 30 Financial Instruments: Recognition and Measurement.

For the purpose of hedge accounting, hedges are classifed as:

i. Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment;

ii. Cash fow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment.

At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identifcation of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Company will assess the efectiveness of changes in the hedging instrument''s fair value in ofsetting the exposure to changes in the hedged item''s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly efective in achieving ofsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly efective throughout the financial reporting periods for which they were designated.

Hedges that meet the strict criteria for hedge accounting are accounted for as described below:

Fair value hedges

The change in the fair value of a hedging derivative is recognized in the statement of profit and loss. The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in the statement of profit and loss.

When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the statement of profit and loss.

Cash fow hedges

The efective portion of the gain or loss on the hedging instrument is recognized directly under shareholders fund in the hedging reserve, while any inefective portion is recognized immediately in the statement of profit and loss.

The Company uses foreign currency forward contracts as hedges of its exposure to foreign currency risk in forecasted transactions and firm commitments. The inefective portion relating to foreign currency contracts is recognized immediately in the statement of profit and loss.

Amounts recognized in the hedging reserve are transferred to the statement of profit and loss when the hedged transaction afects profit or loss, such as when the hedged income or expense is recognized or when a forecast sale occurs.

If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognized in the hedging reserve is transferred to the statement of profit and loss. If the hedging instrument expires oris sold, terminated or exercised without replacement or rollover or if its designation as a hedge is revoked, any cumulative gain or loss previously recognized in the hedging reserve remains in the hedging reserve until the forecast transaction or firm commitment afects profit or loss.

(b) Terms / rights attached to equity shares

The Company has only one class of issued equity shares having a par value ofRs. 2/- per share. Each holder of equity shares is entitled to one vote per share.The Company declares and pays dividend in Indian rupees.The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

During the year ended March 31, 2014, the amount of per share interim dividend recognised as distributions to equity shareholders was Rs. 2.00/- (March 31,2013:Rs. 1.00/-).

During the year ended March 31,2014, the amount of per share proposed final dividend recognised as distributions to equity shareholders was Rs. 2.50/- (March 31, 2013:Rs. 2.40/-).

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

(c) shares held by holding / ultimate holding company and / or their subsidiaries / associates

The Company being ultimate holding company there are no shares held by any other holding, ultimate holding company and their subsidiaries / associates.

(d) aggregate number of bonus shares issued, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date

There are no bonus shares issued, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding reporting date.

(g) Terms of securities convertible into equity shares

i) The Company had issued and allotted to Qualifed Institutional Buyers, 10,000,000 equity shares ofRs. 2/- each at a price ofRs. 272/- per share aggregating to Rs. 2,720 million on April 28, 2010, simultaneous with the issue of 1,760 10.75% Non Convertible Debentures (NCD) of a face value of Rs. 1,000,000/- at par, together with 6,500,000 warrants at a price of Rs. 2/- each entitling the holder of each warrant to subscribe for 1 equity share ofRs. 2/- each at a price ofRs. 272/- at any time within 3 years from the date of allotment. The subscription money received on issue of warrants had been credited to capital reserve as the same is not refundable/adjustable.

The Warrant holders were entitled to exercise their right to exchange the warrants in to corresponding number of equity shares, up to April 28, 2013. As no warrants have been exercised on or before the said warrant exercise period, the warrants have lapsed and ceased to be valid. ii) Refer note 5(c) regarding Foreign Currency Convertible Bonds.

(h) global depository receipts

The Company had issued 3,636,500 equity shares ofRs. 10/- each (later sub-divided into 18,182,500 equity shares ofRs. 2/- each) in April and May 2005 represented by 3,636,500 Global Depository Receipts (GDR) (on sub division 18,182,500 GDRs) evidencing "Master GDR Certifcates" at a price of USD 27.50 per GDR (including premium). GDRs outstanding at the close of the year are 9,200 (March 31, 2013: 9,200). The funds raised had been utilised towards the object of the issue.

(a) sales tax deferral incentive

The Company, between the period April 2002 to March 2006, had prematurely retired its obligations of the sales tax deferral incentive availed under the Package Scheme of Incentives 1993, thereby generating a cumulative surplus ofRs. 108.63 million. Since the incentive was fundamentally provided to encourage capital investments in designated underdeveloped zones and thereby defray, to some extent, defciencies, the same had been apportioned to revenue reserves over the future / balance life of the underlying investments, at the end of each financial year. However, in the financial year ended March 31, 2013 the Company has transferred the entire balance to general reserve.

(b) subsidy for setting up new industrial unit

The Company''s manufacturing facility at Baramati has been granted "Mega Project Status" by Government of Maharashtra and therefore, is eligible for Industrial Promotion Subsidy (IPS) under Package Scheme of Incentive (PSI) 2007. The Company has been granted eligibility certifcate issued by the Directorate of Industries, Government of Maharashtra in this regard. IPS consists of the following:

a. Electricity duty exemption for the period of 7 years from the date of commencement of the project i.e. April 1, 2009;

b. 100% exemption from payment of Stamp duty for the Leasehold land acquired for the Baramati Plant; and

c. VATand CST payable to the State Government (before adjustment of Set-of) on sales made from Baramati plant, within a period of 7 years starting from April 1, 2009 to March 31,2016.

