Mar 31, 2022
1. General information
Carborundum Universal Limited (CUMI) was incorporated in India as a Public Limited Company in 1954 and the shares of the Company are listed in National Stock Exchange of India Ltd. and BSE Ltd. The address of its registered office and place of business are disclosed in the Annual Report.
CUMI manufactures and sells mainly Abrasives, Ceramics (Industrial Ceramics, Refractories) and Electrominerals. (Refer Note: 30).
2. Basis of Preparation
2.1 Application of Indian Accounting Standards (Ind AS)
The financial statements comply in all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the Act) [Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act.
2.2 New and Amended Standard adopted by the Company:
The following amendments to Ind AS are applicable to the Company for the first time for their annual reporting period commencing 1st April 2021:
⢠Extension of COVID-19 related concessions - amendments to Ind AS 116.
⢠Interest rate benchmark reform - amendments to Ind AS 109, Financial Instruments, Ind AS 107, Financial Instruments: Disclosures, Ind AS 104, Insurance Contracts and Ind AS 116, Leases.
The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.
2.3 New amendments issued but not effective
The Ministry of Corporate Affairs has vide notification dated 23 March 2022 notified Companies (Indian Accounting Standards) Amendment Rules, 2022 which amends certain accounting standards, and are effective 1st April 2022. These amendments are not expected to have a material impact on the Company in the current or future reporting periods and on foreseeable future transactions.
3. Significant accounting policies
3.1.1 Basis of preparation and presentation
The financial statements have been prepared on the historical cost basis as explained in the accounting policies as stated below, except the following that are measured at fair values at the end of each reporting period:
⢠Certain financial asset and liabilities (including derivative instruments) and contingent consideration is measured at fair value
⢠Assets held for sale - measured at fair value less cost to sell
⢠Defined benefit plan - plan measured at fair value
⢠Share based payments
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
⢠In the principal market for the asset or liability, or
⢠In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest.
A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
⢠Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
⢠Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
⢠Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
3.2 Use of estimates and judgements
In preparing these financial statements, Management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
3.2.1 Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.
3.3 Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal) is available for immediate sale in its present condition subject only to terms that are usual and customary for sale of such assets and its sales is highly probable.
Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.
3.4 Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made.
Revenue is measured at the transaction price for each separate performance obligation taking into account contractually defined terms of payment and excluding taxes or duties collected on behalf of the government. The transaction price is net of estimated customer returns, rebates and other similar allowances.
The specific recognition criteria described below must also be met before revenue is recognised.
3.4.1 Sale of goods
Revenue from the sale of goods is recognized at a point in time when the control of the products has transferred which generally coincides with dispatch of products to customers in case of domestic sales and on the basis of bill of lading in the case of export sales.
Revenue from the sale of goods is recognised when the control of the product is transferred, the goods are delivered and titles have passed, at which time all the following conditions are satisfied:
3.2.2 Judgements are made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements.
3.2.3 Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment are reviewed on an ongoing basis.
The areas involving critical estimates or judgements are:
S.No. |
Particulars |
Notes |
I |
Estimation of useful life of tangible and intangible asset |
3.11 & 3.12 |
II |
Estimation of fair value of unlisted securities |
6D |
III |
Impairment of Trade receivables: Expected credit loss |
10 |
IV |
Recognition and measurement of provisions and contingencies; Key assumptions about the likelihood and magnitude of an outflow of resources. |
14 & 31 |
V |
Measurement of defined benefit obligation: Key actuarial assumptions. |
34 |
⢠the Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
⢠The Company has a present right to payment for the asset;
⢠The Company has transferred physical possession of the asset, whereby the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset or to restrict the access of other entities to those benefits.
When the consideration is received, before the Company transfers a goods to the customer, the Company shall present the consideration as a contract liability.
Revenue from divisible service contracts
a) service contracts are recognised over a period of time determined using the percentage completion method, synchronized to the billing schedules agreed by the customers, identical with others in similar business and
b) the revenue relating to supplies are measured in line with policy set out in 3.4.1.
In respect of indivisible contracts, the revenues are recognised over a period of time, measured as per (a) above.
When the consideration is received, before the Company transfers a goods to the customer, the Company shall present the consideration as a contract liability and when the services rendered by the Company exceed the payment, a contract asset is recognised excluding any amount presented as receivable.
Royalty income is recognised on an accrual basis in accordance with the substance of the relevant agreement.
Dividend income from investments is recognised when the shareholder''s right to receive payment has been established.
Interest income from a financial asset is recognised and accrued using effective interest rate method.
Rental income is recognised on a straight line basis in accordance with the agreement.
Foreign currency transactions are recorded at the rates of exchange prevailing on the date of the transactions. Monetary assets and liabilities outstanding at the year-end are translated at the rate of exchange prevailing at the year-end and the gain or loss, is recognised in the Statement of Profit and Loss.
Foreign currency monetary items (other than derivative contracts) of the Company, outstanding at the Balance Sheet date are restated at the year-end rates. Non-monetary items of the Company are carried at historical cost.
Exchange differences arising on settlement / restatement of short-term foreign currency monetary assets and liabilities of the Company are recognised as income or expense in the Statement of Profit and Loss.
Refer Note: 3.26 and 3.27 for accounting for forward exchange contracts relating to firm commitments and highly probable forecast transactions.
The borrowing costs (other than those attributable to property, plant and equipment and Intangible assets- Refer Note: 4 and 5) are recognised in profit or loss in the period in which they are incurred.
Interest income earned on temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
Government grants are not recognised until there is reasonable assurance that the Company will comply with the conditions attaching to them and that the grants will be received.
Government grants are recognised in profit or loss on a systematic basis over the periods in which the Company recognises as expenses the related cost for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Company should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the Balance Sheet and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Company with no future related costs are recognised in profit or loss in the period in which they become receivable.
The benefit of a government loan at a below market rate of interest is treated as a government grant, measured as the differences between proceeds received and the fair value of the loan based on prevailing market interest rate.
Export benefits on account of entitlement to import goods free of duty under ''Exports Benefit Scheme'' are accounted based on eligibility and when there is no uncertainty in receiving the same.
3.8 Employee benefits3.8.1 Retirement benefit costs and termination benefits
Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions.
For defined benefit retirement plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gain and loss, the effect of the changes to asset ceiling (if applicable) and the return on plan assets (excluding net interest), is reflected immediately in the Balance Sheet with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement recognised in other comprehensive income is reflected in retained earnings and is not reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of plan amendment. Net interest is
calculated by applying the rate at the beginning of the period to the net defined benefit liability or asset.
Defined benefit costs are categorised as follows:
⢠Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements);
⢠Net interest expense or income;
⢠Remeasurement.
The Company presents the first two components of defined benefit costs in profit or loss in the line item ''Employee benefit expense''. Curtailment gain and loss are accounted for as past service costs.
A liability for a termination benefit is recognised when the entity can no longer withdraw the offer of the termination benefit as per the relevant scheme.
The employees and the Company make monthly fixed contributions to the Carborundum Universal Limited Employee''s Provident Fund Trust, equal to a specified percentage of the covered employee''s salary. The interest rate payable by the Trust to the beneficiaries is being notified by the Government every year. The Company obtains an independent actuarial valuation of the Interest Guarantees as at the Balance Sheet date and provides for the shortfall, if any, in the present value of obligation of interest over the fair value of the surplus in the Fund.
3.8.2 Short-term and other long-term employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered.
Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.
Liabilities recognised in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the Company in respect of services provided by employees up to the reporting date.
3.8.3 Voluntary retirement compensation
Compensation to employees who have retired under voluntary retirement scheme is charged off to revenue.
3.9 Share-based payment arrangements
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity settled share based transactions are set out in Note: 37.
The fair value determined at the grant date of the equity-settled-based payments is expensed on a straight-line basis over the vesting period, based on the Company''s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of
the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflect the revised estimate, with a corresponding adjustment to the Share options outstanding account.
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ''profit before tax'' as reported in the Statement of Profit and Loss because of items of income or expense that are taxable or deductible in other years (Temporary differences) and items that are never taxable or deductible (Permanent differences). The Company''s current tax is calculated using tax rates that have been enacted by the end of the reporting period.
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities.
Current income tax relating to items recognised outside profit or loss is either in other comprehensive income or in equity. Current tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary differences arise from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised either in other comprehensive income or in equity. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.
Goods and Service Tax (GST) credit on materials purchased / services availed for production / Input services are taken into account at the time of purchase and availing services. GST Credit on purchase of capital items wherever applicable are taken into account as and when the assets are acquired. The GST credits so taken are utilised for payment of GST on supply and service. The unutilised GST credit is carried forward in the books.
3.11 Property, plant and equipment
Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the Balance Sheet at cost less accumulated depreciation and accumulated impairment losses. Freehold land is not depreciated.
Fixtures and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is recognised so as to write-off the cost of the assets (other than freehold land) less their residual values over their useful lives as specified under Schedule II using the straight-line method. The estimated useful lives, residual value and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Individual asset costing less than ''5000 are depreciated in full in the year of acquisition.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit or loss.
When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those
assets, until such time as the assets are substantially ready for their intended use or sale.
3.12 Intangible assets3.12.1 Intangible assets acquired separately
Intangible assets that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives.
The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The amortisation expense on intangible assets with finite lives is recognised in the Statement of Profit and Loss unless such expenditure forms part of carrying value of another asset.
3.12.2 Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.
3.12.3 Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date, which is regarded as their cost.
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
3.12.4 Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gain or loss arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognised in profit or loss when the asset is derecognised.
3.13 Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the Company reviews the carrying amount of tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually and whenever there is an indication that the asset may
be impaired.
Recoverable amount is higher of fair value less cost of disposal and value in use. 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.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generated unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
3.14 Cash and cash equivalents (for purposes of Cash Flow Statement)
Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.
3.15 Cash Flow Statement
Cash flows are reported using the indirect method, whereby profit/ (loss) before tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information.
3.16 Inventories
Inventories are stated at the lower of cost and net-realisable value. Cost includes freight, taxes and duties net of GST credit wherever applicable. Customs duty payable on material in bonded warehouse is added to the cost.
In respect of raw materials, stores and spare parts, traded stock cost is determined on weighted average basis. In respect of work in progress and finished goods, cost includes all direct costs and applicable production overheads, to bring the goods to the present location and condition. Net realisable value represents the estimated selling price for inventories less all estimated cost of completion and cost necessary to make the sale.
3.17 Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle present obligation at the end of reporting period, taking into account the risk and uncertainty surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of these cash flows (when the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provisionare expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of receivable can be measured reliably.
Contingent liability is disclosed for (i) Possible obligation which will be confirmed only by future events not wholly within the control of the Company or (ii) Present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. Contingent assets are not recognised in the financial statements.
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provision of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial asset or financial liabilities, as appropriate, on initial recognition. Transaction cost directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
All regular way purchases or sale of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sale of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place.
Investments in subsidiaries, associate and joint ventures are measured at cost. All other recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.
3.20.1. Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition):
⢠the asset is held within business model whose objective is to hold assets in order to collect contractual cash flows; and
⢠the contractual terms of the instruments give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
For the impairment policy on financial assets measured at amortised cost, Refer Note: 3.20.4
3.20.2 Investment in equity instruments at Fair value through Other Comprehensive Income [FVTOCI]
On initial recognition, the Company can make an irrevocable election (on an instrument-by-instrument basis) to present the subsequent changes in fair value in other comprehensive income pertaining to investment in equity instruments. This election is not permitted if the equity investment is held for trading.
These elected investments are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gain and loss arising from changes in fair value recognised in other comprehensive income and accumulated in the ''Reserve for equity instrument through other comprehensive income''. The cumulative gain or loss is not reclassified to profit or loss on disposal of the investments.
A financial asset is held for trading if:
⢠it has been acquired principally for the purpose of selling it in the near term.
⢠on initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or
⢠it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.
The Company has equity instrument in two entities, which are not held for trading. The Company has elected the FVTOCI irrevocable option for both of these investments (Refer Note: 6D). Fair value is determined in the manner described in Note: 35.
Dividend on these investments are recognised in profit or loss when the Company''s right to receive the dividends is established, it is probable that the economic benefits associated with the dividend will flow to the entity, which does not represent a recovery of part of cost of the investment and the amount of dividend can be measured reliably. Dividend recognised in profit and loss is included in ''Other income'' line item.
3.20.3 Financial assets at fair value through profit or loss (FVTPL)
Investments in equity instruments are classified as at FVTPL, unless the Company irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for investments in equity instruments which are not held for trading (Refer Note: 3.20.2).
Debt instruments that do not meet the amortised cost criteria or FVTOCI criteria are measured at FVTPL. In addition, debt instruments that meet the amortised cost criteria or the FVTOCI criteria but are designated as at FVTPL are measured at FVTPL.
A financial asset that meets the amortised cost criteria or debt instruments that meet the FVTOCI criteria may be designated as
at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognising the gain or loss on them on different bases. The Company has not designated any such debt instrument as at FVTPL.
Financial asset at FVTPL is measured at fair value at the end of each reporting period, with gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporate any dividend or interest earned on the financial asset and is included in the ''Other income'' line item. Dividend on financial asset at FVTPL is recognised when the Company''s right to receive the dividends is established. It is probable that the economic benefits associated with the dividend will flow to the entity which does not present a recovery of part of cost of the investment and the amount can be measured reliably.
3.20.4 Impairment of financial assets
The Company applied the expected credit loss model for recognising impairment loss on financial assets measured at amortised cost, debt instruments at FVTOCI, lease receivable, trade receivable, and other contractual rights to receive cash or other financial asset, and financial guarantees not designated as at FVTPL.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the company in accordance with the contract and all the cash flows that the Company expects to receive (i.e., all cash short falls), discounted at the original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impairment financial assets). The Company estimates cash flows by considering all contractual terms of the financial instrument (for example, prepayments, extension, call and similar options) through the expected life of that financial instrument.
The Company measures the loss allowance for the financial instruments at an amount equal to the lifetime expected credit losses if the credit risk on those financial instruments has increased significantly since initial recognition.
If the credit risk on a financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instruments at an amount equal to 12 months expected credit losses. The twelve months expected credit losses are a portion of the lifetime cash shortfalls that will result if default occurs within 12 months after the reporting date and thus, are not cash shortfalls that are predicted over 12 months.
If the Company measured loss allowance for the financial instruments at lifetime expected credit loss model in the previous period, but determines at the end of a reporting period that the credit risk has not increased significantly since initial recognition due to improvement in credit quality as compared to the previous period, the Company again measures the loss allowance based on 12 months expected credit losses.
When making the assessment of whether there has been a significant increase in credit risk since initial recognition, the Company uses the change in the risk of a default occurring over the expected life of the financial instruments instead of the change in the amount of expected credit losses. To make the assessment, the Company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and consider reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increase in credit risk since initial recognition.
For trade receivables or any contractual rights to receive cash or other financial assets that results from transactions that are within the scope of Ind AS 115, the Company always measures the loss allowance at an amount equal to lifetime expected credit losses.
Further, for the purposes of measuring lifetime expected credit loss allowance for trade receivables, the Company has used a practical expedient as permitted under Ind AS 109. This expected credit loss allowance is computed based on a provision matrix which takes into account historical credit loss experience and adjusted for forward-looking information.
The impairment requirements for the recognition and measurement of a loss allowance are equally applied to debt instruments at FVTOCI except that the loss allowance is recognised in other comprehensive income and is not reduced from the carrying amount in the Balance Sheet.
3.20.5 Derecognition of financial assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains subsequently all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for the amount it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
On de-recognition of a financial asset in its entirety, the difference between the asset''s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss if such gain or loss would have otherwise been recognised in profit or loss on disposal of that financial asset.
On de-recognition of a financial asset other than its entirety (eg., when the Company retains an option to repurchase part of a transferred asset), the company allocates the previous carried over amount of financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer.
The difference between the carrying amount allocated to the part that is no longer recognised and the sum of consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in profit or loss on disposal of that financial asset. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair value of those parts.
3.20.6 Foreign exchange gain and loss
The fair value of financial assets denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.
⢠For Foreign currency denominated financial asset measured at amortised cost and FVTPL, the exchange differences are recognised in profit or loss except for those which are designated hedging instruments in a hedging relationship.
⢠Changes in the carrying amount of investments in equity instruments at FVTOCI relating to changes in foreign currency rates are recognised in other comprehensive income.
⢠For the purposes of recognising foreign exchange gain and loss, FVTOCI debt instruments are treated as financial assets measured at amortised cost. Thus, the exchange differences on the amortised cost are recognised in profit or loss and other changes in the fair value of FVTOCI financial asset are recognised in other comprehensive income.
3.21 Financial liabilities and equity instruments3.21.1 Classification as debt or equity
Debt and equity instruments issued by a Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definition of a financial liabilities and an equity instrument.
An equity instrument is a contract that evidences a residual interest in the asset of an entity after deducting all of its liabilities. Equity instruments issued by a Company are recognised at the proceeds received, net of direct issue costs.
All financial liabilities are subsequently measured at amortised cost using the effective interest methods or at FVTPL.
However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies, financial guarantee contracts issued by the Company, and commitments issued by the Company to provide a loan at below-market interest rate are measured in accordance with the specific accounting policies set out below:
3.21.3.1 Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is either contingent consideration recognised by the Company as an acquirer in a business combination to which Ind AS 103 applies or is held for trading or it is designated as at
FVTPL.
A financial liability is classified as held for trading if:
⢠it has been incurred principally for the purpose of repurchasing it in the near term; or
⢠on initial recognition, it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or
⢠it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading or contingent consideration recognised by the Company as an acquirer in a business combination to which Ind AS 103 applies, may be designated as at FVTPL upon initial recognition if:
⢠such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise.
⢠the financial liability forms part of a company of financial asset or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company''s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
⢠it forms part of a contract containing one or more embedded derivatives, and Ind AS 109 permits the entire combined contracts to be designated as at FVTPL in accordance with Ind AS 109.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the ''Other income'' line item.
However, for not-held for trading financial liabilities that are designated as at FVTPL, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of the liability recognised in other comprehensive income, unless the recognition of the effects of changes in the liability''s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss, in which case these effect of changes in credit risk are recognised in profit or loss. Changes in fair value attributable to a financial liability''s credit risk that are recognised in other comprehensive income are reflected immediately in retained earnings and are not subsequently reclassified to profit or loss.
Gain or loss on financial guarantee contract and loan commitments issued by the Company that are designated by the Company as at fair value through profit or loss is recognised in profit or loss. Fair value is determined in the manner described in Note: 35.
3.21.3.2 Financial liabilities subsequently measured at amortised cost
Financial liabilities are not held-for-trading and are not
designated as at FVTPL are measured at amortised cost at the end of subsequent accounting periods. The carrying amounts of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method. Interest expenses that are not capitalised as part of cost of an asset is included in the ''Finance cost'' line item.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability or (where appropriate), a shorter period, to the net carrying amount on initial recognition.
3.21.3.3 Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument.
Financial guarantee contracts issued by a Company are initially measured at their fair value and, if not designated as at FVTPL, are subsequently measured at a higher of:
⢠the amount of loss allowance determined in accordance with impairment requirement of Ind AS 109; and
⢠the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of Ind AS 115.