IPS will however, be restricted to 75% of the eligible fixed capital investments made from May 11, 2005 to May 10, 2010. The eligibility certifcate issued allows maximum subsidy of Rs. 3,198.20 million.

In terms of the Accounting Standard (AS12) "Accounting for Government Grants" eligible incentive is considered to be in the nature of grants related to revenue and is accounted under other income in note 20.

(c) debenture redemption reserve

Debenture redemption reserve has been created in accordance with circular No. 9/2002 dated April 18, 2002 issued by the Department of Company Afairs, Ministry of Law, Justice and Company Afairs, Government of India and Section 117(C) of the Companies Act, 1956 at 25% of the maturity amount equally over the terms of the debentures privately placed.

(d) The equity shares allotted on exercise of option to convert FCCB by the bondholders, and 10,000,000 equity shares of Rs. 2/-each allotted as detailed in note 3(g) before the record date/ book closure for dividend, would rank pari passu with the existing share capital refected in note 3 in all respect including dividend declared for the year. Dividend for the year has been provided for on 232,794,316 (March 31, 2013: 232,794,316) equity shares ofRs. 2/- each at the rate recommended by Board of Directors on the basis of equity shares issued and allotted up to May 27, 2014 (March 31, 2013: May 25, 2013).

(a) debentures

The Company has issued the following secured redeemable non-convertible debentures:

(i) 2,500 (March 31, 2013: 2,500) - 11.95% Redeemable secured non-convertible debentures (Sixteenth series) of Rs. 1,000,000/- each redeemable at par in three equal annual installments on January 5, 2015; on January 5, 2016; and on January 5, 2017, respectively

Above debentures are secured by: (i) First pari-passu mortgage in favour of the Trustees, of all rights and interest on the Company''s immovable properties situated at Mundhwa, Satara and Chakan with negative lien on properties situated at Jejuri and Baramati; and (ii) First pari-passu charge in favour of the Trustees by way of hypothecation of movable properties, present and future both such as all plant and machinery, equipments, tools, furniture and fixtures etc., as described in Debenture Trust-cum-Mortgage Deed dated April 30, 2009 and a revised Mortgage Deed dated April 30, 2014, when the immovable property situated at Jalgaon was removed as a security.

(ii) 1,760 (March 31, 2013: 1,760) - 10.75 % Redeemable secured non-convertible debentures (Eighteenth series) of Rs. 1,000,000/-each redeemable at par in three annual installments @ 35.00% on April 28,2014; @ 35.00% on April 28,2015, @ 30.00% on April 28, 2016.

Above debentures are secured by: (i) First pari-passu mortgage in favour of Trustees, of all rights and interest on the Company''s immovable properties, present and future situated at Mundhwa and Chakan, Satara with negative lien on properties situated at Jejuri and Baramati as per Debenture Trust-cum-Mortgage Deed dated June 28, 2010; and (ii) First pari-passu charge in favour of theTrustees on moveable properties, present and future as described in Schedule-II as per Debenture Trust-cum-Mortgage Deed dated June 28,2010 and a revised Mortgage Deed dated April 30,2014, when the immovable property situated at Jalgaon was removed as a security.

(iii) 2,625 (March 31, 2013: 3,500) - 10.75 % Redeemable secured non-convertible debentures (Seventeenth series) of Rs. 1,000,000/- each redeemable at par in three installment @ 25.00% on March 22,2014; @ 50.00% on September 22,2014; @ 25.00% on March 22, 2015.

Above debentures are secured by: (i) First pari-passu mortgage in favour of theTrustees, of all rights and interest on the Company''s immovable properties situated as at Mundhwa, Satara and Chakan with negative lien on properties situated at Jejuri and Baramati; and (ii) First pari passu charge in favour of the Trustees by way of hypothecation of movable properties, present and future both such as all plant and machinery, equipments, tools, furniture and fixtures etc., as described in Debenture Trust-cum-Mortgage Deed dated December 14, 2009 and a revised Mortgage Deed dated April 30,2014, when the immovable property situated at Jalgaon was removed as a security.

(b) foreign currency term loans

(i) from Credit agricole Corporate & investment bank, singapore (secured) balance outstanding usd 20 million (March 31, 2013: usd 35 million)

Secured by first pari passu charge over present and future movable fixed assets viz. plant and machinery, computers, furniture''s and fixtures, whether installed or not and whether now lying loose or in cases or otherwise or being on or upon or at any time, hereafter being on or upon about the premises and godowns at Mundhwa, Pune; Village Kuruli, Chakan;Taluka Khed, District Pune; Village Vaduth,Taluka and District Satara and at Baramati, Pune or anywhere else. Repayable in 3 yearly installments from date of its origination, i.e. October 14, 2012, along with interest.

(ii) foreign currency term loans on syndicated basis (unsecured) balance outstanding usd 80 million (March 31, 2013: usd 80 million) Repayable in 3 half yearly installments from date of its origination i.e. October 31, 2016, along with interest.

(iii) foreign currency term loans on syndicated basis (unsecured) balance outstanding usd 40 million (March 31, 2013: usd 40 million) Repayable in 3 half yearly installments from date of its origination i.e. October 31, 2016, along with interest.

(iv) foreign currency term loans on syndicated basis (unsecured) balance outstanding usd 60 million (March 31, 2013: nil)

Repayable in 3 half yearly installments from date of its origination i.e. October 31, 2017, along with interest.

The interest for the above secured and unsecured loans including refinance ranges from 6M Libor 200 bps to 400 bps p.a.

(c) foreign currency convertible bonds (fCCb)

The Company had issued FCCB (Tranche B) of USD 39.90 million, to finance capital expenditure, global acquisitions and loan to subsidiaries. The said bonds were optionally convertible into GDR/ Equity shares to be exercised at any time during the exercise period at a pre determined initial price subject to adjustments upon occurrence of certain events. In case there was non conversion of FCCB, the amount was to be repaid in full.

TheTrancheBof FCCB amounting to USD 39.90 million outstanding as at April 26,2013 were redeemed on April 26,2013 along with the redemption premium amounting to USD 22.54 million.The premium on redemption aggregating to 1,322.82 million, (including withholding Tax amounting to Rs. 98.67 million) since crystalised has been adjusted to securities premium account, net of deferred tax asset amounting to Rs. 429.19 million, in terms of Section 78(2) (d) of the Companies Act, 1956.

9. short-term borrowings

(a) Cash credit from banks is secured against hypothecation of stocks of semi fnished and fnished goods, raw materials, fnished dies and die blocks, work-in-progress, consumable stores and spares, book debts etc.

Cash credit is repayable on demand and carries interest @ 10.50% to 13.25% per annum.

(b) Preshipment packing credit from banks is secured against hypothecation of stocks of semi fnished and fnished goods, raw materials, fnished dies and die blocks, work-in-progress, consumable stores and spares, book debts etc.

Preshipment packing credit (secured & unsecured) is repayable within 180 days and carries interest @ LIBOR 75 bps to 100 bps perannum.

(c) Buyers'' line of credit is repayable within 180 days to 360 days and carries interest @ EURIBOR 90 bps to 110 bps perannum.

(a) CdP bharat forge gmbh

Contributions to the capital reserves of CDP Bharat Forge GmbH as per the German Commercial Code, forms a part of the equity share capital and accordingly has been considered as an investment and is redeemable subject to provisions of the code.

(b) bharat forge america inc. (bfa)

Bharat Forge America Inc., a wholly owned subsidiary had registered losses which has substantially eroded its net worth.

Given the uncertainties in the American economy and its further impact on the auto industries slow revival, the Company had, as a matter of prudence, tested the investment in BFA for impairment / diminution with reference to the value of assets.Accordingly, the Company had provided for additional impairment Rs. Nil (March 31, 2013: Rs. 260.00 million) which was recognised as an exceptional item in the statement of profit and loss in the previous year.

During the last financial year, the Company had announced to close down the operations on account of prolonged recessionary conditions in the US auto market and had decided to sell of the assets. As on May 5,2013, the Company sold all its fixed assets in BFA to a third party.

(c) BF infrastructure Limited (bfiL)

BF Infrastructure Limited, a wholly owned subsidiary has registered losses which has afected its net worth. Given the lossess in the business activities carried out by the Company, the Company has, as a matter of prudence, tested the investment in BFIL for impairment / diminution with reference to the value of assets. Accordingly, the Company has provided for impairment ofRs. 308.14 million (March 31, 2013: Rs. Nil) which has been recognised as an exceptional item in the statement of profit and loss.

(d) gupta energy Private Limited

Shares of Gupta Energy Private Limited pledged against the facility obtained by Gupta Global Resources Private Limited.

13. Loans and advances

(a) Loan to a company

In earlieryears interest free loan ofRs. 309.09 million was given to a Private Limited Company which had given an undertaking to purchase and hold the Company''s shares solely for the purpose and obligations ofthe "BFL Executives Welfare and Share Option Trust" in terms of clause (b) of the proviso to Section 77(2) of the Companies Act, 1956. In thecurrentyear, the Private Company has sold all the shares held by them on behalf of the Trust and refunded the loan amount to the Company. Consequently the said "BFL Executives Welfare and Share Option Trust" has been renamed to "BFL Staf Welfare Trust".

(a) Provision for diminution in value of investment in bf infrastructure Limited (bfiL)

Considering the losses in the business activities carried out by BFIL, the Management, has provided an amount ofRs. 308.14 million towards diminution in the carrying cost of its investments in current financial year.

(b) Provision for diminution in value of investment in bharat forge america inc. (bfa)

Considering substantial erosion of net worth of BFA due to continuous losses, the Management, has provided additional amount of Rs. 260.00 million towards diminution in the carrying cost of its investments in last financial year.

(c) reversal of interest diferential as per accounting standard (as) 16 on "borrowing Costs".

The Company had earlier exercised the option ofered in the Accounting Standard (AS) 11 relating to " The efects of changes in foreign exchange rates" to capitalise foreign exchange diference on translation of long term monetary liabilities to cost of depreciable assets where used to acquire such assets and in other cases to FCMITDA (Foreign Currency Monetary Items Translation Diference Account) after providing for interest diferential as per Accounting Standard (AS) 16. In view of the clarifcation provided vide Ministry of Corporate Afairs circular 25/ 2012 dated August 9, 2012, the Company had exercised the option retrospectively from April 1,2011 and the exchange loss amounting toRs. 205.02 million representing the interest diferential up to March 31, 2012 previously expensed was reversed and corresponding adjustment was made to the cost of fixed assets and FCMITDA as appropriate in previous year.