3.21.3.4 Foreign exchange gain and loss
For financial liabilities that are denominated in a foreign currency and are measured at amortised cost at the end of each reporting period, the foreign exchange gain and loss are determined based on the amortised cost of the instruments and are recognised in ''Other income''.
The fair value of financial assets denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period. For financial liabilities that are measured at FVTPL, the foreign exchange component forms part of the fair value gain or loss and is recognised in profit or loss.
3.21.3.5 De-recognition of financial liabilities
The Company de-recognises financial liabilities when, and only when, the Company''s obligations are discharged, cancelled or have expired. An exchange between lenders of debt instruments with substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of the terms of an existing financial liability (whether or not attributable to the financial difficulty of the debtor) is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is
3.22 Segment reporting
The accounting policies adopted for Segment reporting are in line with the accounting policies of the Company with the following additional policies:
⢠Inter-segment revenue is accounted on the basis of transactions which are primarily determined based on market / fair value factors.
⢠Revenue and expenses have been identified to segments on the basis of their relationship to the operating activities of the Segment. Revenue and expenses, which relate to the enterprise as a whole and are not allocable to Segments on a reasonable basis, have been included under "Unallocated Corporate expenses".
3.23 Leases: Right-of-use assets and Lease liabilities
Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the company. Contracts may contain both lease and non-lease components. The Company allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the fixed payments (including in-substance fixed payments), less any lease incentives receivable.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Company, the lessee''s incremental borrowing rate is used.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease tenure so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
⢠the amount of the initial measurement of lease liability
⢠any lease payments made at or before the commencement date less any lease incentives received
⢠any initial direct costs, and
⢠restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset''s useful life and the lease term on a straight-line basis.
Payments associated with short-term leases of property, plant and office equipment and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.
3.24 Earnings per share
Basic earnings per share is computed by dividing the profit/ (loss) after tax by the weighted average number of equity
shares outstanding during the year. Diluted earnings per share is computed by dividing the profit/(loss) after tax as adjusted for dividend, interest and other charges to expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares.
Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net profit per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). Dilutive potential equity shares are determined independently for each period presented. The number of equity shares and potentially dilutive equity shares are adjusted for share splits/reverse share splits and bonus shares, as appropriate.
All revenue expenditure related to research and developments are charged to the respective heads on the Statement of Profit and Loss. Capital expenditure incurred on research and development is capitalised as fixed assets and depreciated in accordance with the depreciation policy of the Company.
3.26 Derivative financial instruments
Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently re-measured to their fair values at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedging relationship and the nature of the hedged item.
The Company designates certain hedging instruments, which includes derivatives and non-derivatives in respect of foreign currency risk, at either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in off-setting changes in fair values or
Mar 31, 2019
1. General information
Carborundum Universal Limited (CUMI) was incorporated in India as a Public Limited Company in 1954 and the shares of the Company are listed in National Stock Exchange of India Ltd. and BSE Ltd. The address of its registered office and place of business are disclosed in the annual report.
CUMI manufactures and sells mainly Abrasives, Ceramics (Industrial Ceramics, Refractories) and Electrominerals. (Refer Note: 29).
2. Basis of Preparation:
2.1 Application of Indian Accounting Standards (Ind AS)
The financial statements comply in all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the Act) [Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act.
2.2 New and amended Standard adopted by the Company:
The Company has applied the following standards and amendments for the first time in its annual reporting period commencing April 01, 2018:
- Ind AS 115, Revenue from Contract with Customers
- Amendment to Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance
- Appendix B, Foreign Currency Transactions and Advance consideration to Ind AS 21, the Effect of Changes in Foreign Exchange Rates
- Amendment to Ind AS 12, Income taxes
- Amendment to Ind AS 28, Investment in Associate and Joint ventures and Ind AS 112, Disclosure of Interest in Other entities.
The Company had to change its accounting policies and applied modified retrospective approach on application of Ind AS 115. The impact is disclosed under Note 20(ii). The other amendments listed above did not have any impact on the amount recognised in prior periods and are not expected to significantly affect the current or future periods.
3. Significant accounting policies
3.1.1 Basis of preparation and presentation
The financial statements have been prepared on the historical cost basis as explained in the accounting policies as stated below, except the following that are measured at fair values at the end of each reporting period:
- Certain financial asset and liabilities (including derivate instruments) and contingent consideration is measured at fair value
- Assets held for sale - measured at fair value less cost to sell
- Defined benefit plan - plan measured at fair value
- Share based payments
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability, or
- In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest.
A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
- Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
- Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
- Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
3.2 Use of estimates and judgements
In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
3.2.1 Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.
3.2.2 Judgements are made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements.
3.2.3 Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment are reviewed on an ongoing basis.
3.3 Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal) is available for immediate sale in its present condition subject only to terms that are usual and customary for sale of such assets and its sales is highly probable.
Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.
3.4 Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made.
Revenue is measured at the transaction price for each separate performance obligation, taking into account contractually defined terms of payment and excluding taxes or duties collected on behalf of the government. The transaction price is net of estimated customer returns, rebates and other similar allowances.
The specific recognition criteria described below must also be met before revenue is recognised.
3.4.1 Sale of goods
Revenue from the sale of goods is recognized at a point in time when the control of the products has transferred which generally coincides with dispatch of products to customers in case of domestic sales and on the basis of bill of lading in the case of export sales.
Revenue from the sale of goods is recognised when the control of the product is transferred, the goods are delivered and titles have passed, at which time all the following conditions are satisfied:
- the Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
- The Company has a present right to payment for the asset.
- The Company has transferred physical possession of the asset, whereby the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset or to restrict the access of other entities to those benefits.
When the consideration is received, before the Company transfers goods to the customer, the Company shall present the consideration as a contract liability.
3.4.2 Rendering of services
Revenue from divisible service contracts:
a) service contracts are recognised over a period of time determined using the percentage completion method, synchronized to the billing schedules agreed by the customers, identical with others in similar business and
b) the revenue relating to supplies are measured in line with policy set out in 3.4.1
In respect of indivisible contracts, the revenues are recognised over a period of time, measured as per (a) above.
When the consideration is received, before the Company transfers goods to the customer, the Company shall present the consideration as a contract liability and when the services rendered by the Company exceed the payment, a contract asset is recognised excluding any amount presented as receivable.
3.4.3 Other income
Royalty income is recognised on an accrual basis in accordance with the substance of the relevant agreement.
Dividend income from investments is recognised when the shareholder''s right to receive payment has been established.
Interest income from a financial asset is recognised and accrued using effective interest rate method.
Rental income is recognised on a straight line basis in accordance with the agreement.
3.5 Foreign Currencies
Foreign currency transactions are recorded at the rates of exchange prevailing on the date of the transactions. Monetary assets and liabilities outstanding at the year-end are translated at the rate of exchange prevailing at the year-end and the gain or loss, is recognised in the Statement of Profit and Loss.
Foreign currency monetary items (other than derivative contracts) of the Company, outstanding at the Balance Sheet date are restated at the year-end rates. Non-monetary items of the Company are carried at historical cost.
Exchange differences arising on settlement / restatement of short-term foreign currency monetary assets and liabilities of the Company are recognised as income or expense in the Statement of Profit and Loss.
Refer Note: 3.26 and 3.27 for accounting for forward exchange contracts relating to firm commitments and highly probable forecast transactions.
3.6 Borrowing costs
The borrowing costs (other than those attributable to fixed assets - Refer Note: 4 and 5) are recognised in profit or loss in the period in which they are incurred.
Interest income earned on temporary investment of specific borrowing spending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
3.7 Government grants
Government grants are not recognised until there is reasonable assurance that the Company will comply with the conditions attaching to them and that the grants will be received.
Government grants are recognised in profit or loss on a systematic basis over the periods in which the company recognises as expenses the related cost for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the company should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the Balance Sheet and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the company with no future related costs are recognised in profit or loss in the period in which they become receivable.
The benefit of a government loan at a below market rate of interest is treated as a government grant, measured as the differences between proceeds received and the fair value of the loan based on prevailing market interest rate.
Export benefits on account of entitlement to import goods free of duty under ''Exports Benefit Scheme'' are accounted based on eligibility and when there is no uncertainty in receiving the same.
3.8 Employee benefits
3.8.1 Retirement benefit costs and termination benefits
Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions.
For defined benefit retirement plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gain and loss, the effect of the changes to asset ceiling (if applicable) and the return on plan assets (excluding net interest), is reflected immediately in the Balance Sheet with a charge or credit recognised in other comprehensive income in the period in which they occur. Re-measurement recognised in other comprehensive income is reflected in retained earnings and is not reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of plan amendment. Net interest is calculated by applying the rate at the beginning of the period to the net defined benefit liability or asset.
Defined benefit costs are categorised as follows:
- Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements);
- Net interest expense or income;
- Remeasurement.
The company presents the first two components of defined benefit costs in profit or loss in the line item ''Employee benefit expense''. Curtailment gain and loss are accounted for as past service costs.
A liability for a termination benefit is recognised when the entity can no longer withdraw the offer of the termination benefit as per the relevant scheme.
The employees and the Company make monthly fixed contributions to the Carborundum Universal Limited Employee''s Provident Fund Trust, equal to a specified percentage of the covered employee''s salary. The interest rate payable by the Trust to the beneficiaries is being notified by the Government every year. The Company obtains an independent actuarial valuation of the Interest Guarantees as at the Balance Sheet date and provides for the shortfall, if any, in the present value of obligation of interest over the fair value of the surplus in the Fund.
3.8.2 Short-term and other long-term employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered.
Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.
Liabilities recognised in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the Company in respect of services provided by employees up to the reporting date.
3.8.3 Voluntary retirement compensation
Compensation to employees who have retired under voluntary retirement scheme is charged off to revenue.
3.9 Share-based payment arrangements
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity settled share based transactions are set out in Note: 36.
The fair value determined at the grant date of the equity-settled-based payments is expensed on a straight-line basis over the vesting period, based on the company''s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflect the revised estimate, with a corresponding adjustment to the Share options outstanding account.
3.10 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
3.10.1 Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ''profit before tax'' as reported in the Statement of Profit and Loss because of items of income or expense that are taxable or deductible in other years (Temporary differences) and items that are never taxable or deductible (Permanent differences). The Company''s current tax is calculated using tax rates that have been enacted by the end of the reporting period.
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities.
Current income tax relating to items recognised outside profit or loss is either in other comprehensive income or in equity. Current tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
3.10.2 Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary differences arise from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised either in other comprehensive income or in equity. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.
3.10.3 Indirect taxes
GST/CENVAT/VAT credit on materials purchased/services availed for production / Input services are taken into account at the time of purchase. Service tax input credit is accounted for in the books in the period in which the underlying service received is accounted and when there is no uncertainty in availing/utilising the credits. GST/CENVAT/VAT Credit on purchase of capital items wherever applicable are taken into account as and when the assets are acquired. The GST/CENVAT credits so taken are utilised for payment of GST on supply and service/excise duty on goods manufactured or for payment of service tax on services rendered. The unutilised GST/CENVAT/VAT credit is carried forward in the books.
3.11 Property, plant and equipment
Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the Balance Sheet at cost less accumulated depreciation and accumulated impairment losses. Freehold land is not depreciated.
Fixtures and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is recognised so as to write off the cost of the assets (other than freehold land) less their residual values over their useful lives as specified under Schedule II and applicable statutes of the relevant territories, using the straight-line method. The estimated useful lives, residual value and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance lease are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.
Buildings on lease hold land are depreciated over the lease period if it is lower than the useful life mentioned in Schedule II.
Individual asset costing less than Rs,5000 are depreciated in full in the year of acquisition.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit or loss.
When significant parts of plant and equipment are required to be replaced at intervals, the company depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
3.12 Intangible assets
3.12.1 Intangible assets acquired separately
Intangible assets that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives.
The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The amortisation expense on intangible assets with finite lives is recognised in the Statement of Profit and Loss unless such expenditure forms part of carrying value of another asset.
3.12.2 Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.
3.12.3 Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date, which is regarded as their cost.
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
3.12.4 De-recognition of intangible assets
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gain or loss arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognised in profit or loss when the asset is derecognised.
3.13 Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the company reviews the carrying amount of tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is higher of fair value less cost of disposal and value in use. 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.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generated unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
3.14 Cash and cash equivalents (for purposes of Cash Flow Statement)
Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.
3.15 Cash Flow Statement
Cash flows are reported using the indirect method, whereby profit/ (loss) before tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information.
3.16 Inventories
Inventories are stated at the lower of cost and net-realisable value. Cost includes freight, taxes and duties net of GST/CENVAT / VAT credit wherever applicable. Customs duty payable on material in bonded warehouse is added to the cost.
In respect of raw materials, stores and spare parts, traded stock cost is determined on weighted average basis. In respect of work in progress and finished goods, cost includes all direct costs and applicable production overheads, to bring the goods to the present location and condition. Net realisable value represents the estimated selling price for inventories less all estimated cost of completion and cost necessary to make the sale.
3.17 Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle present obligation at the end of reporting period, taking into account the risk and uncertainty surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of these cash flows (when the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of receivable can be measured reliably.
3.18 Contingent liabilities
Contingent liability is disclosed for (i) Possible obligation which will be confirmed only by future events not wholly within the control of the Company or (ii) Present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. Contingent assets are not recognised in the financial statements.
3.19 Financial instruments
Financial assets and financial liabilities are recognised when the company becomes a party to the contractual provision of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial asset or financial liabilities, as appropriate, on initial recognition. Transaction cost directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
3.20 Financial assets
All regular way purchases or sale of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sale of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place.
All recognised financial assets are subsequently measured in their entirety at either amortized cost or fair value, depending on the classification of the financial assets.
3.20.1 Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition):
- the asset is held within business model whose objective is to hold assets in order to collect contractual cash flows; and
- the contractual terms of the instruments give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
For the impairment policy on financial assets measured at amortised cost, Refer Note: 3.20.4
3.20.2 Investment in equity instruments at Fair value through Other Comprehensive Income [FVTOCI]
On initial recognition, the company can make an irrevocable election (on an instrument-by instrument basis) to present the subsequent changes in fair value in other comprehensive income pertaining to investment in equity instruments. This election is not permitted if the equity investment is held for trading.
These elected investments are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gain and loss arising from changes in fair value recognised in other comprehensive income and accumulated in the ''Reserve for equity instrument through other comprehensive income''. The cumulative gain or loss is not reclassified to profit or loss on disposal of the investments.
A financial asset is held for trading if:
- it has been acquired principally for the purpose of selling it in the near term.
- on initial recognition it is part of a portfolio of identified financial instruments that the company manages together and has a recent actual pattern of short-term profit-taking; or
- it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.
The company has equity instrument in two entities, which are not held for trading. The company has elected the FVTOCI irrevocable option for both of these investments (Refer Note: 6D). Fair value is determined in the manner described in Note: 34.
Dividend on these investments are recognised in profit or loss when the company''s right to receive the dividends is established, it is probable that the economic benefits associated with the dividend will flow to the entity, which does not represent a recovery of part of cost of the investment and the amount of dividend can be measured reliably. Dividend recognised in profit and loss is included in ''Other income'' line item.
3.20.3 Financial assets at fair value through profit or loss (FVTPL)
Investments in equity instruments are classified as at FVTPL, unless the company irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for investments in equity instruments which are not held for trading (Refer Note: 3.20.2).
Debt instruments that do not meet the amortised cost criteria or FVTOCI criteria are measured at FVTPL. In addition, debt instruments that meet the amortised cost criteria or the FVTOCI criteria but are designated as at FVTPL are measured at FVTPL.
A financial asset that meets the amortised cost criteria or debt instruments that meet the FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognising the gain or loss on them on different bases. The company has not designated any such debt instrument as at FVTPL.
Financial asset at FVTPL is measured at fair value at the end of each reporting period, with gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporate any dividend or interest earned on the financial asset and is included in the ''Other income'' line item. Dividend on financial asset at FVTPL is recognised when the company''s right to receive the dividends is established. It is probable that the economic benefits associated with the dividend will flow to the entity which does not represent a recovery of part of cost of the investment and the amount can be measured reliably.
3.20.4 Impairment of financial assets
The company applied the expected credit loss model for recognising impairment loss on financial assets measured at amortised cost, debt instruments at FVTOCI, lease receivable, trade receivable, and other contractual rights to receive cash or other financial asset, and financial guarantees not designated as at FVTPL.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the company in accordance with the contract and all the cash flows that the company expects to receive (i.e., all cash shortfalls), discounted at the original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impairment financial assets). The company estimates cash flows by considering all contractual terms of the financial instrument (for example: prepayments, extension, call and similar options) through the expected life of that financial instrument.
The company measures the loss allowance for the financial instruments at an amount equal to the lifetime expected credit losses if the credit risk on those financial instruments has increased significantly since initial recognition.
If the credit risk on a financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instruments at an amount equal to 12 month expected credit losses. The twelve months expected credit losses are a portion of the lifetime cash shortfalls that will result if default occurs within 12 months after the reporting date and thus, are not cash shortfalls that are predicted over 12 months.
If the company measured loss allowance for the financial instruments at life time expected credit loss model in the previous period, but determines at the end of a reporting period that the credit risk has not increased significantly since initial recognition due to improvement in credit quality as compared to the previous period, the company again measures the loss allowance based on 12 month expected credit losses.
When making the assessment of whether there has been a significant increase in credit risk since initial recognition, the company uses the change in the risk of a default occurring over the expected life of the financial instruments instead of the change in the amount of expected credit losses. To make the assessment, the company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and consider reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increase in credit risk since initial recognition.
For trade receivables or any contractual rights to receive cash or other financial assets that results from transactions that are within the scope of Ind AS 115, the company always measures the loss allowance at an amount equal to life time expected credit losses.
Further, for the purposes of measuring lifetime expected credit loss allowance for trade receivables, the Company has used a practical expedient as permitted under Ind AS 109. This expected credit loss allowance is computed based on a provision matrix which takes into account historical credit loss experience and adjusted for forward-looking information.
The impairment requirements for the recognition and measurement of a loss allowance are equally applied to debt instruments at FVTOCI except that the loss allowance is recognised in Other Comprehensive Income and is not reduced from the carrying amount in the Balance Sheet.
3.20.5 Derecognition of financial assets
The company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains subsequently all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for the amount it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
On de-recognition of a financial asset in its entirety, the difference between the asset''s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss if such gain or loss would have otherwise been recognised in profit or loss on disposal of that financial asset.
On de-recognition of a financial asset other than its entirety (eg., when the company retains an option to repurchase part of a transferred asset), the company allocates the previous carried over amount of financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer.
The difference between the carrying amount allocated to the part that is no longer recognised and the sum of consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in profit or loss on disposal of that financial asset. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair value of those parts.
3.20.6 Foreign exchange gain and loss
The fair value of financial assets denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.
- For Foreign currency denominated financial asset measured at amortised cost and FVTPL, the exchange differences are recognised in profit or loss except for those which are designated hedging instruments in a hedging relationship.
- Changes in the carrying amount of investments in equity instruments at FVTOCI relating to changes in foreign currency rates are recognised in Other Comprehensive Income.
- For the purposes of recognising foreign exchange gain and loss, FVTOCI debt instruments are treated as financial assets measured at amortised cost. Thus, the exchange differences on the amortised cost are recognised in profit or loss and other changes in the fair value of FVTOCI financial asset are recognised in Other Comprehensive Income.