(d) Package scheme of incentive (Psi)

During the previous year the Company had accrued MVAT, CST and other duty benefits of earlier periods amounting to Rs. 160.67 million as per Industrial Promotion Subsidy (IPS) under Package Scheme of Incentive (PSI) 2007, of the Government of Maharashtra, for its plant set up in Baramati.

(e) profit on sale of land

During the current year, the Company has sold its land situated at Jalgaon resulting in a gain of Rs. 431.64 million.


Mar 31, 2013

A) Use of estimates

The preparation of financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. Although these estimates are based on the management''s best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods.

b) Tangible fixed assets

Fixed assets are stated at cost of acquisition net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria is met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discounts and rebates are deducted in arriving at the purchase price.

Subsequent expenditure (for new projects and in case of substantial modernisation or expansion at the existing units) related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard of performance. All other expenses on existing fixed assets, including day-to- day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred. Trial run expenditure is also capitalised.

The Company adjusts exchange differences arising on translation/settlement of long-term foreign currency monetary items pertaining to the acquisition of a depreciable asset to the cost of the asset and depreciates the same over the remaining life of the asset. In accordance with MCA circular dated August 9, 2012, exchange differences adjusted to the cost of fixed assets are total differences, arising on long-term foreign currency monetary items pertaining to the acquisition of a depreciable asset, for the period. In other words, the Company does not differentiate between exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost and other exchange difference.

Gains or losses arising from de-recognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.

c) Depreciation and amortization

i. Lease hold land

Premium on leasehold land is amortized on a straight line basis over the period of lease i.e. 95 years.

ii. Power Line

Expenditure on power line is amortized on a straight line basis over a period of six years.

c) Depreciation and amortization (Contd.):

iii. Other fixed assets

Depreciation on buildings, plant and machinery, railway sidings, electrical installations and aircrafts is calculated on a "Straight Line Method" basis in accordance with the provisions of Section 205(2)(b) of the Companies Act, 1956, in the manner and at the rates specified in Schedule XIV to the said Act or using the rates arrived at based on the useful lives estimated by the management, whichever is higher.

Depreciation in respect of other assets viz. factory equipments, furniture and fixtures, office equipments and vehicles is calculated on "Written down value" basis in accordance with the provisions of Section 205(2)(a) of the Companies Act, 1956 in the manner and at the rates specified in Schedule XIV to the said Act or using the rates arrived at based on the useful lives estimated by the management, whichever is higher.

Depreciation on additions to assets during the year is being provided on pro-rata basis from the date of acquisition/ installation.

Depreciation on assets sold, discarded or demolished during the year, is being provided at their respective rates on pro-rata basis upto the date on which such assets are sold, discarded or demolished.

Depreciation on account of increase or decrease due to revaluation of foreign currency loans is being provided at rates of depreciation over the future life of said asset.

d) Intangible assets

Acquired intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use.

Gains or losses arising from disposal of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is disposed.

Research and development expenditure

Research expenditure is charged to revenue under the natural heads of account in the year in which it is incurred.

However, development expenditure incurred is recognized as an intangible asset when the Company can demonstrate all the following:

- The technical feasibility of completing the intangible asset so that it will be available for use or sale

- Its intention to complete the asset

- Its ability to use or sell the asset

- How the asset will generate future economic benefits

- The availability of adequate resources to complete the development and to use or sell the asset

- The ability to measure reliably the expenditure attributable to the intangible asset during development.

Following the initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized on a straight line basis over the period of expected future benefit from the related project, i.e. the estimated useful life of ten years. Amortization is recognized in the statement of profit and loss. During the period of development, the asset is tested for impairment annually.

Fixed assets purchased for research and development are accounted for in the manner stated in note 2.1 (b) above.

e) Inventories

Cost of inventories have been computed to include all cost of purchases, cost of conversion and other costs incurred in bringing the inventories to their present location and condition.

Raw materials and components, stores and spares and loose tools are valued at lower of cost and net realizable value. However, materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. The costs are determined using the weighted average method.

Work-in-progress and finished goods are valued at the lower of cost and net realisable value. Cost includes direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Cost of finished goods includes excise duty and is determined on a weighted average basis.

Scrap is valued at lower of cost and net realizable value. Cost is determined using the weighted average method.

Dies are amortised over their productive life. Expenditure incurred to repair the dies from time to time is charged to statement of profit and loss.

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

f) Foreign currency translation

Foreign currency transactions and balances

i. Initial recognition

Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

ii. Conversion

Foreign currency monetary items are retranslated using the exchange rate prevailing at the reporting date. Non- monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. Non-monetary items, which are measured at fair value or other similar valuation denominated in a foreign currency, are translated using the exchange rate at the date when such value was determined.

iii. Exchange differences

The Company accounts for exchange differences arising on translation/settlement of foreign currency monetary items as below:

a. Exchange differences arising on long-term foreign currency monetary items related to acquisition of a fixed asset are capitalized and depreciated over the remaining useful life of the asset.

b. Exchange differences arising on other long-term foreign currency monetary items are accumulated in the "Foreign Currency Monetary Item Translation Difference Account" and amortized over the remaining life of the concerned monetary item.

c. All other exchange differences are recognized as income or as expenses in the period in which they arise.

For the purpose of (a) and (b) above, the Company treats a foreign monetary item as "long-term foreign currency monetary item", if it has a term of 12 months or more at the date of its origination. In accordance with MCA circular dated August 9, 2012, exchange differences for this purpose, are total differences arising on long-term foreign currency monetary items for the period. In other words, the Company does not differentiate between exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost and other exchange difference.

iv. Options and forward exchange contracts not intended for trading or speculation purposes, classified as derivative instruments.

Pursuant to the announcement made by The Institute of Chartered Accountants of India (ICAI) regarding "Accounting for Derivatives", options and forward exchange contracts are classified as derivatives and are marked to market on a portfolio basis at the balance sheet date. The resultant net losses after considering the offsetting effect on the underlying hedge items are recognised in the statement of profit and loss on the principle of prudence. The resultant net gains, if any, on such derivatives are not recognised in financial statements. Any profit or loss arising on cancellation or renewal of such forward exchange contract is recognised as income or expense for the year.

g) Investments

Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as long-term investments.

On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties. Long-term investments are carried at cost. However, provision for diminution in value of investments is made to recognize a decline other than temporary in the value of investment.

Current investments are carried in the financial statement at lower of cost of acquisition and fair value determined on an individual investment basis.

On disposal of an investment, the difference between its carrying amount and net disposal proceeds is charged or credited to the statement of profit and loss.

h) Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:

i. Sale of goods

a. Domestic sales are recognized when all the significant risks and rewards of ownership of the goods have been passed to the buyer, usually on dispatch from the point of sale, consequent to property in goods being transferred. The Company collects sales taxes and value added taxes (VAT) on behalf of the government and, therefore, these are not economic benefits flowing to the Company. Hence, they are excluded from revenue. Excise duty deducted from revenue (gross) is the amount that is included in the revenue (gross) and not the entire amount of liability arising during the year.

b. Export sales are recognized when all the significant risks and rewards of ownership of the goods have been passed to the buyer, usually on the basis of dates of bill of lading.

ii. Export incentives

Export Incentives are accounted for on export of goods if the entitlements can be estimated with reasonable accuracy and conditions precedent to claim is fulfilled.

iii. Sale of services

Revenues from sales of services are recognized pro-rata over the period of the contract as and when services are rendered. The Company collects service tax on behalf of the government and, therefore, it is not an economic benefit flowing to the Company. Hence, it is excluded from revenue.

iv. Die design and preparation charges

Revenues from die design and preparation charges are recognized as per the terms of the contract as and when services are rendered. The Company collects service tax and value added tax (VAT) on behalf of the government and, therefore, it is not an economic benefit flowing to the Company. Hence, it is excluded from revenue.

v. Sale of electricity - Windmill

Revenue from sales of electricity is recognized when all the significant risks and rewards of ownership have been passed to the buyer, usually on transmission of electricity based on the data provided by the electricity department.

vi. Interest income

Interest income is recognized on a time proportion basis taking into account the amount outstanding and the applicable interest rate.

vii. Dividend income

Dividend income is recognized when the Company''s right to receive is established by the reporting date.

viii. Profit / loss on sale of investment

Profit / loss on sale of investment is recognized when all the significant risks and rewards of ownership in investment is transferred.

ix. Certified emission reduction units / Renewal energy certificates

Certified emission reduction units / Renewal energy certificates is recognized when there is reasonable assurance that the entity will comply with the conditions attached to it and the grants will be received. At a minimum, these conditions will only be met when the actual emission reductions have been realized and the entity has reasonable assurance these reductions will be confirmed during the verification and certification process by the respective independent authority. This assessment must also take into account any additional terms and conditions that may apply.

i) Retirement and other employee benefits

i Provident fund

The Company operates two plans for its employees to provide employee benefit in the nature of provident fund.

Eligible employees receive benefits from a provident fund, which is a defined benefit plan. Both the employee and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee''s salary. The Company contributes a part of the contributions to the "Bharat Forge Company Limited Staff Provident Fund Trust". The rate at which the annual interest is payable to the beneficiaries by the trust is being administered by the government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate. The guidance note on implementing AS- 15 (revised 2005) "Employee Benefits", states that benefits involving employer established provident funds, which requires interest shortfalls to be provided, are to be considered as defined benefit plans. Actuarial valuation of this provident fund interest shortfall has been done as per the guidance note issued during the year in this respect by the Institute of Actuaries of India.