3.21 Financial liabilities and equity instruments
3.21.1 Classification as debt or equity
Debt and equity instruments issued by a Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definition of a financial liabilities and an equity instrument.
3.21.2 Equity instruments
An equity instrument is a contract that evidences a residual interest in the asset of an entity after deducting all of its liabilities. Equity instruments issued by a Company are recognised at the proceeds received,net of direct issue costs.
3.21.3 Financial liabilities
All financial liabilities are subsequently measured at amortised cost using the effective interest methods or at FVTPL.
However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies, financial guarantee contracts issued by the Company and commitments issued by the Company to provide a loan at below-market interest rate are measured in accordance with the specific accounting policies set out below:
3.21.3.1. Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is either contingent consideration recognised by the Company as an acquirer in a business combination to which Ind AS 103 applies or is held for trading or it is designated as at FVTPL.
A financial liability is classified as held for trading if:
- it has been incurred principally for the purpose of repurchasing it in the near term; or
- on initial recognition, it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or
- it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading or contingent consideration recognised by the Company as an acquirer in a business combination to which Ind AS 103 applies, may be designated as at FVTPL upon initial recognition if:
- Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise.
- the financial liability forms part of a company of financial asset or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company''s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
- it forms part of a contract containing one or more embedded derivatives, and Ind AS 109 permits the entire combined contracts to be designated as at FVTPL in accordance with Ind AS 109.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the ''Other income'' line item.
However, for not-held for trading financial liabilities that are designated as at FVTPL, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of the liability recognised in other comprehensive income, unless the recognition of the effects of changes in the liability''s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss, in which case these effect of changes in credit risk are recognised in profit or loss. Changes in fair value attributable to a financial liability''s credit risk that are recognised in other comprehensive income are reflected immediately in retained earnings and are not subsequently reclassified to profit or loss.
Gain or loss on financial guarantee contract and loan commitments issued by the Company that are designated by the Company as at fair value through profit or loss is recognised in profit or loss. Fair value is determined in the manner described in Note: 34.
3.21.3.2 Financial liabilities subsequently measured at amortised cost
Financial liabilities are not held-for-trading and are not designated as at FVTPL are measured at amortised cost at the end of subsequent accounting periods. The carrying amounts of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method. Interest expenses that are not capitalised as part of cost of an asset is included in the ''Finance cost'' line item.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability or, (where appropriate), a shorter period, to the net carrying amount on initial recognition.
3.21.3.3 Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument.
Financial guarantee contracts issued by a Company are initially measured at their fair value and, if not designated as at FVTPL, are subsequently measured at a higher of:
- the amount of loss allowance determined in accordance with impairment requirement of Ind AS 109; and
- the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of Ind AS 115.
3.21.3.4 Foreign exchange gain and loss
For financial liabilities that are denominated in a foreign currency and are measured at amortised cost at the end of each reporting period, the foreign exchange gain and loss are determined based on the amortised cost of the instruments and are recognised in ''Other income''.
The fair value of financial assets denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period. For financial liabilities that are measured at FVTPL, the foreign exchange component forms part of the fair value gain or loss and is recognised in profit or loss.
3.21.3.5 De-recognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the Company''s obligations are discharged, cancelled or have expired. An exchange between lenders of debt instruments with substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.Similarly, a substantial modification of the terms of an existing financial liability (whether or not attributable to the financial difficulty of the debtor) is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.
3.22 Segment reporting
The accounting policies adopted for Segment reporting are in line with the accounting policies of the Company with the following additional policies:
- Inter-segment revenue is accounted on the basis of transactions which are primarily determined based on market/fair value factors.
- Revenue and expenses have been identified to segments on the basis of their relationship to the operating activities of the Segment. Revenue and expenses, which relate to the enterprise as a whole and are not allocable to Segments on a reasonable basis, have been included under "Un-allocated Corporate expenses".
3.23 Leases
Assets leased by the Company in its capacity as a lessee, where substantially all the risks and rewards of ownership vest in the Company are classified as finance leases. Such leases are capitalised at the inception of the lease at the lower of the fair value and the present value of the minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost so as to obtain a constant periodic rate of interest on the outstanding liability for each year.
3.24 Earnings per share
Basic earnings per share is computed by dividing the profit/(loss) after tax by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit/(loss) after tax as adjusted for dividend, interest and other charges to expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares.
Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net profit per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). Dilutive potential equity shares are determined independently for each period presented. The number of equity shares and potentially dilutive equity shares are adjusted for share splits/reverse share splits and bonus shares, as appropriate.
3.25 Research and Development
All revenue expenditure related to research and developments are charged to the respective heads on the Statement of Profit and Loss. Capital expenditure incurred on research and development is capitalised as fixed assets and depreciated in accordance with the depreciation policy of the Company.
3.26 Derivative financial instruments
Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently re-measured to their fair values at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivate is designated and effective as hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedging relationship and the nature of the hedged item.
3.27 Hedge accounting
The Company designates certain hedging instruments, which includes derivatives and non-derivatives in respect of foreign currency risk, at either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm Commitments are accounted for as cash flow hedges.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk.
3.27.1 Fair value hedges
Changes in fair value of the designated portion of derivatives that qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedging asset or liability that are attributable to the hedged risk. The change in the fair value of the designated portion of hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in profit or loss in the line item relating to the hedged item.
Hedge accounting is discontinued when the hedging instruments expires or is sold, terminated, or exercised, or when it no longer qualify for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to profit or loss from that date.
3.27.2 Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the ''Other income'' line item.
Amount previously recognised in other comprehensive income and accumulated in equity relating to (effective portion as described above) are reclassified to profit or loss in the periods when the hedged item affect profit or loss, in the same line as the recognised hedged item. However, when the hedged forecast transaction results in the recognition of non-financial asset or a non-financial liability, such gain or loss are transferred from equity (but not as a reclassification adjustment) and included in the initial measurement of the cost of the non-financial asset or non-financial liability.
In cases, where the designated hedging instruments are options and forward contracts, the Company has an option, for each designation, to designate on an instrument only the changes in intrinsic value of the option and spot element of forward contract respectively as hedges. In such cases the time value of the options is accounted based on the type of hedged item which those options hedge.
In case of transaction related hedged item in the above cases, the change in time value of the options is recognised in other comprehensive income to the extent it relates to the hedged item and accumulated in a separate component of equity i.e. Reserve for time value of options and forward elements of forward contract in hedging relationship. This separate component is removed and directly included in the initial cost or other carrying amount of the asset or the liability (i.e. not as a reclassification adjustment thus not affecting other comprehensive income) if the hedged item subsequently results in recognition of a non-financial asset or non-financial liability. In other cases, the amount accumulated is reclassified to profit or loss as a reclassification adjustment in the same period in which the hedged expected future cash flow affects profit or loss.
In case of time period related hedged item in the above cases, the change in time value of the options is recognised in other comprehensive income to the extent it relates to the hedged item and accumulated in a separate component of equity i.e. Reserve for time value of options and forward elements of forward contracts in hedging relationship. The time value of options at the date of designation of the options in the hedging relationship is amortised on a systematic and rational basis over the period during which the options intrinsic value could affect profit or loss. This is done as a reclassification adjustment and hence affects Other Comprehensive Income.
In cases where only the spot element of the forward contracts is designated in a hedging relationship and the forward element of the forward contract is not designated, the Company makes the choice for each designation whether to recognise the changes in forward element of fair value of the forward contracts in profit or loss or to account for this element similar to the time value of option (as described above).
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income and accumulated in equity at that time remains in equity and is recognised when the forecasted transactions is ultimately recognised in profit or loss. When a forecasted transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.
3.28 Insurance claims
Insurance claims are accounted for on the basis of claims admitted/ expected to be admitted and to the extent that the amount recoverable can be measured reliably and it is reasonable to expect ultimate collection.
3.29 Operating cycle
Based on the nature of the products/activities of the Company and the normal time between acquisition of assets and their realisation in cash or cash equivalents, the Company has determined its operating cycle as 12 months for the purpose of classification of its assets and liabilities as current and non-current.
(a) Includes Rs,632.42 million (Previous year: Rs,602.20 million) being cost of building on leasehold land
(b) Includes Research and Development capital expenditure of Rs,38.27 million (Previous year: Rs,26.54 million) - Refer Note: 40(b) on Research & Development expenditure.
(c) Assets pledged as security
Immovable properties of the Company carry pari-passu charge in favour of the consortium of bankers, as security for banking facilities availed.
The vehicles purchased through finance lease arrangement are hypothecated to the lessor.
(d) Capitalised borrowing cost
Borrowing costs capitalised on property, plant and equipment during the year - '' Nil (Previous year: '' Nil).
(e) Contractual obligations
Refer Note: 30B for disclosure of Contractual commitments for the acquisition of property, plant and equipment.
(f) Vehicles under finance lease
Refer Note: 42 for disclosure requirements relating to Vehicles under finance lease.
(a) During previous year, TI Financial Holdings Ltd. under a scheme of arrangement demerged into TI Financial Holdings Ltd. and Tube Investments of India Ltd. Consequently, the face value of equity share of TI Financial Holding Ltd. was changed from Rs,2 per share to Rs,1 per share.
(b) Shares allotted against corporate membership contribution.
(e) Nominal value per share is given in Indian Rupees or in respective foreign currency where stated.
a. The method of valuation of inventories are stated in Note: 3.16.
b. The cost of inventories recognised as an expense (consumption) during the year was Rs,8608.67 million (previous year: ''7606.90 million)
c. All the above inventories are expected to be recovered/utilised within twelve months.
a. Trade receivables are generally due between 30 to 60 days. The Company''s term includes charging of interest for delayed payment beyond agreed credit days. However, the Company charges interest after considering the historical trend, business prospects, reason for delay, market conditions etc.
b. Credit risk is managed at the operational segment level. The credit limit and credit period are fixed for each customer after evaluating the financial position, past performance, business opportunities, credit references etc. The credit limit and the credit period are reviewed regularly at periodical intervals.
c. Concentration risk considers significant exposures relating to industry, counterparty, geography, currency etc. The concentration of credit risk is not significant as the customer base is large and diversified.
d. The Company has used a practical expedient by computing the expected credit loss allowance for trade receivables based on provision matrix which takes into account the historical credit loss experience adjusted for forward looking information.
e. Some trade receivable may be past due over 365 days without being impaired considering the certainty of realisation.
f. Trade Receivable includes dues from Related party amounting Rs,399.43 million(Previous year: Rs,386.03 million)
g. Movement in expected credit loss allowance:
Non-cash transactions:
During the year, the Company has not entered into any non-cash transactions on investing and financing activities.
The Company had received share application money for 1500 shares under Employee Stock Option Scheme 200, which was pending for allotment as at 31st March 2018 and has been allotted during FY 2018-19. Details of receipt/adjustment is shown under "Other equity"- Refer Note no: 13C.
b) Terms/Rights a
Mar 31, 2018
1.1. Basis of preparation and presentation
The financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below:
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability, or
- In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
- Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
- Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
- Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
1.2 Use of estimates and judgements
In preparing these financial statements, management has made judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
1.2.1 Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.
1.2.2 Judgements are made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements.
1.2.3 Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment are reviewed on an ongoing basis.
The areas involving critical estimates or judgements are:
1.3 Non-current assets held for sale
Non-current assets and disposals groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal) is available for immediate sale in its present condition subject only to terms that are usual and customary for sale of such assets and its sales is highly probable.
Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.
1.4 Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties collected on behalf of the government. Revenue is reduced for estimated customer returns, rebates and other similar allowances.
Based on the Educational Material on Ind AS 18 issued by the ICAI, the Company has assumed that recovery of excise duty flows to the Company on its own account. This is for the reason that it is a liability of the manufacturer which forms part of the cost of production, irrespective of whether the goods are sold or not. Since the recovery of excise duty flows to the Company on its own account, revenue is recorded inclusive of excise duty.
However, Goods and Service Tax (GST)/Sales Tax/Value Added Tax (VAT) is not received by the Company on its own account. Rather, it is tax collected on value added to the commodity by the seller on behalf of the government. Accordingly, it is excluded from revenue.
The specific recognition criteria described below must also be met before revenue is recognised.
1.4.1 Sale of goods
Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, which generally coincides with dispatch of products to customers in case of domestic sales and on the basis of bill of lading in the case of export sales, at which time all the following conditions are satisfied:
- the Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
- the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
- the amount of revenue can be measured reliably;
- it is probable that the economic benefits associated with the transaction will flow to the Company; and
- the costs incurred or to be incurred in respect of the transaction can be measured reliably.
1.4.2 Rendering of services
The revenue from divisible contracts are recognised on the percentage completion method in respect of service contracts and in respect of supplies on dispatch. In respect of indivisible contracts, the revenues are recognised on a percentage completion method, synchronized to the billing schedules agreed by the customers.
1.4.3 Other income
Royalty income is recognised on an accrual basis in accordance with the substance of the relevant agreement.
Dividend income from investments is recognised when the shareholderâs right to receive payment has been established.
Interest income from a financial asset is recognised and accrued using effective interest rate method.
Rental income is recognised on a straight line basis in accordance with the agreement.
1.5 Foreign Currencies
Foreign currency transactions are recorded at the rates of exchange prevailing on the date of the transactions. Monetary assets and liabilities outstanding at the year-end are translated at the rate of exchange prevailing at the year-end and the gain or loss, is recognised in the Statement of Profit and Loss.
Foreign currency monetary items (other than derivative contracts) of the Company, outstanding at the Balance Sheet date are restated at the year-end rates. Non-monetary items of the Company are carried at historical cost.
Exchange differences arising on settlement / restatement of short-term foreign currency monetary assets and liabilities of the Company are recognised as income or expense in the Statement of Profit and Loss.
Refer Notes: 3.26 and 3.27 for accounting for forward exchange contracts relating to firm commitments and highly probable forecast transactions.
1.6 Borrowing costs
The borrowing costs (other than those attributable to fixed assets - Refer Note: 4 & 5) are recognised in profit or loss in the period in which they are incurred.
Interest income earned on temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
1.7 Government grants
Government grants are not recognised until there is reasonable assurance that the Company will comply with the conditions attaching to them and that the grants will be received.
Government grants are recognised in profit or loss on a systematic basis over the periods in which the Company recognises as expenses the related cost for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Company should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the Balance Sheet and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Company with no future related costs are recognised in profit or loss in the period in which they become receivable.
The benefit of a government loan at a below market rate of interest is treated as a government grant, measured as the differences between proceeds received and the fair value of the loan based on prevailing market interest rate.
Export Benefits on account of entitlement to import goods free of duty under âExports Benefits Schemeâ are accounted based on eligibility and when there is no uncertainty in receiving the same.
1.8 Employee benefits
1.8.1. Retirement benefit costs and termination benefits
Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions.
For defined benefit retirement plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gain and loss, the effect of the changes to asset ceiling (if applicable) and the return on plan assets (excluding net interest), is reflected immediately in the Balance Sheet with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement recognised in other comprehensive income is reflected in retained earnings and is not reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of plan amendment. Net interest is calculated by applying the rate at the beginning of the period to the net defined benefit liability or asset.
Defined benefit costs are categorised as follows:
- service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements);
- net interest expense or income;
- remeasurement.
The Company presents the first two components of defined benefit costs in profit or loss in the line item âEmployee benefit expenseâ. Curtailment gain and loss are accounted for as past service costs.
A liability for a termination benefit is recognised when the entity can no longer withdraw the offer of the termination benefit as per the relevant scheme.
The employees and the Company make monthly fixed contributions to the Carborundum Universal Limited Employeeâs Provident Fund Trust, equal to a specified percentage of the covered employeeâs salary. The interest rate payable by the Trust to the beneficiaries is being notified by the Government every year. The Company obtains an independent actuarial valuation of the Interest Guarantees as at the Balance Sheet date and provides for the shortfall, if any, in the present value of obligation of interest over the fair value of the surplus in the Fund.
1.8.2 Short-term and other long-term employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered.
Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.
Liabilities recognised in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the Company in respect of services provided by employees up to the reporting date.
1.8.3 Voluntary retirement compensation
Compensation to employees who have retired under voluntary retirement scheme is charged off to revenue.
1.9 Share-based payment arrangements
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity settled share based transactions are set out in Note: 36.
The fair value determined at the grant date of the equity-settled-based payments is expensed on a straight-line basis over the vesting period, based on the Companyâs estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflect the revised estimate, with a corresponding adjustment to the Share options outstanding account.
1.10 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
1.10.1 Current tax
The tax currently payable is based on taxable profits for the year. Taxable profit differs from âProfit before taxâ as reported in the Statement of Profit and Loss because of items of income or expense that are taxable or deductible in other years (Temporary differences) and items that are never taxable or deductible (Permanent differences). The Companyâs current tax is calculated using tax rates that have been enacted by the end of the reporting period.
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities.
Current income tax relating to items recognised outside profit or loss is either in other comprehensive income or in equity. Current tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
1.10.2 Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary differences arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised either in other comprehensive income or in equity. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.
1.10.3 Indirect taxes
GST/CENVAT/VAT credit on materials purchased/services availed for production/input services are taken into account at the time of purchase. Service tax input credit is accounted for in the books in the period in which the underlying service received is accounted and when there is no uncertainty in availing/utilising the credits. GST/CENVAT/VAT credit on purchase of capital items wherever applicable are taken into account as and when the assets are acquired. The GST/CENVAT credits so taken are utilised for payment of GST on supply and service/excise duty on goods manufactured or for payment of service tax on services rendered. The unutilised GST/CENVAT/VAT credit is carried forward in the books.
1.11 Property, plant and equipment
Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the Balance Sheet at cost less accumulated depreciation and accumulated impairment losses. Freehold land is not depreciated.
Fixtures and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is recognised so as to write off the cost of the assets (other than freehold land) less their residual values over their useful lives as specified under Schedule II, using the straight-line method. The estimated useful lives, residual value and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance lease are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.
Building on lease hold land are depreciated over the lease period if it is lower than the useful life mentioned in Schedule II.
Individual assets costing less than Rs.5,000 are depreciated in full in the year of acquisition.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit or loss.
When significant parts of plant and equipment are required to be replaced at regular intervals, the Company depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
1.12 Intangible assets
1.12.1 Intangible assets acquired separately
Intangible assets that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives.
The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit and loss unless such expenditure forms part of carrying value of another asset.
1.12.2 Internally generated intangibles, excluding eligible development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.
1.12.3. Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date, which is regarded as their cost.
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
1.12.4 Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gain or loss arising from Derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised.
1.13 Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the Company reviews the carrying amount of tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is higher of fair value less cost of disposal and value in use. 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.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generated unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
1.14 Cash and cash equivalents (for purposes of Cash Flow Statement)
Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.
1.15 Cash Flow Statement
Cash flows are reported using the indirect method, whereby profit/(loss) before tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information.
1.16 Inventories
Inventories are stated at the lower of cost and net-realisable value. Cost includes freight, taxes and duties net of GST/CENVAT/VAT credit wherever applicable. Customs duty payable on material in bonded warehouse is added to the cost.
In respect of raw materials, stores and spare parts and traded stock, cost is determined on weighted average basis. In respect of work in progress and finished goods, cost includes all direct costs and applicable production overheads, to bring the goods to the present location and condition. Net realisable value represents the estimated selling price for inventories less all estimated cost of completion and cost necessary to make the sale.
1.17 Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle present obligation at the end of reporting period, taking into account the risk and uncertainty surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of these cash flows (when the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of receivable can be measured reliably.
1.18 Contingent liabilities
Contingent liability is disclosed for (i) Possible obligation which will be confirmed only by future events not wholly within the control of the Company or (ii) Present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. Contingent assets are not recognised in the financial statements.
1.19 Financial instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provision of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial asset or financial liabilities, as appropriate, on initial recognition. Transaction cost directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
1.20 Financial assets
All regular way purchases or sale of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sale of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place.
All recognised financial assets are subsequently measured in their entirety at either amortized cost or fair value, depending on the classification of the financial assets.
1.20.1 Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition):
- the asset is held within business model whose objective is to hold assets in order to collect contractual cash flows; and
- the contractual terms of the instruments give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
For the impairment policy on financial assets measured at amortised cost, Refer Note: 3.20.4.
1.20.2 Investment in equity instruments at Fair value through Other Comprehensive Income [FVTOCI]
On initial recognition, the Company can make an irrevocable election (on an instrument - by instrument basis) to present the subsequent changes in fair value in other comprehensive income pertaining to investment in equity instruments. This election is not permitted if the equity investment is held for trading.
These elected investments are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gain and loss arising from changes in fair value recognised in other comprehensive income and accumulated in the âReserve for equity instrument through other comprehensive incomeâ. The cumulative gain or loss is not reclassified to profit or loss on disposal of the investments.
A financial asset is held for trading if:
- it has been acquired principally for the purpose of selling it in the near term;
- on initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or
- it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.
The Company has equity instrument in two entities, which are not held for trading. The Company has elected the FVTOCI irrevocable option for both of these investments (Note: 6D). Fair value is determined in the manner described in Note: 34.
Dividend on these investments are recognised in profit or loss when the Companyâs right to receive the dividends is established, it is probable that the economic benefits associated with the dividend will flow to the entity, the dividend does not represent a recovery of part of cost of the investment and the amount of dividend can be measured reliably. Dividend recognised in profit and loss are included in âOther incomeâ line item.
1.20.3 Financial assets at fair value through profit or loss (FVTPL)
Investments in equity instruments are classified as at FVTPL, unless the Company irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for investments in equity instruments which are not held for trading (Note: 3.20.2).
Debt instruments that do not meet the amortised cost criteria or FVTOCI criteria are measured at FVTPL. In addition, debt instruments that meet the amortised cost criteria or the FVTOCI criteria but are designated as at FVTPL are measured at FVTPL.
A financial asset that meets the amortised cost criteria or debt instruments that meet the FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognising the gain or loss on them on different bases. The Company has not designated any such debt instrument as at FVTPL.
Financial asset at FVTPL is measured at fair value at the end of each reporting period, with gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporate any dividend or interest earned on the financial asset and is included in the âOther incomeâ line item. Dividend on financial asset at FVTPL is recognised when the Companyâs right to receive the dividends is established. It is probable that the economic benefits associated with the dividend will flow to the entity which does not represent a recovery of part of cost of the investment and the amount can be measured reliably.
1.20.4. Impairment of financial assets
The Company applied the expected credit loss model for recognising impairment loss on financial assets measured at amortised cost, debt instruments at FVTOCI, lease receivable, trade receivable, other contractual rights to receive cash or other financial asset, and financial guarantees not designated as at FVTPL.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive (i.e., all cash shortfalls), discounted at the original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impairment financial assets). The Company estimates cash flows by considering all contractual terms of the financial instrument (for example, prepayments, extension, call and similar options) through the expected life of that financial instruments.
The Company measures the loss allowance for the financial instruments at an amount equal to the lifetime expected credit losses if the credit risk on those financial instruments has increased significantly since initial recognition.
If the credit risk on financial instruments has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instruments at an amount equal to 12 month expected credit losses. The twelve months expected credit losses are a portion of the lifetime cash shortfalls that will result if default occurs within 12 months after the reporting date and thus, are not cash shortfalls that are predicted over 12 months.
If the Company measured loss allowance for the financial instruments at life time expected credit loss model in the previous period, but determines at the end of a reporting period that the credit risk has not increased significantly since initial recognition due to improvement in credit quality as compared to the previous period, the Company again measures the loss allowance based on 12 month expected credit losses.
When making the assessment of whether there has been a significant increase in credit risk since initial recognition, the Company uses the change in the risk of a default occurring over the expected life of the financial instruments instead of the change in the amount of expected credit losses. To make the assessment, the Company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and consider reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increase in credit risk since initial recognition.
For trade receivables or any contractual rights to receive cash or other financial assets that results from transactions that are within the scope of Ind AS 11 and Ind AS 18, the Company always measures the loss allowance at an amount equal to life time expected credit losses.
Further, for the purposes of measuring lifetime expected credit loss allowance for trade receivables, the Company has used a practical expedient as permitted under Ind AS 109. This expected credit loss allowance is computed based on a provision matrix which takes into account historical credit loss experience and adjusted for forward-looking information.
The impairment requirements for the recognition and measurement of a loss allowance are equally applied to debt instruments at FVTOCI except that the loss allowance is recognised in other comprehensive income and is not reduced from the carrying amount in the Balance Sheet.
1.20.5 Derecognition of financial assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains subsequently all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for the amount it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between the assetâs carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss if such gain or loss would have otherwise been recognised in profit or loss on disposal of that financial asset.
On derecognition of a financial asset other than its entirety (eg., when the Company retains an option to repurchase part of a transferred asset), the Company allocates the previous carried over amount of financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer.
The difference between the carrying amount allocated to the part that is no longer recognised and the sum of consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in profit or loss on disposal of that financial asset. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair value of those parts.
1.20.6 Foreign exchange gain and loss
The fair value of financial assets denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.
- For Foreign currency denominated financial asset measured at amortised cost and FVTPL, the exchange differences are recognised in profit or loss except for those which are designated hedging instruments in a hedging relationship.
- Changes in the carrying amount of investments in equity instruments at FVTOCI relating to changes in foreign currency rates are recognised in other comprehensive income.
- For the purposes of recognising foreign exchange gain and loss, FVTOCI debt instruments are treated as financial assets measured at amortised cost. Thus, the exchange differences on the amortised cost are recognised in profit or loss and other changes in the fair value of FVTOCI financial asset are recognised in other comprehensive income.
1.21 Financial liabilities and equity instruments
1.21.1 Classification as debt or equity
Debt and equity instruments issued by a Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definition of a financial liabilities and an equity instrument.
1.21.2 Equity instruments
An equity instrument is a contract that evidences a residual interest in the asset of an entity after deducting all of its liabilities. Equity instruments issued by a Company is recognised at the proceeds received, net of direct issue costs.
1.21.3 Financial liabilities
All financial liabilities are subsequently measured at amortised cost using the effective interest methods or at FVTPL.
However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies, financial guarantee contracts issued by the Company, and commitments issued by the Company to provide a loan at below-market interest rate are measured in accordance with the specific accounting policies set out below:
1.21.3.1 Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is either contingent consideration recognised by the Company as an acquirer in a business combination to which Ind AS 103 applies or is held for trading or it is designated as at FVTPL.
A financial liability is classified as held for trading if:
- it has been incurred principally for the purpose of repurchasing it in the near term; or
- on initial recognition, it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or
- it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading or contingent consideration recognised by the Company as an acquirer in a business combination to which Ind AS 103 applies, may be designated as at FVTPL upon initial recognition if:
- such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise.
- the financial liability forms part of a group of financial asset or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Companyâs documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
- it forms part of a contract containing one or more embedded derivatives, and Ind AS 109 permits the entire combined contracts to be designated as at FVTPL in accordance with Ind AS 109.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the âOther incomeâ line item.
However, for not-held for trading financial liabilities that are designated as at FVTPL, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of the liability recognised in other comprehensive income, unless the recognition of the effects of changes in the liabilityâs credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss, in which case these effect of changes in credit risk are recognised in profit or loss. Changes in fair value attributable to a financial liabilityâs credit risk that are recognised in other comprehensive income are reflected immediately in retained earnings and are not subsequently reclassified to profit or loss.
Gain or loss on financial guarantee contract and loan commitments issued by the Company that are designated by the Company as at fair value through profit or loss are recognised in profit or loss. Fair value is determined in the manner described in Note: 34.
1.21.3.2 Financial liabilities subsequently measured at amortised cost
Financial liabilities are not held-for-trading and are not designated as at FVTPL are measured at amortised cost at the end of subsequent accounting periods. The carrying amounts of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method. Interest expenses that is not capitalised as part of cost of an asset is included in the âFinance costâ line item.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability or, (where appropriate), a shorter period, to the net carrying amount on initial recognition.
1.21.3.3 Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument.
Financial guarantee contracts issued by a Company are initially measured at their fair value and, if not designated as at FVTPL, are subsequently measured at a higher of:
- the amount of loss allowance determined in accordance with impairment requirement of Ind AS 109; and
- the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of Ind AS 18.
1.21.3.4 Foreign exchange gain and loss
For financial liabilities that are denominated in a foreign currency and are measured at amortised cost at the end of each reporting period, the foreign exchange gain and loss are determined based on the amortised cost of the instruments and are recognised in âOther incomeâ.
The fair value of financial assets denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period. For financial liabilities that are measured at FVTPL, the foreign exchange component forms part of the fair value gain or loss and is recognised in profit or loss.
1.21.3.5 Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the Companyâs obligations are discharged, cancelled or have expired. An exchange between a lenders of debt instruments with substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of the terms of an existing financial liability (whether or not attributable to the financial difficulty of the debtor) is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.
1.22 Segment reporting
The accounting policies adopted for Segment reporting are in line with the accounting policies of the Company with the following additional policies:
- Inter-segment revenue is accounted on the basis of transactions which are primarily determined based on market/fair value factors.
- Revenue and expenses have been identified to segments on the basis of their relationship to the operating activities of the Segment. Revenue and expenses, which relate to the enterprise as a whole and are not allocable to Segments on a reasonable basis have been included under âUn-allocated Corporate expensesâ.
1.23 Leases
Assets leased by the Company in its capacity as a lessee, where substantially all the risks and rewards of ownership vest in the Company are classified as finance leases. Such leases are capitalised at the inception of the lease at the lower of the fair value and the present value of the minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost so as to obtain a constant periodic rate of interest on the outstanding liability for each year.
1.24 Earnings per share
Basic earnings per share is computed by dividing the profit/(loss) after tax by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit/(loss) after tax as adjusted for dividend, interest and other charges to expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares.
Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net profit per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). Dilutive potential equity shares are determined independently for each period presented. The number of equity shares and potentially dilutive equity shares are adjusted for share splits/reverse share splits and bonus shares, as appropriate.
1.25 Research and development
All revenue expenditure related to research and development are charged to the respective heads on the Statement of Profit and Loss. Capital expenditure incurred on research and development is capitalised as fixed assets and depreciated in accordance with the depreciation policy of the Company.
1.26 Derivative financial instruments
Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair values at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivate is designated and effective as hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedging relationship and the nature of the hedged item.
1.27 Hedge accounting
The Company designates certain hedging instruments, which includes derivatives and non-derivatives in respect of foreign currency risk, at either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the entity documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk.
1.27.1 Fair value hedges
Changes in fair value of the designated portion of derivatives that qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedging asset or liability that are attributable to the hedged risk. The change in the fair value of the designated portion of hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in profit or loss in the line item relating to the hedged item.
Hedge accounting is discontinued when the hedging instruments expires or is sold, terminated, or exercised, or when it no longer qualify for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to profit or loss from that date.
1.27.2 Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the âOther incomeâ line item.
Amount previously recognised in other comprehensive income and accumulated in equity relating to (effective portion as described above) are reclassified to profit or loss in the periods when the hedged item affect profit or loss, in the same line as the recognised hedged item. However, when the hedged forecast transaction results in the recognition of non-financial asset or a non-financial liability, such gain or loss are transferred from equity (but not as a reclassification adjustment) and included in the initial measurement of the cost of the non-financial asset or non-financial liability.
In cases, where the designated hedging instruments are options and forward contracts, the Company has an option, for each designation, to designate on an instrument only the changes in intrinsic value of the option and spot element of forward contract respectively as hedges. In such cases the time value of the options is accounted based on the type of hedged item which those options hedge.
In case of transaction related hedged item in the above cases, the change in time value of the options is recognised in other comprehensive income to the extent it relates to the hedged item and accumulated in a separate component of equity i.e. Reserve for time value of options and forward elements of forward contract in hedging relationship. This separate component is removed and directly included in the initial cost or other carrying amount of the asset or the liability (i.e. not as a reclassification adjustment thus not affecting other comprehensive income) if the hedged item subsequently results in recognition of a non-financial asset or non-financial liability. In other cases, the amount accumulated is reclassified to profit or loss as a reclassification adjustment in the same period in which the hedged expected future cash flow affects profit or loss.
In case of time period related hedged item in the above cases, the change in time value of the options is recognised in other comprehensive income to the extent it relates to the hedged item and accumulated in a separate component of equity i.e. Reserve for time value of options and forward elements of forward contracts in hedging relationship. The time value of options at the date of designation of the options in the hedging relationship is amortised on a systematic and rational basis over the period during which the options intrinsic value could affect profit or loss. This is done as a reclassification adjustment and hence affects other comprehensive income.
In cases where only the spot element of the forward contracts is designated in a hedging relationship and the forward element of the forward contract is not designated, the Company makes the choice for each designation whether to recognise the changes in forward element of fair value of the forward contracts in profit or loss or to account for this element similar to the time value of option (as described above).
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income and accumulated in equity at that time remains in equity and is recognised when the forecasted transactions is ultimately recognised in profit or loss. When a forecasted transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.
1.28 Insurance claims
Insurance claims are accounted for on the basis of claims admitted/expected to be admitted and to the extent that the amount recoverable can be measured reliably and it is reasonable to expect ultimate collection.
1.29 Operating cycle
Based on the nature of the products/activities of the Company and the normal time between acquisition of assets and their realisation in cash or cash equivalents, the Company has determined its operating cycle as 12 months for the purpose of classification of its assets and liabilities as current and non-current.
Mar 31, 2017
1. General information
Carborundum Universal Limited (CUMI) was incorporated in India as a Public Limited Company in 1954 and the shares of the Company are listed in National Stock Exchange of India Ltd. and BSE Ltd. The addresses of its registered office and place of business are disclosed in the annual report.
CUMI manufactures and sells mainly Abrasives, Ceramics (Industrial Ceramics, Refractoriness) and Electro minerals. (Refer Note:30)
2. Application of new and revised Ind AS
The financial statements have been prepared in accordance with Ind AS notified under the Companies (Indian Accounting Standards) Rules 2015.
3. Significant accounting policies
3.1. Statement of Compliances
Up to the year ended March 31, 2016, the Company has prepared its financial statements in accordance with the requirements of previous GAAP which includes Standards notified under the Companies (Accounting Standards)Rules, 2006. These are the first Ind AS financial statements. The date of transition to Ind AS is April 1, 2015. Refer Note: 48 for the details of first-time adoption exemptions availed by the Company.
3.2.1 Basis of preparation and presentation
The financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below:
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability or
- In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Company
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
- Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
- Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
- Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
3.2.2 Use of estimates and judgments
In preparing these financial statements, management has made judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
3.2.2.1 Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized prospectively
3.2.2.2 Judgments are made in applying accounting policies that have the most significant effects on the amounts recognized in the financial statements.
3.2.2.3 Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment are reviewed on an ongoing basis.
3.3 Non-current assets held for sale
Non-current assets and disposals groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal) is available for immediate sale in its present condition subject only to terms that are usual and customary for sale of such assets and its sales is highly probable.
Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.
3.4 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, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties collected on behalf of the government. Revenue is reduced for estimated customer returns, rebates and other similar allowances.
Based on the Educational Material on Ind AS 18 issued by the ICAI, the Company has assumed that recovery of excise duty flows to the Company on its own account. This is for the reason that it is a liability of the manufacturer which forms part of the cost of production, irrespective of whether the goods are sold or not. Since the recovery of excise duty flows to the Company on its own account, revenue is recorded inclusive of excise duty
However, sales tax/ value added tax (VAT) is not received by the Company on its own account. Rather, it is tax collected on value added to the commodity by the seller on behalf of the government. Accordingly, it is excluded from revenue.
The specific recognition criteria described below must also be met before revenue is recognized.
3.4.1 Sale of goods
Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, which generally coincides with dispatch of products to customers in case of domestic sales and on the basis of bill of lading in the case of export sales, at which time all the following conditions are satisfied:
- the Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
- the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
- the amount of revenue can be measured reliably;
- it is probable that the economic benefits associated with the transaction will flow to the Company; and
- the costs incurred or to be incurred in respect of the transaction can be measured reliably
3.4.2 Rendering of services
The revenue from divisible contracts are recognized on the percentage completion method in respect of service contracts and in respect of supplies on dispatch. In respect of indivisible contracts, the revenues are recognized on a percentage completion method, synchronized to the billing schedules agreed by the customers.
3.4.3 Other income
Royalty income is recognized on an accrual basis in accordance with the substance of the relevant agreement.
Dividend income from investments is recognized when the shareholderâs right to receive payment has been established.
Interest income from a financial asset is recognized and accrued on time proportion basis.
Rental income is recorded on accrual basis in accordance with the agreement.
3.5 Foreign Currencies
Foreign currency transactions are recorded at the rates of exchange prevailing on the date of the transactions. Monetary assets and liabilities outstanding at the year-end are translated at the rate of exchange prevailing at the year-end and the gain or loss, is recognized in the statement of profit and loss.
Foreign currency monetary items (other than derivative contracts) of the Company, outstanding at the Balance Sheet date are restated at the year-end rates. Non-monetary items of the Company are carried at historical cost.
Exchange differences arising on settlement / restatement of short-term foreign currency monetary assets and liabilities of the Company are recognized as income or expense in the Statement of Profit and Loss.
Refer Notes: 3.27 and 3.28 for accounting for forward exchange contracts relating to firm commitments and highly probable forecast transactions.
3.6 Borrowing costs
The borrowing costs (other than those attributable to fixed assets-Refer Note: 4 & 5) are recognized in profit or loss in the period in which they are incurred.
Interest income earned on temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.
3.7 Government grants
Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to them and that the grants will be received.
Government grants are recognized in profit or loss on a systematic basis over the periods in which the Company recognizes as expenses the related cost for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Company should purchase, construct or otherwise acquire non-current assets are recognized as deferred revenue in the Balance Sheet and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Company with no future related costs are recognized in profit or loss in the period in which they become receivable.
The benefit of a government loan at a below market rate of interest is treated as a government grant, measured as the differences between proceeds received and the fair value of the loan based on prevailing market interest rate.
Export Benefits on account of entitlement to import goods free of duty under âExports Benefits Schemeâ are accounted based on eligibility and when there is no uncertainty in receiving the same.
3.8 Employee benefits
3.8.1. Retirement benefit costs and termination benefits
Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.