The employee which are not covered under the above scheme, there portion of provident fund is contributed to the government administered pension fund which is a defined contribution scheme. The Company has no obligation, other than the contribution payable to the provident fund. The Company recognizes contribution payable to the provident fund scheme as expenditure, when an employee renders the related service. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognized as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the balance sheet date, then excess is recognized as an asset to the extent that the pre payment will lead to, for example, a reduction in future payment or a cash refund.

ii Gratuity

The Company operates two defined benefits plan for its employees viz. gratuity and special gratuity scheme. Payment for present liability of future payment of gratuity is being made to approved gratuity funds, which fully cover the same under cash accumulation policy of the Life Insurance Corporation of India. The special gratuity scheme is unfunded. The cost of providing benefits under these plans is determined on the basis of actuarial valuation at each year end. Separate actuarial valuation is carried out for each plan using the project unit credit method. Actuarial gains and losses for both defined benefit plans are recognized in full in the period in which they occur in the statement of profit and loss.

iii Superannuation

Retirement benefit in the form of superannuation plan is a defined contribution plan. Defined contributions to Life Insurance Corporation of India for employees covered under Superannuation scheme are accounted at the rate of 15% of such employees'' annual salary. The Company recognizes expense toward the contribution paid/ payable to the defined contribution plan as and when an employee renders the relevant service. If the contribution already paid exceeds the contribution due for service before the balance sheet date, the company should recognise that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or cash refund. If the contribution already paid is lower than the contribution due for service before the balance sheet date, the company recognises that difference excess as a liability. The Company has no obligation, other than the contribution payable to the superannuation fund.

iv Privilege leave benefits

Accumulated leave, which is expected to be utilized within the next 12 months, is treated as short-term employee benefit. The Company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date.

The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefit for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains/losses are immediately taken to the statement of profit and loss and are not deferred. The Company presents the leave as a current liability in the balance sheet, to the extent it does not have an unconditional right to defer its settlement for 12 months after the reporting date. Where the Company has the unconditional legal and contractual right to defer the settlement for a period beyond 12 months, the same is presented as non-current liability.

v Termination benefits

The Company recognizes termination benefit as a liability and an expense when the Company has a present obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

j) Borrowing costs

Borrowing cost includes interest and amortization of ancillary costs incurred in connection with the arrangement of borrowings.

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur.

k) Income taxes

Tax expense comprises current and deferred tax. Current income-tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income-tax Act, 1961 enacted in India and tax laws prevailing in the respective tax jurisdictions where the Company operates. The tax rates and tax laws used to compute the amount are those that are enacted, at the reporting date. Current income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit and loss.

Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and reversal of timing differences for the earlier years. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted at the reporting date. Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit and loss.

Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the Company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits.

At each reporting date, the Company re-assesses unrecognized deferred tax assets. It recognizes unrecognized deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be that sufficient future taxable income will be available against which such deferred tax assets can be realized.

The carrying amount of deferred tax assets are reviewed at each reporting date. The Company writes-down the carrying amount of deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write- down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.

Minimum alternate tax (MAT) paid in a year is charged to the statement of profit and loss as current tax. The Company recognizes MAT credit available as an asset only to the extent that there is convincing evidence that the Company will pay normal income tax during the specified period, i.e., the period for which MAT credit is allowed to be carried forward. In the year in which the Company recognizes MAT credit as an asset in accordance with the guidance note on "Accounting for Credit Available in respect of Minimum Alternative Tax" under the Income-tax Act, 1961, the said asset is created by way of credit to the statement of profit and loss and shown as "MAT Credit Entitlement." The Company reviews the "MAT credit entitlement" asset at each reporting date and writes down the asset to the extent the Company does not have convincing evidence that it will pay normal tax during the specified period.

l) Provisions

A provision is recognized when the Company has a present obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.

m) Impairment of tangible asset

The Company tests for impairments at the close of the accounting period if and only if there are indications that suggest a possible reduction in the recoverable value of an asset. If the recoverable value amount of an asset, i.e. the net realisable value or the economic value in use of a cash generating unit, is lower than the carrying amount of the asset the difference is provided for as impairment. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or cash generating units exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining net selling price, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used.

An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the company estimates the asset''s or cash-generating unit''s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset''s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit and loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.

n) Leases

Where the Company is the lessee

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.

o) Government grants and subsidies

Grants and subsidies from the government are recognized when there is reasonable assurance that (i) the Company will comply with the conditions attached to them, and (ii) the grant/subsidy will be received.

When the grant or subsidy relates to revenue, it is recognized as income on a systematic basis in the statement of profit and loss over the periods necessary to match them with the related costs, which they are intended to compensate. Where the grant relates to an asset, it is recognized as deferred income and is allocated to statement of profit and loss over the periods and in the proportions in which depreciation on those assets is charged.

Where the Company receives non-monetary grants, the asset is accounted for on the basis of its acquisition cost. In case a non-monetary asset is given free of cost, it is recognized at a nominal value.

Government grants of the nature of promoters'' contribution are credited to capital reserve and treated as a part of the shareholders'' funds.

p) Earnings per share

Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they are entitled to participate in dividends relative to a fully paid equity share during the reporting period. The weighted average number of equity shares outstanding during the period is adjusted for events such as bonus issue, bonus element in a rights issue, share split, and reverse share split (consolidation of shares) that have changed the number of equity shares outstanding, without a corresponding change in resources.

For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.

q) Contingent liabilities

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the financial statements.

r) Cash and cash equivalents

Cash and cash equivalents for the purposes of cash flow statement comprise cash at bank and in hand and short-term investments with an original maturity of three months or less.

s) Derivative instruments and hedge accounting

The Company uses derivative financial instruments, such as, foreign currency forward contracts to hedge foreign currency risk arising from future transactions in respect of which firm commitments are made or which are highly probable forecast transactions. The Company designates these forward contracts in a hedging relationship by applying the hedge accounting principles of AS 30 Financial Instruments: Recognition and Measurement.