For defined benefit retirement plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gain and losses, the effect of the changes to asset ceiling (if applicable) and the return on plan assets (excluding net interest), is reflected immediately in the Balance Sheet with a charge or credit recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected in retained earnings and is not reclassified to profit or loss. Past service cost is recognized in profit or loss in the period of plan amendment. Net interest is calculated by applying the rate at the beginning of the period to the net defined benefit liability or asset.
Defined benefit costs are categorized as follows:
- service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements);
- net interest expense or income;
- remeasurement
The Company presents the first two components of defined benefit costs in profit or loss in the line item âEmployee benefit expenseâ. Curtailment gain and losses are accounted for as past service costs.
A liability for a termination benefit is recognized when the entity can no longer withdraw the offer of the termination benefit as per the relevant scheme.
The employees and the Company make monthly fixed contributions to the Carborundum Universal Limited Employeeâs Provident Fund Trust, equal to a specified percentage of the covered employeeâs salary. The interest rate payable by the Trust to the beneficiaries is being notified by the Government every year. The Company obtains an independent actuarial valuation of the Interest Guarantees as at the Balance sheet date and provides for the shortfall, if any, in the present value of obligation of interest over the fair value of the surplus in the Fund.
3.8.2 Short-term and other long-term employee benefits
A liability is recognized for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered.
Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.
Liabilities recognized in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the Company in respect of services provided by employees up to the reporting date.
3.8.3 Voluntary retirement compensation
Compensation to employees who have retired under voluntary retirement scheme is charged off to revenue.
3.9 Share-based payment arrangements
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity settled share based transactions are set out in Note: 37.
The fair value determined at the grant date of the equity-settled-based payments is expensed on a straight-line basis over the vesting period, based on the Companyâs estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflect the revised estimate, with a corresponding adjustment to the Share options outstanding account.
3.10 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
3.10.1 Current tax
The tax currently payable is based on taxable profits for the year. Taxable profit differ from âprofit before taxâ as reported in the statement of profit and loss because of items of income or expense that are taxable or deductible in other years (Temporary differences) and items that are never taxable or deductible (Permanent differences). The Companyâs current tax is calculated using tax rates that have been enacted by the end of the reporting period.
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities.
Current income tax relating to items recognized outside profit or loss is either in other comprehensive income or in equity. Current tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
3.10.2 Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences.
Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary differences arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition deferred tax liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognized outside profit or loss is recognized either in other comprehensive income or in equity. Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity.
3.10.3 CENVAT / Service Tax / VAT
CENVAT/VAT credit on materials purchased / services availed for production / Input services are taken into account at the time of purchase. Service tax input credit is accounted for in the books in the period in which the underlying service received is accounted and when there is no uncertainty in availing/utilizing the credits. CENVAT/VAT credit on purchase of capital items wherever applicable are taken into account as and when the assets are acquired. The CENVAT credits so taken are utilized for payment of excise duty on goods manufactured or for payment of service tax on services rendered. The unutilized CENVAT/VAT credit is carried forward in the books.
3.11 Property, plant and equipment
Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the Balance Sheet at cost less accumulated depreciation and accumulated impairment losses. Freehold land is not depreciated.
Fixtures and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is recognized so as to write off the cost of the assets(other than freehold land) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual value and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance lease are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.
Building on lease hold land are depreciated over the lease period.
Individual asset costing less than ''5,000 are depreciated in full in the year of acquisition.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognized in profit or loss.
When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in profit or loss as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.
An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognized.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
3.12 Intangible assets
3.12.1 Intangible assets acquired separately
Intangible assets that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives.
The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The amortization expense on intangible assets with finite lives is recognized in the statement of profit and loss unless such expenditure forms part of carrying value of another asset.
3.12.2 Internally generated intangibles, excluding eligible development costs, are not capitalized and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.
3.12.3. Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date, which is regarded as their cost.
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
3.12.4 Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gain or loss arising from Derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.
3.13 Deemed cost on transition to Ind AS
For transition to Ind AS, the Company has elected to continue with the carrying value of all of its Tangible and Intangible assets recognized as of April 01, 2015 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of transition date.
3.14 Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the Company reviews the carrying amount of tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss(if any). When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is higher of fair value less cost of disposal and value in use. 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.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generated unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
3.15 Cash and cash equivalents (for purposes of Cash Flow Statement)
Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.
3.16 Cash flow statement
Cash flows are reported using the indirect method, whereby profit/(loss) before extraordinary items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information.
3.17 Inventories
Inventories are stated at the lower of cost and net-realizable value. Cost includes freight, taxes and duties net of CENVAT/VAT credit wherever applicable. Customs duty payable on material in bonded warehouse is added to the cost.
In respect of raw materials, stores and spare parts, cost is determined on weighted average basis. In respect of work in progress and finished goods, cost includes all direct costs and applicable production overheads, to bring the goods to the present location and condition. Net realizable value represents the estimated selling price for inventories less all estimated cost of completion and cost necessary to make the sale.
3.18 Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle present obligation at the end of reporting period, taking into account the risk and uncertainty surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of these cash flows (when the effect of the time value of money is material)
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of receivable can be measured reliably.
3.19 Contingent liabilities
Contingent liability is disclosed for (i) Possible obligation which will be confirmed only by future events not wholly within the control of the Company or (ii) Present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. Contingent assets are not recognized in the financial statements.
3.20 Financial instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provision of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial asset or financial liabilities, as appropriate, on initial recognition. Transactions costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.
3.21 Financial assets
All regular way purchases or sale of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sale of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place
All recognized financial assets are subsequently measured in their entirety at either amortized cost or fair value, depending on the classification of the financial assets.
3.21.1 Classification of financial assets
Debt instrument that meet the following condition are subsequently measured at amortized cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition):
- the asset is held within business model whose objective is to hold assets in order to collect contractual cash flows; and
- the contractual terms of the instruments give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
For the impairment policy on financial assets measured at amortized cost, Refer Note 3.21.4
3.21.2 Investment in equity instruments at FVTOCI
On initial recognition, the Company can make an irrevocable election (on an instrument- by instrument basis) to present the subsequent changes in fair value in other comprehensive income pertaining to investment in equity instruments. This election is not permitted if the equity investment is held for trading.
These elected investments are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gain and losses arising from changes in fair value recognized in other comprehensive income and accumulated in the âReserve for equity instrument through other comprehensive incomeâ. The cumulative gain or loss is not reclassified to profit or loss on disposal of the investments.
A financial asset is held for trading if:
- it has been acquired principally for the purpose of selling it in the near term.
- on initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or
- it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.
The Company has equity instrument in two entities, which are not held for trading. The Company has elected the FVTOCI irrevocable option for both of these investments(Note: 6D). Fair value is determined in the manner described in Note: 35.
Dividend on these investments are recognized in profit or loss when the Companyâs right to receive the dividends is established, it is probable that the economic benefits associated with the dividend will flow to the entity, the dividend does not represent a recovery of part of cost of the investment and the amount of dividend can be measured reliably. Dividend recognized in profit and loss are included in âOther incomeâ line item.
3.21.3 Financial assets at fair value through profit or loss (FVTPL)
Investments in equity instruments are classified as at FVTPL, unless the Company irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for investments in equity instruments which are not held for trading (Note: 3.21.2 )
Debt instruments that do not meet the amortized cost criteria or FVTOCI Criteria are measured at FVTPL.In addition, debt instruments that meet the amortized cost criteria or the FVTOCI criteria but are designated as at FVTPL are measured at FVTPL.
A financial asset that meets the amortized cost criteria or debt instruments that meet the FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognizing the gain or losses on them on different bases. The Company has not designated any such debt instrument as at FVTPL.
Financial asset at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporate any dividend or interest earned on the financial asset and is included in the âOther incomeâ line item. Dividend on financial asset at FVTPL is recognized when the Companyâs right to receive the dividends is established. It is probable that the economic benefits associated with the dividend will flow to the entity which does not represent a recovery of part of cost of the investment and the amount can be measured reliably.
3.21.4. Impairment of financial assets
The Company applied the expected credit loss model for recognizing impairment loss on financial assets measured at amortized cost, debt instruments at FVTOCI, lease receivable, trade receivable, other contractual rights to receive cash or other financial asset, and financial guarantees not designated as at FVTPL.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive (i.e., all cash shortfalls), discounted at the original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impairment financial assets). The Company estimates cash flows by considering all contractual terms of the financial instrument (for example, prepayments, extension, call and similar options) through the expected life of that financial instruments.
The Company measures the loss allowance for the financial instruments at an amount equal to the lifetime expected credit losses if the credit risk on those financial instruments has increased significantly since initial recognition.
If the credit risk on financial instruments has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instruments at an amount equal to 12 month expected credit losses. The twelve months expected credit losses are portion of the lifetime cash shortfalls that will result if default occurs within 12 months after the reporting date and thus, are not cash shortfalls that are predicted over the 12 months.
If the Company measured loss allowance for the financial instruments at life time expected credit loss model in the previous period, but determines at the end of a reporting period that the credit risk has not increased significantly since initial recognition due to improvement in credit quality as compared to the previous period, the Company again measures the loss allowance based on 12 month expected credit losses.
When making the assessment of whether there has been a significant increase in credit risk since initial recognition, the Company uses the change in the risk of a default occurring over the expected life of the financial instruments instead of the change in the amount of expected credit losses. To make the assessment, the Company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and consider reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increase in credit risk since initial recognition.
For trade receivables or any contractual rights to receive cash or other financial assets that results from transactions that are within the scope of Ind AS 11 and Ind AS 18, the Company always measures the loss allowance at an amount equal to life time expected credit losses.
Further, for the purposes of measuring lifetime expected credit loss allowance for trade receivables, the Company has used a practical expedient as permitted under Ind AS 109. This expected credit loss allowance is computed based on a provision matrix which takes into account historical credit loss experience and adjusted for forward-looking information.
The impairment requirements for the recognition and measurement of a loss allowance are equally applied to debt instruments at FVTOCI except that the loss allowance is recognized in other comprehensive income and is not reduced from the carrying amount in the Balance Sheet.
3.21.5 Derecognition of financial assets
The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains subsequently all the risks and rewards of ownership and continues to control the transferred asset, the Company recognizes its retained interest in the asset and an associated liability for the amount it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.
On Derecognition of a financial asset in its entirety, the difference between the assetâs carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss if such gain or loss would have otherwise been recognized in profit or loss on disposal of that financial asset.
On Derecognition of a financial asset other than its entirety (eg., when the Company retains an option to repurchase part of a transferred asset), the Company allocates the previous carried over amount of financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer.
The difference between the carrying amount allocated to the part that is no longer recognized and the sum of consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in profit or loss on disposal of that financial asset. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair value of those parts.
3.21.6 Foreign exchange gain and losses
The fair value of financial assets denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.
- for Foreign currency denominated financial asset measured at amortized cost and FVTPL, the exchange differences are recognized in profit or loss except for those which are designated hedging instruments in a hedging relationship.
- Changes in the carrying amount of investments in equity instruments at FVTOCI relating to changes in foreign currency rates are recognized in other comprehensive income.
- For the purposes of recognizing foreign exchange gain and losses, FVTOCI debt instruments are treated as financial assets measured at amortized cost. Thus, the exchange differences on the amortized cost are recognized in profit or loss and other changes in the fair value of FVTOCI financial asset are recognized in other comprehensive income.
3.22 Financial liabilities and equity instruments
3.22.1 Classification as debt or equity
Debt and equity instruments issued by a Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definition of a financial liabilities and an equity instrument.
3.22.2 Equity instruments
An equity instrument is a contract that evidences a residual interest in the asset of an entity after deducting all of its liabilities. Equity instruments issued by a Company is recognized at the proceeds received, net of direct issue costs.
3.22.3 Financial liabilities
All financial liabilities are subsequently measured at amortized cost using the effective interest methods or at FVTPL.
However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies, financial guarantee contracts issued by the Company, and commitments issued by the Company to provide a loan at below-market interest rate are measured in accordance with the specific accounting policies set out below.
3.22.3.1 Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is either contingent consideration recognized by the Company as an acquirer in a business combination to which Ind AS 103 applies or is held for trading or it is designated as at FVTPL.
A financial liability is classified as held for trading if:
- it has been incurred principally for the purpose of repurchasing it in the near term ;or
- on initial recognition, it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or
- it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading or contingent consideration recognized by the Company as an acquirer in a business combination to which Ind AS 103 applies, may be designated as at FVTPL upon initial recognition if:
- such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise.
- the financial liability forms part of a group of financial asset or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Companyâs documented risk management or investment strategy and information about the grouping is provided internally on that basis; or
- it forms part of a contract containing one or more embedded derivatives, and Ind AS 109 permits the entire combined contracts to be designated as at FVTPL in accordance with Ind AS 109.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability and is included in the âOther incomeâ line item.
However, for not-held for trading financial liabilities that are designated as at FVTPL, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of the liability recognized in other comprehensive income, unless the recognition of the effects of changes in the liabilityâs credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss, in which case these effect of changes in credit risk are recognized in profit or loss. Changes in fair value attributable to a financial liabilityâs credit risk that are recognized in other comprehensive income are reflected immediately in retained earnings and are not subsequently reclassified to profit or loss.
Gain or losses on financial guarantee contract and loan commitments issued by the Company that are designated by the Company as at fair value through profit or loss are recognized in profit or loss.
Fair value is determined in the manner described in Note: 35.
3.22.3.2 Financial liabilities subsequently measured at amortized cost
Financial liabilities are not held-for-trading and are not designated as at FVTPL are measured at amortized cost at the end of subsequent accounting periods. The carrying amounts of financial liabilities that are subsequently measured at amortized cost are determined based on the effective interest method. Interest expenses that is not capitalized as part of cost of an asset is included in the âFinance costâ line item.
The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability or, (where appropriate), a shorter period, to the net carrying amount on initial recognition.
3.22.3.3 Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument. Financial guarantee contracts issued by a Company are initially measured at their fair value and, if not designated as at FVTPL, are subsequently measured at the higher of:
- the amount of loss allowance determined in accordance with impairment requirement of Ind AS 109; and
- the amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with the principles of Ind AS 18.
3.22.3.4 Foreign exchange gain and losses
For financial liabilities that are denominated in a foreign currency and are measured at amortized cost at the end of each reporting period, the foreign exchange gain and losses are determined based on the amortized cost of the instruments and are recognized in âOther incomeâ.
The fair value of financial assets denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period. For financial liabilities that are measured at FVTPL, the foreign exchange component forms part of the fair value gain or losses and is recognized in profit or loss.
3.22.3.5 Derecognition of financial liabilities
The Company derecognizes financial liabilities when, and only when, the Companyâs obligations are discharged, cancelled or have expired. An exchange between lenders of debt instruments with substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly a substantial modification of the terms of an existing financial liability (whether or not attributable to the financial difficulty of the debtor) is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.
3.23 Segment reporting
The accounting policies adopted for Segment reporting are in line with the accounting policies of the Company with the following additional policies:
- Inter-segment revenue is accounted on the basis of transactions which are primarily determined based on market/fair value factors.
- Revenue and expenses have been identified to segments on the basis of their relationship to the operating activities of the Segment. Revenue and expenses, which relate to the enterprise as a whole and are not allocable to Segments on a reasonable basis have been included under âUn-allocated Corporate expensesâ.
3.24 Leases
Assets leased by the Company in its capacity as a lessee, where substantially all the risks and rewards of ownership vest in the Company are classified as finance leases. Such leases are capitalized at the inception of the lease at the lower of the fair value and the present value of the minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost so as to obtain a constant periodic rate of interest on the outstanding liability for each year.
3.25 Earnings per share
Basic earnings per share is computed by dividing the profit/ (loss) after tax (including the post tax effect of extraordinary items, if any) by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit/(loss) after tax (including the post tax effect of extraordinary items, if any) as adjusted for dividend, interest and other charges to expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares.
Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net profit per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). Dilutive potential equity shares are determined independently for each period presented. The number of equity shares and potentially dilutive equity shares are adjusted for share splits/reverse share splits and bonus shares, as appropriate.
3.26 Research and development
All revenue expenditure related to research and development are charged to the respective heads on the Statement of profit and loss. Capital expenditure incurred on research and development is capitalized as fixed assets and depreciated in accordance with the depreciation policy of the Company.
3.27 Derivative financial instruments
Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently premeasured to their fair values at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivate is designated and effective as hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedging relationship and the nature of the hedged item.
3.28 Hedge accounting
The Company designates certain hedging instruments, which includes derivatives and non-derivatives in respect of foreign currency risk, at either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the entity documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk.
Note: 35 sets out details of the fair values of the derivatives instruments used for hedging purposes.
3.28.1 Fair value hedges
Changes in fair value of the designated portion of derivatives that qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedging asset or liability that are attributable to the hedged risk. The change in the fair value of the designated portion of hedging instrument and the change in the hedged item attributable to the hedged risk are recognized in profit or loss in the line item relating to the hedged item.
Hedge accounting is discontinued when the hedging instruments expires or is sold, terminated, or exercised, or when it no longer qualify for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortized to profit or loss from that date.
3.28.2 Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, and is included in the âOther incomeâ line item.
Amount previously recognized in other comprehensive income and accumulated in equity relating to (effective portion as described above) are reclassified to profit or loss in the periods when the hedged item affect profit or loss, in the same line as the recognized hedged item. However, when the hedged forecast transaction results in the recognition of non-financial asset or a non-financial liability, such gain or losses are transferred from equity (but not as a reclassification adjustment) and included in the initial measurement of the cost of the non-financial asset or non-financial liability.
In cases, where the designated hedging instruments are options and forward contracts, the Company has an option, for each designation, to designate on an instrument only the changes in intrinsic value of the option and spot element of forward contract respectively as hedges. In such cases the time value of the options is accounted based on the type of hedged item which those options hedge.
In case of transaction related hedged item in the above cases, the change in time value of the options is recognized in other comprehensive income to the extent it relates to the hedged item and accumulated in a separate component of equity i.e., Reserve for time value of options and forward elements of forward contract in hedging relationship. This separate component is removed and directly included in the initial cost or other carrying amount of the asset or the liability (i.e., not as a reclassification adjustment thus not affecting other comprehensive income) if the hedged item subsequently results in recognition of a non-financial asset or non-financial liability. In other cases, the amount accumulated is reclassified to profit or loss as a reclassification adjustment in the same period in which the hedged expected future cash flow affects profit or loss.
In case of time period related hedged item in the above cases, the change in time value of the options is recognized in other comprehensive income to the extent it relates to the hedged item and accumulated in a separate component of equity i.e. Reserve for time value of options and forward elements of forward contracts in hedging relationship. The time value of options at the date of designation of the options in the hedging relationship is amortized on a systematic and rational basis over the period during which the options intrinsic value could affect profit or loss. This is done as a reclassification adjustment and hence affects other comprehensive income.
In cases where only the spot element of the forward contracts is designated in a hedging relationship and the forward element of the forward contract is not designated, the Company makes the choice for each designation whether to recognize the changes in forward element of fair value of the forward contracts in profit or loss or to account for this element similar to the time value of option (as described above).
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognized in other comprehensive income and accumulated in equity at that time remains in equity and is recognized when the forecasted transactions is ultimately recognized in profit or loss. When a forecasted transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.