For the purpose of hedge accounting, hedges are classified as:

i. Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment;

ii. Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment.

At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Company will assess the effectiveness of changes in the hedging instrument''s fair value in offsetting the exposure to changes in the hedged item''s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Hedges that meet the strict criteria for hedge accounting are accounted for as described below:

Fair value hedges

The change in the fair value of a hedging derivative is recognized in the statement of profit and loss. The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in the statement of profit and loss.

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognized directly under shareholders fund in the hedging reserve, while any ineffective portion is recognized immediately in the statement of profit and loss.

The Company uses foreign currency forward contracts as hedges of its exposure to foreign currency risk in forecasted transactions. The ineffective portion relating to foreign currency contracts is recognized immediately in the statement of profit and loss.

Amounts recognized in the hedging reserve are transferred to the statement of profit and loss when the hedged transaction affects profit or loss, such as when the hedged income or expense is recognized or when a forecast sale occurs.

If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognized in the hedging reserve is transferred to the statement of profit and loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognized in the hedging reserve remains in the hedging reserve until the forecast transaction affects profit or loss.


Mar 31, 2012

Basis of preparation

These financial statements have been prepared in accordance with the generally accepted accounting principles in India under the historical cost convention on accrual basis. These financial statements have been prepared to comply in all material aspects with the accounting standards notified under Section 211(3C) [Companies (Accounting Standards) Rules, 2006, as amended] and the other relevant provisions of the Companies Act, 1956.

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 ascertained its operating cycle as 12 months for the purpose of current/non-current classification of assets and liabilities.

1. System of Accounting:

i. The Company follows the mercantile system of accounting and recognises income and expenditure on an accrual basis except those with significant uncertainties.

ii. Financial Statements are based on historical cost. These costs are not adjusted to reflect the impact of the changing value in the purchasing power of money.

iii. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying financial statements are based upon management's evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying financial statements. Any revisions to accounting estimates are recognised prospectively in current and future periods.

2. Fixed Assets and depreciation:

A. Fixed Assets are stated at their original cost of acquisition including incidental expenses related to acquisition and installation of the concerned assets. The fixed assets manufactured by the Company are stated at manufacturing cost. Fixed Assets are shown net of accumulated depreciation (except free hold land) and amortisation. Also refer Para 4(i).

B. Expenditure on New Projects and Expenditure during Construction etc. :

In case of new projects and in case of substantial modernisation or expansion at the existing units of the Company, expenditure incurred including interest on borrowings and financing costs of specific loans, prior to commencement of commercial production is capitalised to the cost of assets. Trial Run expenditure is also capitalised.

C. Depreciation and amortisation:

a) Lease hold land and Power Line:

Premium on leasehold land is amortized over the period of lease and expenditure on power line is amortized over a period of seven year

b) Other Fixed Assets:

i. Depreciation on additions to Buildings, Plant & Machinery, Railway Sidings, Electrical Installations and Aircrafts is being provided on ''Straight Line Method'' basis in accordance with the provisions of Section 205(2(b) of the Companies Act, 1956, in the manner and at the rates specified in Schedule XIV to the said Act.

ii. Depreciation in respect of other assets viz. Factory Equipments, Computers, Engineering Instruments, Furniture & Fittings, Office Equipments and Vehicles is being provided on ''Written down value'' basis in accordance with the provisions of Section 205(2)(a) of the Companies Act, 1956 in the manner and at the rates specified in Schedule XIV to the said Act.

c) i. Depreciation on additions to assets during the year is being provided on pro-rata basis from the date of acquisition/installation.

ii. Depreciation on assets sold, discarded or demolished during the year, is being provided at their respective rates on pro-rata basis upto the date on which such assets are sold, discarded or demolished.

iii. Depreciation on additions on account of increase in Rupee value due to revalorisation of foreign currency loans is being provided at rates of depreciation over the future life of said asset.

3. Inventories:

Cost of Inventories have been computed to include all cost of Purchases, Cost of Conversion and other costs incurred in bringing the inventories to their present location and condition:

i. Raw materials and components, stores and spares are valued at cost. The costs are ascertained using the weighted average method, except in case of slow moving and obsolete material, at lower of cost or estimated realisable value.

ii. Work-in-progress and finished goods are valued at the lower of cost or estimated realisable value.

iii. Scrap is valued at estimated realisable value.

iv. Goods in transit are stated at actual cost upto the date of Balance Sheet.

v. Dies are amortised over their productive life. Expenditure incurred to repair the dies from time to time is charged to profit and loss account.

4. Foreign Currency Conversion:

i. Foreign currency exposure in respect of Long Term Foreign Currency Monetary items, for financing fixed assets, outstanding at the close of the financial year are revalorised at the contracted and/or appropriate exchange rates at the close of the year. The gain or loss due to decrease/increase in Rupee liability due to fluctuation in rate of exchange is recognised in the Profit & Loss Account.

ii. Current Assets and other Liabilities in foreign currency and foreign currency exposure in respect of foreign currency loans other than for financing fixed assets outstanding at the close of the financial year are valued at the contracts and/or appropriate exchange rates at the close of the year. The loss or gain due to fluctuation of exchange rates is charged to Profit & Loss Account.

iii. Though the accounting policy detailed in (i) and (ii) above has been consistently followed in terms with the Accounting Standard 11, the policy has been overridden by an amendment to the aforementioned accounting standard for limited period of time as stated in Note No. 3(d) to the Financial Statements.

iv. Foreign Currency Hedging Instruments:

Outstanding Contracts, entered into by the Company intended to serve as a hedge against Foreign Exchange Fluctuations to protect the foreign currency cash flows are marked to market value at the close of each accounting period. The valuation gains and losses in respect of such contracts , where they are intended to hedge future cash flows arising from foreign currency monetary items existing on the valuation date are recognised in the profit and loss account and where they are intended to hedge future cash flows consequent to highly probable forecast transactions are, if effective, carried to Hedge Reserve to flow to the Profit and Loss account when the transactions occur, else are recognised in the Profit and Loss Account.

5. Technical Know-how Fees:

Expenditure on acquiring Technical Know-how is being amortized over a period of six years.

6. Investments:

a. Trade and Strategic Investments made by the Company are of a long term nature and hence diminution in value of investments if any is generally not considered to be of permanent nature. However if the diminution is considered to be of permanent nature then necessary provisions are made.

b. Current Investments are valued at cost of acquisition, less provision for diminution, as necessary, if any.

7. Revenue Recognition:

a. Sales:

i. Domestic Sales are accounted for when dispatched from the point of sale, consequent to property in goods being transferred.

ii. Export Sales are accounted on the basis of dates of Bill of Lading.

b. Export Incentives: - Export Incentives are accounted for on Export of Goods if the entitlements can be estimated with reasonable accuracy and conditions precedent to claim is fulfilled.

c. Interest is accrued over the period of loan/ investment

d. Dividend is accrued in the year in which it is declared, whereby right to receive is established

e. Profit/ Loss on sale of investment is recognised on contract date.

8. Research & Development Expenditure:

Research & Development expenditure is charged to Revenue under the natural heads of account in the year in which it is incurred. However, expenditure incurred at development phase, where it is reasonably certain that outcome of research will be commercially exploited to yield economic benefits to the Company, is considered as an intangible asset.

Fixed Assets purchased for research and development are accounted for in the manner stated in clause 2 above.

9. Employee Benefits:

i Benefits in the form of Provident Fund and Pension Schemes whether in pursuance of law or otherwise which are defined contributions is accounted on accrual basis and charged to Profit & Loss account of the year. Provident Fund contributions are made to Company's Provident Fund Trust. Deficits if any, of the Fund as compared to a actuarial liability determined under the Interest guarantee method is eventually to be additionally contributed by the Company and hence are recognized as a liability.

ii Gratuity:

Payment for present liability of future payment of gratuity is being made to approved gratuity funds, which fully cover the same under cash accumulation policy of the Life Insurance Corporation of India. The employee's gratuity is a defined benefit funded plan. The present value of the obligation under such defined benefit plan is determined based on the actuarial valuation using the Projected Unit Credit Method as at the date of the Balance Sheet and the shortfall in the fair value of the plan Assets is recognised as an obligation.

iii Superannuation:

Defined Contributions to Life Insurance Corporation of India for employees covered under Superannuation scheme are accounted at the rate of 15% of such employees' Annual Salary.

iv Privilege Leave Benefits:

Privilege leave Benefits or compensated absences are considered as long term unfunded benefits and is recognised on the basis of an actuarial valuation using the projected Unit Credit Method determined by an appointed Actuary.

v Termination benefits:

Termination benefits such as compensation under voluntary retirement scheme are recognized as a liability in the year of termination.

10. Borrowing Costs:

Interest on borrowings is recognised in the Profit and Loss account except interest incurred on borrowings, specifically raised for projects are capitalised to the cost of the assets until such time that the asset is ready to be put to use for its intended purpose except where installation is extended beyond reasonable/ normal time lines.

11. Taxation:

Provision for Taxation is made on the basis of the Taxable Profits computed for the current accounting period in accordance with the Income Tax Act, 1961. Deferred Tax resulting from timing difference between Book Profits and Tax Profits is accounted for at the applicable rate of Tax to the extent the timing differences are expected to crystallise, in case of Deferred Tax Assets and Liabilities with reasonable certainty and in case of Deferred Tax Assets represented by unabsorbed depreciation and carried forward business losses, with virtual certainty that there would be adequate future taxable income against which Deferred Tax Assets can be realised.

12. Provisions:

Necessary Provisions are made for present obligations that arise out of past events prior to the Balance Sheet date entailing future outflow of economic resources. Such provisions reflect best estimates based on available information.

13. Impairment of Asset:

The Company tests for impairments at the close of the accounting period if and only if there are indications that suggest a possible reduction in the recoverable value of an asset. If the recoverable value amount of an Asset, i.e. the net realisable value or the economic value in use of a cash generating unit, is lower than the carrying amount of the Asset the difference is provided for as impairment. However, if subsequently the position reverses and the recoverable amount become higher than the then carrying value the provision to the extent of the then difference is reversed, but not higher than the amount provided for.

 
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