3.29 Insurance claims
Insurance claims are accounted for on the basis of claims admitted/expected to be admitted and to the extent that the amount recoverable can be measured reliably and it is reasonable to expect ultimate collection.
3.30 Operating cycle
Based on the nature of the products/activities of the Company and the normal time between acquisition of assets and their realization in cash or cash equivalents, the Company has determined its operating cycle as 12 months for the purpose of classification of its assets and liabilities as current and non-current.
Mar 31, 2015
2.1 Basis of accounting and preparation of financial statements
The financial statements of the Company have been prepared in
accordance with the Generally Accepted Accounting Principles in India
(Indian GAAP) to comply with the Accounting Standards specified under
Section 133 of the Companies Act, 2013, read with Rule 7 of the
Companies (Accounts) Rules, 2014 and the relevant provisions of the
Companies Act, 2013 ("the 2013 Act") / Companies Act, 1956 ("the 1956
Act"), as applicable. The financial statements have been prepared on
accrual basis under the historical cost convention except for
categories of fixed assets acquired before 31st August, 1984, that are
carried at revalued amounts. The accounting policies adopted in the
preparation of the financial statements are consistent with those
followed in the previous year.
2.2 Use of estimates
The preparation of the financial statements in conformity with Indian
GAAP requires the Management to make estimates and assumptions
considered in the reported amounts of assets and liabilities (including
contingent liabilities) and the reported income and expenses during the
year. The Management believes that the estimates used in preparation of
the financial statements are prudent and reasonable. Future results
could differ due to these estimates and the differences between the
actual results and the estimates are recognised in the periods in which
the results are known / materialise.
2.3 Inventories
Inventories are valued at lower of cost and net realizable value. Cost
includes freight, taxes and duties net of CENVAT / VAT credit wherever
applicable. Customs duty payable on material in bond is added to the
cost.
In respect of raw materials, stores and spare parts, cost is determined
on weighted average basis. In respect of Work in Process and Finished
goods, cost includes all direct costs and applicable production
overheads, to bring the goods to the present location and condition.
2.4 Cash and cash equivalents (for purposes of Cash Flow Statement)
Cash comprises cash on hand and demand deposits with banks. Cash
equivalents are short-term balances (with an original maturity of three
months or less from the date of acquisition), highly liquid investments
that are readily convertible into known amounts of cash and which are
subject to insignificant risk of changes in value.
2.5 Cash flow statement
Cash flows are reported using the indirect method, whereby profit /
(loss) before extraordinary items and tax is adjusted for the effects
of transactions of non-cash nature and any deferrals or accruals of
past or future cash receipts or payments. The cash flows from
operating, investing and financing activities of the Company are
segregated based on the available information.
2.6 Depreciation and amortisation
Depreciable amount for assets is the cost of an asset, or other amount
substituted for cost, less its estimated residual value. Depreciation
on tangible fixed assets has been provided on the straight-line method
as per the useful life prescribed in Schedule II to the Companies Act,
2013 except in respect of the following categories of assets, in whose
case the life of the assets has been assessed as under based on
technical advice, taking into account the nature of the asset, the
estimated usage of the asset, the operating conditions of the asset,
past history of replacement, anticipated technological changes,
manufacturers warranties and maintenance support, etc.:
* leased vehicles are depreciated over four years,
* Building and other assets on lease hold land are depreciated over the
lease period,
* Individual assets costing less than Rs. 5000 are depreciated in
full in the year of acquisition.
The difference between the depreciation for the year on the revalued
assets and the depreciation calculated on the original cost is
transferred directly to the General Reserve from the Fixed Assets
Revaluation Reserve.
Depreciation on additions to fixed assets is provided on a pro-rata
basis from the date of commissioning of the individual asset.
Premium on Lease hold Land is amortised over the tenure of the lease.
Intangible assets are amortised over their estimated useful life upto a
maximum of 5 years on a straight line basis. The estimated useful life
of the intangible assets and the amortisation period are reviewed at
the end of each financial year and the amortisation period is revised
to reflect the changed pattern, if any.
2.7 Revenue recognition
Sale of goods:
Domestic sales are accounted on transfer of significant risks and
rewards of ownership to the buyer which generally coincides with
despatch of products to customers in case of domestic sales and on the
basis of bill of lading in the case of export sales . Sales are
accounted net of Sales Tax / VAT, Discounts and Returns as applicable.
Income from Contracts:
In respect of indivisible contracts and service contracts, the revenues
are recognized on percentage completion method, synchronized to the
billing schedules agreed by the customers.
2.8 Other income
Interest income is accounted on accrual basis. Dividend income is
accounted for when the right to receive is established.
2.9 Fixed Assets (Tangible / Intangible)
Fixed assets are stated at historical cost except land and buildings
added up to 31st August 1984 which are shown as per the revaluation
done in that year, less accumulated depreciation / amortisation.
Cost comprises of direct cost, related taxes, duties, freight and
attributable finance costs (Refer 2.15 below) till such assets are
ready for its intended use and net of CENVAT/VAT wherever applicable.
Subsidy received from Government towards specific assets is reduced
from the cost of fixed assets. Fixed assets taken on finance lease are
capitalised.
Machinery spares used in connection with a particular item of fixed
asset and the use of which is irregular, are capitalized at cost net of
CENVAT / VAT, as applicable.
Expenditure directly relating to new projects prior to commencement of
commercial production is capitalised. Indirect expenditure (net of
income) attributable to the new projects or which are incidental
thereto are also capitalised.
Fixed assets retired from active use and held for sale are stated at
the lower of their net book value and net realisable value and are
disclosed separately.
Capital work-in-progress:
Projects under which fixed assets are not yet ready for their intended
use are carried at cost, comprising direct cost, related incidental
expenses and attributable interest.
2.10 Foreign currency transactions and translations
Foreign currency transactions are recorded at the rates of exchange
prevailing on the date of the transactions. Monetary assets &
liabilities outstanding at the year-end are translated at the rate of
exchange prevailing at the year-end and the gain or loss, is recognised
in the statement of profit and loss.
Foreign currency monetary items (other than derivative contracts) of
the Company, outstanding at the balance sheet date are restated at the
year-end rates. Non-monetary items of the Company are carried at
historical cost.
Exchange differences arising on settlement / restatement of short-term
foreign currency monetary assets and liabilities of the Company are
recognised as income or expense in the Statement of Profit and Loss.
Premium / discount on forward exchange contracts, which are not
intended for trading or speculation purposes, are amortised over the
period of the contracts if such contracts relate to monetary items as
at the balance sheet date. Any profit or loss arising on cancellation
or renewal of such a forward exchange contract is recognised as income
or as expense in the period in which such cancellation or renewal is
made.
Refer Notes 2.24 and 2.25 for accounting for forward exchange contracts
relating to firm commitments and highly probable forecast transactions.
2.11 Government grants, subsidies and export incentives
Lump-sum capital subsidies, not relating to any specific fixed asset,
received from Governments for setting up new projects are accounted as
capital reserve.
Export Benefits on account of entitlement to import goods free of duty
under ' Exports Benefits Scheme' are accounted based on eligibility and
when there is no uncertainty in receiving the same.
2.12 Investments
Long-term investments are carried individually at cost less provision
for diminution, other than temporary, in the value of such investments.
Current investments are carried individually, at the lower of cost and
fair value. Cost of investments include acquisition charges such as
brokerage, fees and duties.
2.13 Employee benefits
Employee benefits include provident fund, superannuation fund, employee
state insurance scheme, gratuity fund, compensated absences, long
service awards and post-employment medical benefits.
(i) Defined contribution plan
Fixed contributions to the Superannuation Fund which is administered by
Company nominated trustees and managed by Life Insurance Corporation of
India and to Employee State Insurance Corporation [ESI] are charged to
the Statement of profit and loss, based on the amount of contribution
required to be made and when services are rendered by the employees.
Company also contributes to a government administered Pension fund on
behalf of its employees, which are charged to the Statement of profit
and loss.
The employees and the Company make monthly fixed contributions to the
Carborundum Universal Limited Employee's Provident Fund Trust, equal to
a specified percentage of the covered employee's salary. The interest
rate payable by the Trust to the beneficiaries is being notified by the
Government every year. The Company obtains an independent actuarial
valuation of the Interest Guarantees as at the Balance sheet date and
provides for the shortfall, if any, in the present value of obligation
of interest over the fair value of the surplus in the Fund.
(ii) Defined benefit plan
The liability for Gratuity to employees as at the Balance Sheet date is
determined on the basis of actuarial valuation using Projected Unit
Credit method. The liability is funded to a Gratuity fund administered
by the trustees and managed by Life Insurance Corporation of India and
SBI Life Insurance Company Limited. The liability there of paid /
payable is absorbed in the accounts. The actuarial gains / losses are
recognised in the Statement of Profit and Loss.
(iii) Long term compensated absences
In respect of long term portion of compensated absences [Leave
benefits], the liability is determined on the basis of actuarial
valuation and is provided for.
(iv) Short term employee benefits
Short term employee benefits including accumulated compensated absences
determined as per Company's policy/scheme are recognized as expense
based on expected obligation on undiscounted basis.
(v) Voluntary retirement compensation
Compensation to employees who have retired under voluntary retirement
scheme is charged off to revenue.
2.14 Employee share based payments
The Company has formulated Employee Stock Option Schemes (ESOP) in
accordance with the SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999. The Schemes provide for grant
of options to employees of the Company and its subsidiaries to acquire
equity shares of the Company that vest in a graded manner and that are
to be exercised within a specified period. In accordance with the SEBI
Guidelines; the excess, if any, of the closing market price on the day
prior to the grant of the options under ESOP over the exercise price is
amortised on a straight-line basis over the vesting period.
2.15 Borrowing costs
Borrowing costs include interest, amortisation of ancillary costs
incurred and exchange differences arising from foreign currency
borrowings to the extent they are regarded as an adjustment to the
interest cost. Costs in connection with the borrowing of funds to the
extent not directly related to the acquisition of qualifying assets are
charged to the Statement of Profit and Loss over the tenure of the
loan. Borrowing costs, allocated to and utilised for qualifying assets,
pertaining to the period from commencement of activities relating to
construction / development of the qualifying asset upto the date of
capitalisation of such asset is added to the cost of the assets.
Capitalisation of borrowing costs is suspended and charged to the
Statement of Profit and Loss during extended periods when active
development activity on the qualifying assets is interrupted.
2.16 Segment reporting
The accounting policies adopted for segment reporting are in line with
the accounting policies of the Company with the following additional
policies:
(i) Inter-segment revenue is accounted on the basis of transactions
which are primarily determined based on market / fair value factors
(ii) Revenue and expenses have been identified to segments on the basis
of their relationship to the operating activities of the segment.
Revenue and expenses, which relate to the enterprise as a whole and are
not allocable to segments on a reasonable basis have been included
under "Unallocated Corporate Expenses"
2.17 Leases
Assets leased by the Company in its capacity as a lessee, where
substantially all the risks and rewards of ownership vest in the
Company are classified as finance leases. Such leases are capitalised
at the inception of the lease at the lower of the fair value and the
present value of the minimum lease payments and a liability is created
for an equivalent amount. Each lease rental paid is allocated between
the liability and the interest cost so as to obtain a constant periodic
rate of interest on the outstanding liability for each year.
2.18 Earnings per share
Basic earnings per share is computed by dividing the profit / (loss)
after tax (including the post tax effect of extraordinary items, if
any) by the weighted average number of equity shares outstanding during
the year. Diluted earnings per share is computed by dividing the profit
/ (loss) after tax (including the post tax effect of extraordinary
items, if any) as adjusted for dividend, interest and other charges to
expense or income relating to the dilutive potential equity shares, by
the weighted average number of equity shares considered for deriving
basic earnings per share and the weighted average number of equity
shares which could have been issued on the conversion of all dilutive
potential equity shares.
Potential equity shares are deemed to be dilutive only if their
conversion to equity shares would decrease the net profit per share
from continuing ordinary operations. Potential dilutive equity shares
are deemed to be converted as at the beginning of the period, unless
they have been issued at a later date. The dilutive potential equity
shares are adjusted for the proceeds receivable had the shares been
actually issued at fair value (i.e. average market value of the
outstanding shares). Dilutive potential equity shares are determined
independently for each period presented. The number of equity shares
and potentially dilutive equity shares are adjusted for share splits /
reverse share splits and bonus shares, as appropriate.
2.19 CENVAT / Service Tax / VAT
CENVAT/VAT credit on materials purchased / services availed for
production / Input services are taken into account at the time of
purchase. Service tax input credit is accounted for in the books in the
period in which the underlying service received is accounted and when
there is no uncertainity in availing/ utilising the credits. CENVAT/VAT
credit on purchase of capital items wherever applicable are taken into
account as and when the assets are acquired. The CENVAT credits so
taken are utilised for payment of excise duty on goods manufactured /
Service tax on Output services. The unutilised CENVAT/VAT credit is
carried forward in the books.
2.20 Taxes on income
Current tax is determined on income for the year chargeable to tax in
accordance with the Income Tax Act, 1961 and other applicable tax laws.
Deferred tax is recognised for all the timing differences and is
measured using the tax rates and the tax laws enacted or substantively
enacted at the reporting date. Deferred Tax assets in respect of
unabsorbed depreciation and carry forward of losses are recognized if
there is virtual certainty that there will be sufficient future taxable
income available to realize such losses. Other deferred tax assets are
recognized if there is reasonable certainty that there will be
sufficient future taxable income available to realise such assets.
Current and deferred tax relating to items directly recognised in
reserves are recognised in reserves and not in the Statement of Profit
and Loss.
2.21 Research and development expenses
All revenue expenditure related to research and development are charged
to the respective heads in the Statement of profit and loss. Capital
expenditure incurred on research and development is capitalised as
fixed assets and depreciated in accordance with the depreciation policy
of the Company.
2.22 Impairment of assets
The carrying values of assets / cash generating units at each balance
sheet date are reviewed for impairment if any indication of impairment
exists. The following intangible assets are tested for impairment each
financial year even if there is no indication that the asset is
impaired:
(a) an intangible asset that is not yet available for use; and (b) an
intangible asset that is amortised over a period exceeding ten years
from the date when the asset is available for use. If the carrying
amount of the assets exceed the estimated recoverable amount, an
impairment is recognised for such excess amount. The impairment loss is
recognised as an expense in the Statement of Profit and Loss, unless
the asset is carried at revalued amount, in which case any impairment
loss of the revalued asset is treated as a revaluation decrease to the
extent a revaluation reserve is available for that asset.
The recoverable amount is the greater of the net selling price and
their value in use. Value in use is arrived at by discounting the
future cash flows to their present value based on an appropriate
discount factor.
When there is indication that an impairment loss recognised for an
asset (other than a revalued asset) in earlier accounting periods no
longer exists or may have decreased, such reversal of impairment loss
is recognised in the Statement of Profit and Loss, to the extent the
amount was previously charged to the Statement of Profit and Loss. In
case of revalued assets such reversal is not recognised.
2.23 Provisions and contingencies
Provisions are recognised only when there is a present obligation as a
result of past events and when a reliable estimate of the amount of
obligation can be made. Contingent liability is disclosed for (i)
Possible obligation which will be confirmed only by future events not
wholly within the control of the Company or (ii) Present obligations
arising from past events where it is not probable that an outflow of
resources will be required to settle the obligation or a reliable
estimate of the amount of the obligation cannot be made. Contingent
assets are not recognised in the financial statements.
2.24 Hedge accounting
The Company uses foreign currency forward contracts to hedge its risks
associated with foreign currency fluctuations relating to highly
probable forecast transactions. The Company designates such forward
contracts in a cash flow hedging relationship by applying the hedge
accounting principles set out in "Accounting Standard 30 Financial
Instruments: Recognition and Measurement". These forward contracts are
stated at fair value at each reporting date. Changes in the fair value
of these forward contracts that
are designated and effective as hedges of future cash flows are
recognised directly in "Hedging reserve account" under Reserves and
surplus, net of applicable deferred income taxes and the ineffective
portion is recognised immediately in the Statement of Profit and Loss.
Amounts accumulated in the "Hedging reserve account" are reclassified
to the Statement of Profit and Loss in the same periods during which
the forecasted transaction affects profit and loss. Hedge accounting
is discontinued when the hedging instrument expires or is sold,
terminated, or exercised, or no longer qualifies for hedge accounting.
For forecasted transactions, any cumulative gain or loss on the hedging
instrument recognised in "Hedging reserve account" is retained until
the forecasted transaction occurs If the forecasted transaction is no
longer expected to occur, the net cumulative gain or loss recognised in
"Hedging reserve account" is immediately transferred to the Statement
of Profit and Loss.
2.25 Derivative contracts
The Company enters into derivative contracts in the nature of foreign
currency swaps, currency options, forward contracts with an intention
to hedge its existing assets and liabilities, firm commitments and
highly probable transactions. Derivative contracts which are closely
linked to the existing assets and liabilities are accounted as per the
policy stated for Foreign Currency Transactions and Translations.
Derivative contracts designated as a hedging instrument for highly
probable forecast transactions are accounted as per the policy stated
for Hedge Accounting.
2.26 Insurance claims
Insurance claims are accounted for on the basis of claims admitted/
expected to be admitted and to the extent that the amount recoverable
can be measured reliably and it is reasonable to expect ultimate
collection.
2.27 Operating cycle
Based on the nature of the products/activities of the Company and the
normal time between acquisition of assets and their realisation in cash
or cash equivalents, the Company has determined its operating cycle as
12 months for the purpose of classification of its assets and
liabilities as current and non - current.
Mar 31, 2014
1.1 Accounting Convention
The financial statements of the Company have been prepared in accordance
with the Generally Accepted Accounting Principles in India (Indian
GAAP) to comply with the Accounting Standards notified under Section
211(3C) of the Companies Act, 1956 ("the 1956 Act") (which continue to
be applicable in respect of Section 133 of the Companies Act, 2013
("the 2013 Act") in terms of General Circular 15/2013 dated 13th
September, 2013 of the Ministry of Corporate Affairs) and the relevant
provisions of the 1956 Act/ 2013 Act, as applicable. The financial
statements have been prepared on accrual basis under the historical
cost convention except for categories of fixed assets acquired before
1st April, 1983, that are carried at revalued amounts. The accounting
policies adopted in the preparation of standalone financial statements
are consistent with those followed in the previous year.
1.2 Use of estimates
The preparation of financial statements requires estimates and
assumptions to be made that affect the reported amount of assets and
liabilities (including contingent liabilities) on the date of the
financial statements and the reported amount of revenues and expenses
during the reporting year. Management believes that the estimates used
in the preparation of financial statements are prudent and reasonable.
Future results could differ due to these estimates and differences
between the actual results and estimates are recognized in the year in
which the results are known / materialized.
1.3 Inventories
Inventories are valued at lower of cost and net realizable value. Cost
includes freight, taxes and duties net of CENVAT / VAT credit wherever
applicable. Customs duty payable on material in bond is added to the
cost.
In respect of raw materials, stores and spare parts, cost is determined
on weighted average basis. In respect of Work in Process and Finished
goods, cost includes all direct costs and applicable production
overheads, to bring the goods to the present location and condition.
1.4 Cash and cash equivalents (for purposes of Cash Flow Statement)
Cash comprises cash on hand and demand deposits with banks. Cash
equivalents are short-term balances (with an original maturity of three
months or less from the date of acquisition), highly liquid investments
that are readily convertible into known amounts of cash and which are
subject to insignificant risk of changes in value.
1.5 Cash flow statement
Cash flows are reported using the indirect method, whereby profit /
(loss) before extraordinary items and tax is adjusted for the effects
of transactions of non-cash nature and any deferrals or accruals of
past or future cash receipts or payments. The cash flows from operating,
investing and financing activities of the Company are segregated based
on the available information.
1.6 Depreciation and amortisation
Depreciation on fixed assets has been provided on straight-line method
at rates and in the manner specified in Schedule XIV to the Companies
Act 1956, except for the following assets which are depreciated at
higher rates :
-leased vehicles are depreciated over four years,
-lease hold improvements are depreciated over six years,
-Building and other assets on lease hold land are depreciated over the
lease period,
-Individual assets costing less than Rs. 5,000 are depreciated in full in
the year of acquisition.
The difference between the depreciation for the year on the revalued
assets and depreciation calculated on the original cost is recouped
from the fixed assets revaluation reserve.
Depreciation on additions to fixed assets is provided on a pro-rata
basis from the date of commissioning of the individual asset.
Premium on Lease hold Land is amortised over the tenure of the lease.
Intangible assets are amortised over their estimated useful life upto a
maximum of 5 years on a straight line basis.
1.7 Revenue recognition
Sale of goods
Domestic sales are accounted on transfer of significant risks and
rewards of ownership to the buyer which generally coincides with
despatch of products to customers in case of domestic sales and on the
basis of bill of lading in the case of export sales. Sales are
accounted net of Sales Tax / VAT, Discounts and Returns as applicable.
Income from Contracts
The revenues from divisible contracts are recognized on the percentage
completion method in respect of works contracts and from supplies on
despatch. In respect of indivisible contracts, the revenues are
recognized on a percentage completion method, synchronized to the
billing schedules agreed by the customers.
1.8 Other income
Interest income is accounted on accrual basis. Dividend income is
accounted for when the right to receive is established.
1.9 Tangible fixed assets
Fixed assets are stated at historical cost except land and buildings
added up to 31st August 1984 which are shown as per the revaluation
done in that year, less accumulated depreciation / amortisation.
Cost comprises of direct cost, related taxes, duties, freight and
attributable finance costs (Refer 2.16 below) till such assets are ready
for its intended use and net of CENVAT/VAT wherever applicable. Subsidy
received from State Government towards Specific assets is reduced from
the cost of fixed assets. Fixed assets taken on finance lease are
capitalised.
Machinery spares used in connection with a particular item of fixed
asset and the use of which is irregular, are capitalized at cost net of
CENVAT / VAT, as applicable.
Expenditure directly relating to new projects prior to commencement of
commercial production is capitalised. Indirect expenditure (net of
income) attributable to the new projects or which are incidental
thereto are also capitalised.
Capital work-in-progress:
Capital work in progress is stated at the amount expended up to the
Balance sheet date.
1.10 Intangible assets
Intangible assets are carried at cost less accumulated amortisation and
impairment losses, if any. The cost of an intangible asset comprises
its purchase price, including any import duties and other taxes (other
than those subsequently recoverable from the taxing authorities), and
any directly attributable expenditure on making the asset ready for its
intended use and net of any trade discounts and rebates. Subsequent
expenditure on an intangible asset after its purchase / completion is
recognised as an expense when incurred unless it is probable that such
expenditure will enable the asset to generate future economic benefits
in excess of its originally assessed standards of performance and such
expenditure can be measured and attributed to the asset reliably, in
which case such expenditure is added to the cost of the asset.
Refer note 2.21 for accounting for Research and Development Expenses.
1.11 Foreign currency transactions and translations
Foreign currency transactions are recorded at the rates of exchange
prevailing on the date of the transactions. Monetary assets &
liabilities outstanding at the year-end are translated at the rate of
exchange prevailing at the year-end and the gain or loss, is recognised
in the statement of profit and loss.
Exchange differences arising on actual payments / realisations and
year-end restatements are dealt with in the statement of profit and
loss.
The premium or discount arising at the inception of forward exchange
contracts (other than those relating to a form commitment or a highly
probable forecast) are amortized as expense or income over the life of
the contract.
1.12 Government grants, subsidies and export incentives
Lump-sum capital subsidies, not relating to any Specific fixed asset,
received from State Governments for setting up new projects are
accounted as capital reserve.
Export Benefits on account of entitlement to import goods free of duty
under '' Exports Benefits Scheme'' are accounted based on eligibility and
when there is no uncertainty in receiving the same.
1.13 Investments
Long term investments are carried individually at cost less provision
for diminution, other than temporary, in the value of such investments.
Current investments are carried individually at the lower of cost and
fair value.
1.14 Employee benefits
a. Defend contribution plan
Fixed contributions to the Superannuation Fund which is administered by
Company nominated trustees and managed by Life Insurance Corporation of
India and to Employee State Insurance Corporation [ESI] are charged to
the Statement of profit and loss, based on the amount of contribution
required to be made and when services are rendered by the employees.
Company also contributes to a government administered Pension fund on
behalf of its employees, which are charged to the Statement of profit
and loss.
The employees and the Company make monthly fixed contributions to the
Carborundum Universal Limited Employee''s Provident Fund Trust, equal to
a specified percentage of the covered employee''s salary. The interest
rate payable by the Trust to the beneficiaries is being notified by the
Government every year. The Company obtains an independent actuarial
valuation of the Interest Guarantees as at the Balance sheet date and
provides for the shortfall, if any, in the present value of obligation
of interest over the fair value of the surplus in the Fund.
b. Defend benefit plan
The liability for Gratuity to employees as at the Balance Sheet date is
determined on the basis of actuarial valuation using Projected Unit
Credit method and is funded to a Gratuity fund administered by the
trustees and managed by Life Insurance Corporation of India and SBI
Life Insurance Company Limited. The liability there of paid / payable
is absorbed in the accounts. The actuarial gains / losses are
recognised in the Statement of Profit and Loss.
c. Long term compensated absences
In respect of long term portion of compensated absences [Leave
benefits], the liability is determined on the basis of actuarial
valuation and is provided for.
d. Short term employee benefits
Short term employee benefits including accumulated compensated absences
determined as per Company''s policy/ scheme are recognized as expense
based on expected obligation on undiscounted basis.
e. Voluntary retirement compensation
Compensation to employees who have retired under voluntary retirement
scheme is charged off to revenue.
1.15 Employee share based payments
Stock options granted to the employees under the stock option scheme
are evaluated as per the accounting treatment prescribed by the
Employee Stock Option Scheme and Employee Stock Purchase Scheme
Guidelines, 1999 issued by Securities Exchange Board of India. The
Company follows the intrinsic value method of accounting for the
options and accordingly, the excess of market value of the stock
options as on date of grant, if any, over the exercise price of the
options is recognized as deferred employee compensation and is charged
to the Statement of Profit and Loss on graded vesting basis over the
vesting period of the options.
1.16 Borrowing costs
Borrowing costs include interest, amortisation of ancillary costs
incurred and exchange differences arising from foreign currency
borrowings to the extent they are regarded as an adjustment to the
interest cost. Costs in connection with the borrowing of funds to the
extent not directly related to the acquisition of qualifying assets are
charged to the Statement of Profit and Loss over the tenure of the loan.
Borrowing costs, allocated to and utilised for qualifying assets,
pertaining to the period from commencement of activities relating to
construction / development of the qualifying asset upto the date of
capitalisation of such asset is added to the cost of the assets.
Capitalisation of borrowing costs is suspended and charged to the
Statement of Profit and Loss during extended periods when active
development activity on the qualifying assets is interrupted.
1.17 Segment reporting
The accounting policies adopted for segment reporting are in line with
the accounting policies of the Company with the following additional
policies :
a. Inter-segment revenues have been accounted on the basis of prices
charged to external customers.
b. Revenue and expenses have been identified to segments on the basis of
their relationship to the operating activities of the segment. Revenue
and expenses, which relate to the enterprise as a whole and are not
allocable to segments on a reasonable basis have been included under
"Unallocated Corporate Expenses"
1.18 Earnings per share
Basic earnings per share is computed by dividing the profit / (loss)
after tax (including the post tax effect of extraordinary items, if
any) by the weighted average number of equity shares outstanding during
the year. Diluted earnings per share is computed by dividing the profit
/ (loss) after tax (including the post tax effect of extraordinary
items, if any) as adjusted for dividend, interest and other charges to
expense or income relating to the dilutive potential equity shares, by
the weighted average number of equity shares considered for deriving
basic earnings per share and the weighted average number of equity
shares which could have been issued on the conversion of all dilutive
potential equity shares.
Potential equity shares are deemed to be dilutive only if their
conversion to equity shares would decrease the net profit per share from
continuing ordinary operations. Potential dilutive equity shares are
deemed to be converted as at the beginning of the period, unless they
have been issued at a later date. The dilutive potential equity shares
are adjusted for the proceeds receivable had the shares been actually
issued at fair value (i.e. average market value of the outstanding
shares). Dilutive potential equity shares are determined independently
for each period presented. The number of equity shares and potentially
dilutive equity shares are adjusted for share splits / reverse share
splits and bonus shares, as appropriate.
1.19 CENVAT / Service Tax / VAT
CENVAT/VAT credit on materials purchased / services availed for
production / Input services are taken into account at the time of
purchase. Service tax input credit is accounted for in the books in
the period in which the underlying service received is accounted and
when there is no uncertainty in availing/ utilising the credits.
CENVAT/VAT credit on purchase of capital items wherever applicable are
taken into account as and when the assets are acquired. The CENVAT
credits so taken are utilised for payment of excise duty on goods
manufactured / Service tax on Output services. The unutilised
CENVAT/VAT credit is carried forward in the books.
1.20 Taxes on income
Current tax is determined on income for the year chargeable to tax in
accordance with the Income Tax Act, 1961.
Deferred tax is recognised for all the timing differences and is
measured using the tax rates and the tax laws enacted or substantively
enacted at the reporting date. Deferred Ta x assets in respect of
unabsorbed depreciation and carry forward of losses are recognized if
there is virtual certainty that there will be sufficient future taxable
income available to realize such losses. Other deferred tax assets are
recognized if there is reasonable certainty that there will be
sufficient future taxable income available to realise such assets.
1.21 Research and development expenses
All revenue expenditure related to research and development are charged
to the respective heads in the Statement of profit and loss. Capital
expenditure incurred on research and development is capitalised as fixed
assets and depreciated in accordance with the depreciation policy of
the Company.
1.22 Impairment of assets
At each balance sheet date, the carrying values of the tangible and
intangible assets are reviewed to determine whether there is any
indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if
any). Where there is an indication that there is a likely impairment
loss for a group of assets, the Company estimates the recoverable
amount of the group of assets as a whole, and the impairment loss is
recognized.
1.23 Provisions and contingencies
Provisions are recognised only when there is a present obligation as a
result of past events and when a reliable estimate of the amount of
obligation can be made. Contingent liability is disclosed for (i)
Possible obligation which will be confirmed only by future events not
wholly within the control of the Company or (ii) Present obligations
arising from past events where it is not probable that an outflow of
resources will be required to settle the obligation or a reliable
estimate of the amount of the obligation cannot be made. Contingent
assets are not recognised in the financial statements.
1.24 Hedge accounting
The Company uses foreign currency forward contracts to hedge its risks
associated with foreign currency fluctuations relating to highly
probable forecast transactions. The Company designates such forward
contracts in a cash flow hedging relationship by applying the hedge
accounting principles set out in "Accounting Standard 30 Financial
Instruments: Recognition and Measurement". These forward contracts are
stated at fair value at each reporting date. Changes in the fair value
of these forward contracts that are designated and effective as hedges
of future cash flows are recognised directly in "Hedging reserve
account" under Reserves and surplus, net of applicable deferred income
taxes and the ineffective portion is recognised immediately in the
Statement of Profit and Loss.
Amounts accumulated in the "Hedging reserve account" are reclassified to
the Statement of Profit and Loss in the same periods during which the
forecasted transaction affects profit and loss. Hedge accounting is
discontinued when the hedging instrument expires or is sold,
terminated, or exercised, or no longer qualifies for hedge accounting.
For forecasted transactions, any cumulative gain or loss on the hedging
instrument recognised in "Hedging reserve account" is retained until
the forecasted transaction occurs. If the forecasted transaction is no
longer expected to occur, the net cumulative gain or loss recognised in
"Hedging reserve account" is immediately transferred to the Statement
of Profit and Loss.
1.25 Derivative contracts
The Company enters into derivative contracts in the nature of foreign
currency swaps, currency options, forward contracts with an intention
to hedge its existing assets and liabilities, form commitments and
highly probable transactions. Derivative contracts which are closely
linked to the existing assets and liabilities are accounted as per the
policy stated for Foreign Currency Transactions and Translations.
Derivative contracts designated as a hedging instrument for highly
probable forecast transactions are accounted as per the policy stated
for Hedge Accounting.
Mar 31, 2013
1.1 Accounting Convention
The financial statements have been prepared under the historical cost
convention, with the exception of Land and Buildings (which were
revalued), on accrual basis and in accordance with Generally Accepted
Accounting Principles in India (Indian GAAP). The said financial
statements comply with the relevant provisions of the Companies Act,
1956 (the Act) and the Accounting Standards notified by the Central
Government of India under Companies (Accounting Standards) Rules, 2006,
as applicable. The accounting policies adopted in the preparation of
the financial statements are consistent with those followed in the
previous year.
1.2 Use of estimates
The preparation of financial statements requires estimates and
assumptions to be made that affect the reported amount of assets and
liabilities (including contingent liabilities) on the date of the
financial statements and the reported amount of revenues and expenses
during the reporting year. Management believes that the estimates used
in the preparation of financial statements are prudent and reasonable.
Future results could differ due to these estimates and differences
between the actual results and estimates are recognized in the year in
which the results are known / materialized.
1.3 Inventories
Inventories are valued at lower of cost and net realizable value. Cost
includes freight, taxes and duties net of CENVAT / VAT credit wherever
applicable. Customs duty payable on material in bond is added to the
cost.
In respect of raw materials, stores and spare parts, cost is determined
on weighted average basis. In respect of Work in Process and Finished
goods, cost includes all direct costs and applicable production
overheads, to bring the goods to the present location and condition.
1.4 Cash and cash equivalents (for purposes of Cash Flow Statement)
Cash comprises cash on hand and demand deposits with banks. Cash
equivalents are short-term balances (with an original maturity of three
months or less from the date of acquisition), highly liquid investments
that are readily convertible into known amounts of cash and which are
subject to insignificant risk of changes in value.
1.5 Cash flow statement
Cash flows are reported using the indirect method, whereby profit /
(loss) before extraordinary items and tax is adjusted for the effects
of transactions of non- cash nature and any deferrals or accruals of
past or future cash receipts or payments. The cash flows from
operating, investing and financing activities of the Company are
segregated based on the available information.
1.6 Depreciation and amortisation
Depreciation on fixed assets has been provided on straight-line method
at rates and in the manner specified in Schedule XIV to the Companies
Act 1956, except for the following assets which are depreciated at
higher rates :
- leased vehicles are depreciated over four years,
- lease hold improvements are depreciated over six years,
- Building and other assets on lease hold land are depreciated over the
lease period,
- Individual assets costing less than Rs. 5,000 are depreciated in full
in the year of acquisition.
The difference between the depreciation for the year on the revalued
assets and depreciation calculated on the original cost is recouped
from the fixed assets revaluation reserve.
Depreciation on additions to fixed assets is provided on a pro-rata
basis from the date of commissioning of the individual asset.
Premium on Lease hold Land is amortised over the tenure of the lease.
Intangible assets are amortised over their estimated useful life of 5
years on a straight line basis.
1.7 Revenue recognition Sale of goods
Domestic sales are accounted on transfer of significant risks and
rewards of ownership to the buyer which generally coincides with
despatch of products to customers in case of domestic sales and on the
basis of bill of lading in the case of export sales . Sales are
accounted net of Sales Tax / VAT, Discounts and Returns as applicable.
Income from Contracts
The revenues from divisible contracts are recognized on the percentage
completion method in respect of works contracts and from supplies on
despatch. In respect of indivisible contracts, the revenues are
recognized on a percentage completion method, synchronized to the
billing schedules agreed by the customers.
1.8 Other income
Interest income is accounted on accrual basis. Dividend income is
accounted for when the right to receive is established.
1.9 Tangible fixed assets
Fixed assets are stated at historical cost except land and buildings
added up to 31st August 1984 which are shown as per the revaluation
done in that year, less accumulated depreciation / amortisation.
Cost comprises of direct cost, related taxes, duties, freight and
attributable finance costs (Refer 2.16 below) till such assets are
ready for its intended use and net of CENVAT/VAT wherever applicable.
Subsidy received from State Government towards specific assets is
reduced from the cost of fixed assets. Fixed assets taken on finance
lease are capitalised.
Machinery spares used in connection with a particular item of fixed
asset and the use of which is irregular, are capitalized at cost net of
CENVAT / VAT, as applicable.
Expenditure directly relating to new projects prior to commencement of
commercial production is capitalised. Indirect expenditure (net of
income) attributable to the new projects or which are incidental
thereto are also capitalised.
Capital work-in-progress:
Capital work in progress is stated at the amount expended up to the
Balance sheet date.
1.10 Intangible assets
Intangible assets are carried at cost less accumulated amortisation and
impairment losses, if any. The cost of an intangible asset comprises
its purchase price, including any import duties and other taxes (other
than those subsequently recoverable from the taxing authorities), and
any directly attributable expenditure on making the asset ready for its
intended use and net of any trade discounts and rebates. Subsequent
expenditure on an intangible asset after its purchase / completion is
recognised as an expense when incurred unless it is probable that such
expenditure will enable the asset to generate future economic benefits
in excess of its originally assessed standards of performance and such
expenditure can be measured and attributed to the asset reliably, in
which case such expenditure is added to the cost of the asset.
Refer note 2.21 for accounting for Research and Development Expenses.
1.11 Foreign currency transactions and translations
Foreign currency transactions are recorded at the rates of exchange
prevailing on the date of the transactions. Monetary assets &
liabilities outstanding at the year- end are translated at the rate of
exchange prevailing at the year-end and the gain or loss, is recognised
in the statement of profit and loss.
Exchange differences arising on actual payments/ realisations and
year-end restatements are dealt with in the statement of profit and
loss.
The premium or discount arising at the inception of forward exchange
contracts (other than those relating to a firm commitment or a highly
probable forecast) are amortized as expense or income over the life of
the contract.
1.12 Government grants, subsidies and export incentives
Lump-sum capital subsidies, not relating to any specific fixed asset,
received from State Governments for setting up new projects are
accounted as capital reserve.
Export Benefits on account of entitlement to import goods free of duty
under Duty Entitlement Pass Book Scheme and Status Holders Incentive
Scrip are accounted based on eligibility and when there is no
uncertainty in receiving the same.
1.13 Investments
Long term investments are carried individually at cost less provision
for dimunition, other than temporary, in the value of such investments.
Current investments are carried individually at the lower of cost and
fair value.
1.14 Employee benefits
a. Defined contribution plan
Fixed contributions to the Superannuation Fund which is administered by
Company nominated trustees and managed by Life Insurance Corporation of
India and to Employee State Insurance Corporation [ESI] are charged to
the Statement of profit and loss.
Company also contributes to a government administered Pension fund on
behalf of its employees, which are charged to the Statement of profit
and loss.
b. Defined benefit plan
The liability for Gratuity to employees as at the Balance Sheet date is
determined on the basis of actuarial valuation using Projected Unit
Credit method and is funded to a Gratuity fund administered by the
trustees and managed by Life Insurance Corporation of India and SBI
Life Insurance Company Limited. The liability there of paid / payable
is absorbed in the accounts. The actuarial gains / losses are
recognised in the Statement of Profit and Loss.
The employees and the Company make monthly fixed contributions to the
Carborundum Universal Limited Employee''s Provident Fund Trust, equal
to a specified percentage of the covered employee''s salary. The
interest rate payable by the Trust to the beneficiaries is being
notified by the Government every year. The Company obtains an
independent actuarial valuation of the Interest Guarantees as at the
Balance sheet date and provides for the shortfall, if any, in the
present value of obligation of interest over the fair value of the
surplus in the Fund.
c. Long term compensated absences
In respect of long term portion of compensated absences [Leave
benefits], the liability is determined on the basis of actuarial
valuation and is provided for.
d. Short term employee benefits
Short term employee benefits including accumulated compensated absences
determined as per Company''s policy/scheme are recognized as expense
based on expected obligation on undiscounted basis.
e. Voluntary retirement compensation
Compensation to employees who have retired under voluntary retirement
scheme is charged off to revenue.
1.15 Employee share based payments
Stock options granted to the employees under the stock option scheme
are evaluated as per the accounting treatment prescribed by the
Employee Stock Option Scheme and Employee Stock Purchase Scheme
Guidelines, 1999 issued by Securities Exchange Board of India. The
Company follows the intrinsic value method of accounting for the
options and accordingly, the excess of market value of the stock
options as on date of grant, if any, over the exercise price of the
options is recognized as deferred employee compensation and is charged
to the Statement of Profit and Loss on graded vesting basis over the
vesting period of the options.
1.16 Borrowing costs
Borrowing costs include interest, amortisation of ancillary costs
incurred and exchange differences arising from foreign currency
borrowings to the extent they are regarded as an adjustment to the
interest cost. Costs in connection with the borrowing of funds to the
extent not directly related to the acquisition of qualifying assets are
charged to the Statement of Profit and Loss over the tenure of the
loan. Borrowing costs, allocated to and utilised for qualifying assets,
pertaining to the period from commencement of activities relating to
construction / development of the qualifying asset upto the date of
capitalisation of such asset is added to the cost of the assets.
Capitalisation of borrowing costs is suspended and charged to the
Statement of Profit and Loss during extended periods when active
development activity on the qualifying assets is interrupted.
1.17 Segment reporting
The accounting policies adopted for segment reporting are in line with
the accounting policies of the Company with the following additional
policies :
a. Inter-segment revenues have been accounted on the basis of prices
charged to external customers.
b. Revenue and expenses have been identified to segments on the basis
of their relationship to the operating activities of the segment.
Revenue and expenses, which relate to the enterprise as a whole and are
not allocable to segments on a reasonable basis have been included
under "Unallocated Corporate Expenses''''
1.18 Earnings per share
Basic earnings per share is computed by dividing the profit / (loss)
after tax (including the post tax effect of extraordinary items, if
any) by the weighted average number of equity shares outstanding during
the year. Diluted earnings per share is computed by dividing the
profit / (loss) after tax (including the post tax effect of
extraordinary items, if any) as adjusted for dividend, interest and
other charges to expense or income relating to the dilutive potential
equity shares, by the weighted average number of equity shares
considered for deriving basic earnings per share and the weighted
average number of equity shares which could have been issued on the
conversion of all dilutive potential equity shares.
Potential equity shares are deemed to be dilutive only if their
conversion to equity shares would decrease the net profit per share
from continuing ordinary operations. Potential dilutive equity shares
are deemed to be converted as at the beginning of the period, unless
they have been issued at a later date. The dilutive potential equity
shares are adjusted for the proceeds receivable had the shares been
actually issued at fair value (i.e. average market value of the
outstanding shares). Dilutive potential equity shares are determined
independently for each period presented. The number of equity shares
and potentially dilutive equity shares are adjusted for share splits /
reverse share splits and bonus shares, as appropriate.
1.19 CENVAT/Service Tax/VAT
CENVAT/VAT credit on materials purchased / services availed for
production / Input services are taken into account at the time of
purchase. Service tax input credit is accounted for in the books in the
period in which the underlying service received is accounted and when
there is no uncertainty in availing/ utilising the credits. CENVAT/VAT
credit on purchase of capital items wherever applicable are taken into
account as and when the assets are acquired. The CENVAT credits so
taken are utilised for payment of excise duty on goods manufactured /
Service tax on Output services. The unutilised CENVAT/VAT credit is
carried forward in the books.
1.20 Taxes on income
Current tax is determined on income for the year chargeable to tax in
accordance with the Income Tax Act, 1961.
Deferred tax is recognised for all the timing differences and is
measured using the tax rates and the tax laws enacted or substantively
enacted at the reporting date. Deferred Tax assets in respect of
unabsorbed depreciation and carry forward of losses are recognized if
there is virtual certainty that there will be sufficient future taxable
income available to realize such losses. Other deferred tax assets are
recognized if there is reasonable certainty that there will be
sufficient future taxable income available to realise such assets.
1.21 Research and development expenses
All revenue expenditure related to research and development are charged
to the respective heads in the Statement of profit and loss. Capital
expenditure incurred on research and development is capitalised as
fixed assets and depreciated in accordance with the depreciation policy
of the Company.
1.22 Impairment of assets
At each balance sheet date, the carrying values of the tangible and
intangible assets are reviewed to determine whether there is any
indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if
any). Where there is an indication that there is a likely impairment
loss for a group of assets, the Company estimates the recoverable
amount of the group of assets as a whole, and the impairment loss is
recognized.
1.23 Provisions and contingencies
Provisions are recognised only when there is a present obligation as a
result of past events and when a reliable estimate of the amount of
obligation can be made. Contingent liability is disclosed for (i)
Possible obligation which will be confirmed only by future events not
wholly within the control of the Company or
(ii) Present obligations arising from past events where it is not
probable that an outflow of resources will be required to settle the
obligation or a reliable estimate of the amount of the obligation
cannot be made. Contingent assets are not recognised in the financial
statements.
1.24 Hedge accounting
The Company uses foreign currency forward contracts to hedge its risks
associated with foreign currency fluctuations relating to highly
probable forecast transactions. The Company designates such forward
contracts in a cash flow hedging relationship by applying the hedge
accounting principles set out in "Accounting Standard 30 Financial
Instruments: Recognition and Measurement". These forward contracts
are stated at fair value at each reporting date. Changes in the fair
value of these forward contracts that are designated and effective as
hedges of future cash flows are recognised directly in "Hedging
reserve account" under Reserves and surplus, net of applicable
deferred income taxes and the ineffective portion is recognised
immediately in the Statement of Profit and Loss. Amounts accumulated in
the "Hedging reserve account" are reclassified to the Statement of
Profit and Loss in the same periods during which the forecasted
transaction affects profit and loss. Hedge accounting is discontinued
when the hedging instrument expires or is sold, terminated, or
exercised, or no longer qualifies for hedge accounting. For forecasted
transactions, any cumulative gain or loss on the hedging instrument
recognised in "Hedging reserve account" is retained until the
forecasted transaction occurs. If the forecasted transaction is no
longer expected to occur, the net cumulative gain or loss recognised in
"Hedging reserve account" is immediately transferred to the
Statement of Profit and Loss.
1.25 Derivative contracts
The Company enters into derivative contracts in the nature of foreign
currency swaps, currency options, forward contracts with an intention
to hedge its existing assets and liabilities, firm commitments and
highly probable transactions. Derivative contracts which are closely
linked to the existing assets and liabilities are accounted as per the
policy stated for Foreign Currency Transactions and Translations.
Derivative contracts designated as a hedging instrument for highly
probable forecast transactions are accounted as per the policy stated
for Hedge Accounting.
Mar 31, 2012
1.1 Accounting Convention
The financial statements have been prepared under the historical cost
convention, with the exception of Land and Buildings (which were
revalued), on accrual basis and in accordance with Generally Accepted
Accounting Principles in India (Indian GAAP). The said financial
statements comply with the relevant provisions of the Companies Act,
1956 (the Act) and the Accounting Standards notified by the Central
Government of India under Companies (Accounting Standards) Rules, 2006,
as applicable.
1.2 Use of estimates
The preparation of financial statements requires estimates and
assumptions to be made that affect the reported amount of assets and
liabilities (including contingent liabilities) on the date of the
financial statements and the reported amount of revenues and expenses
during the reporting year. Management believes that the estimates used
in the preparation of financial statements are prudent and reasonable.
Future results could differ due to these estimates and differences
between the actual results and estimates are recognized in the year in
which the results are known / materialized.
1.3 Inventories
Inventories are valued at lower of cost and net realizable value. Cost
includes freight, taxes and duties net of CENVAT / VAT credit wherever
applicable. Customs duty payable on material in bond is added to the
cost.
In respect of raw materials, stores and spare parts, cost is determined
on weighted average basis. In respect of Work in Process and Finished
goods, cost includes all direct costs and applicable production
overheads, to bring the goods to the present location and condition.
1.4 Cash and cash equivalents (for purposes of Cash Flow Statement)
Cash comprises cash on hand and demand deposits with banks. Cash
equivalents are short-term balances (with an original maturity of three
months or less from the date of acquisition), highly liquid investments
that are readily convertible into known amounts of cash and which are
subject to insignificant risk of changes in value.
1.5 Cash flow statement
Cash flows are reported using the indirect method, whereby profit/
(loss) before extraordinary items and tax is adjusted for the effects
of transactions of non- cash nature and any deferrals or accruals of
past or future cash receipts or payments. The cash flows from
operating, investing and financing activities of the Company are
segregated based on the available information.
1.6 Depreciation and amortisation
Depreciation on fixed assets has been provided on straight-line method
at rates and in the manner specified in Schedule XIV to the Companies
Act 1956, except for the following assets which are depreciated at
higher rates :
- leased vehicles are depreciated over four years,
- lease hold improvements are depreciated over six years,
- Building and other assets on lease hold land are depreciated over the
lease period,
-Individual assets costing less than Rs. 5,000 are depreciated in full
in the year of acquisition.
The difference between the depreciation for the year on the revalued
assets and depreciation calculated on the original cost is recouped
from the fixed assets revaluation reserve.
Depreciation on additions to fixed assets is provided on a pro-rata
basis from the date of commissioning of the individual asset.
Premium on Lease hold Land is amortised over the tenure of the lease.
Intangible assets are amortised over their estimated useful life of 5
years on straight line basis.
1.7 Revenue recognition
Sale of goods
Domestic sales are accounted on despatch of products to customers and
export sales are accounted on the basis of Bill of Lading. Sales are
accounted net of Sales Tax / VAT, Discounts and Returns as applicable.
Income from Contracts
The revenues from divisible contracts are recognized on the percentage
completion method in respect of works contracts and from supplies on
despatch. In respect of indivisible contracts, the revenues are
recognized on a percentage completion method, synchronized to the
billing schedules agreed by the customers.
1.8 Other income
Interest income is accounted on accrual basis. Dividend income is
accounted for when the right to receive is established.
1.9 Tangible fixed assets
Fixed assets are stated at historical cost except land and buildings
added up to 31st August 1984 which are shown as per the revaluation
done in that year, less accumulated depreciation / amortisation.
Cost comprises of direct cost, related taxes, duties, freight and
attributable finance costs (Refer 2.16 below) till such assets are
ready for its intended use and net of CENVAT/VAT wherever applicable.
Subsidy received from State Government towards specific assets is
reduced from the cost of fixed assets. Fixed assets taken on finance
lease are capitalised.
Machinery spares used in connection with a particular item of fixed
asset and the use of which is irregular, are capitalized at cost net of
CENVAT / VAT, as applicable.
Expenditure directly relating to new projects prior to commencement of
commercial production is capitalised. Indirect expenditure (net of
income) attributable to the new projects or which are incidental
thereto are also capitalised.
Capital work-in-progress:
Capital work in progress is stated at the amount expended up to the
Balance sheet date.
1.10 Intangible assets
Intangible assets are carried at cost less accumulated amortisation and
impairment losses, if any. The cost of an intangible asset comprises
its purchase price, including any import duties and other taxes (other
than those subsequently recoverable from the taxing authorities), and
any directly attributable expenditure on making the asset ready for its
intended use and net of any trade discounts and rebates. Subsequent
expenditure on an intangible asset after its purchase/ completion is
recognised as an expense when incurred unless it is probable that such
expenditure will enable the asset to generate future economic benefits
in excess of its originally assessed standards of performance and such
expenditure can be measured and attributed to the asset reliably, in
which case such expenditure is added to the cost of the asset.
Refer note 2.21 for accounting for Research and Development Expenses.
1.11 Foreign currency transactions and translations
Foreign currency transactions are recorded at the rates of exchange
prevailing on the date of the transactions. Monetary assets &
liabilities outstanding at the year- end are translated at the rate of
exchange prevailing at the year-end and the gain or loss, is recognised
in the statement of profit and loss.
Exchange differences arising on actual payments/ realisations and
year-end restatements are dealt with in the statement of profit and
loss.
The premium or discount arising at the inception of forward exchange
contracts (other than those relating to a firm commitment or a highly
probable forecast) are amortized as expense or income over the life of
the contract.
1.12 Government grants, subsidies and export incentives
Lump-sum capital subsidies, not relating to any specific fixed asset,
received from State Governments for setting up new projects are
accounted as capital reserve.
Export Benefits on account of entitlement to import goods free of duty
under Duty Entitlement Pass Book Scheme and Status Holders Incentive
Scrip are accounted in the year of exports based on eligibility and
when there is no uncertainty in receiving the same.
1.13 Investments
Long term investments that are intended to be held for more than a
year, from the date of acquisition, are classified as long term
investments and are carried at cost. However, provision for diminution
is made in the value of investments if such diminution is other than of
temporary in nature.
Current investments are stated at lower of cost and fair value.
1.14 Employee benefits
a. Defined contribution plan
Fixed contributions to the Superannuation Fund which is administered by
Company nominated trustees and managed by Life Insurance Corporation of
India and to Employee State Insurance Corporation [ESI] are charged to
the Statement of profit and loss.
Company also contributes to a government administered Pension fund on
behalf of its employees, which are charged to the Statement of profit
and loss.
b. Defined benefit plan
The liability for Gratuity to employees as at Balance Sheet date is
determined on the basis of actuarial valuation using Projected Unit
Credit method and is funded to a Gratuity fund administered by the
trustees and managed by Life Insurance Corporation of India and SBI
Life Insurance Company Limited. The liability there of paid / payable
is absorbed in the accounts. The actuarial gains / losses are
recognised in the Statement of Profit and Loss.
The employees and the Company make monthly fixed contributions to the
Carborundum Universal Limited Employee's Provident Fund Trust, equal to
a specified percentage of the covered employee's salary. The interest
rate payable by the Trust to the beneficiaries is being notified by the
Government every year. The Company obtains an independent actuarial
valuation of the Interest Guarantees as at the Balance sheet date and
provides for the shortfall, if any, in the present value of obligation
of interest over the fair value of the surplus in the Fund.
c. Long term compensated absences
In respect of long term portion of compensated absences [Leave
benefits], the liability is determined on the basis of actuarial
valuation and is provided for.
d. Short term employee benefits
Short term employee benefits including accumulated compensated absences
determined as per Company's policy/scheme are recognized as expense
based on expected obligation on undiscounted basis.
e. Voluntary retirement compensation
Compensation to employees who have retired under voluntary retirement
scheme is charged off to revenue.
1.15 Employee share based payments
Stock options granted to the employees under the stock option scheme
are evaluated as per the accounting treatment prescribed by the
Employee Stock Option Scheme and Employee Stock Purchase Scheme
Guidelines, 1999 issued by Securities Exchange Board of India. The
Company follows the intrinsic value method of accounting for the
options and accordingly, the excess of market value of the stock
options as on date of grant, if any, over the exercise price of the
options is recognized as deferred employee compensation and is charged
to the Statement of Profit and Loss on graded vesting basis over the
vesting period of the options.
1.16 Borrowing costs
Borrowing costs, if any, are capitalised as part of qualifying fixed
assets when it is probable that they will result in future economic
benefits. Other borrowing costs are expensed.
1.17 Segment reporting
The accounting policies adopted for segment reporting are in line with
the accounting policies of the Company with the following additional
policies :
a. Inter-segment revenues have been accounted on the basis of prices
charged to external customers.
b. Revenue and expenses have been identified to segments on the basis
of their relationship to the operating activities of the segment.
Revenue and expenses, which relate to the enterprise as a whole and are
not allocable to segments on a reasonable basis have been included
under "Unallocated Corporate Expenses"
1.18 Earnings per share
Basic earnings per share is computed by dividing the profit / (loss)
after tax (including the post tax effect of extraordinary items, if
any) by the weighted average number of equity shares outstanding during
the year.
Diluted earnings per share is computed by dividing the profit / (loss)
after tax (including the post tax effect of extraordinary items, if
any) as adjusted for dividend, interest and other charges to expense or
income relating to the dilutive potential equity shares, by the
weighted average number of equity shares considered for deriving basic
earnings per share and the weighted average number of equity shares
which could have been issued on the conversion of all dilutive
potential equity shares.
Potential equity shares are deemed to be dilutive only if their
conversion to equity shares would decrease the net profit per share
from continuing ordinary operations. Potential dilutive equity shares
are deemed to be converted as at the beginning of the period, unless
they have been issued at a later date. The dilutive potential equity
shares are adjusted for the proceeds receivable had the shares been
actually issued at fair value (i.e. average market value of the
outstanding shares). Dilutive potential equity shares are determined
independently for each period presented. The number of equity shares
and potentially dilutive equity shares are adjusted for share splits /
reverse share splits and bonus shares, as appropriate.
1.19 CENVAT/Service Tax/VAT
CENVAT/VAT credit on materials purchased / services availed for
production / Input services are taken into account at the time of
purchase. Service tax input credit is accounted for in the books in the
period in which the underlying service received is accounted and when
there is no uncertainity in availing/ utilising the credits. CENVATA/AT
credit on purchase of capital items wherever applicable are taken into
account as and when the assets are acquired. The CENVAT credits so
taken are utilised for payment of excise duty on goods manufactured /
Service tax on Output services. The unutilised CENVATA/AT credit is
carried forward in the books.
1.20 Taxes on income
Current tax is determined on income for the year chargeable to tax in
accordance with the Income Tax Act, 1961.
Deferred tax is recognised for all the timing differences. Deferred Tax
assets in respect of unabsorbed depreciation and carry forward of
losses are recognized if there is virtual certainty that there will be
sufficient future taxable income available to realize such losses.
Other deferred tax assets are recognized if there is reasonable
certainty that there will be sufficient future taxable income available
to realise such assets.
1.21 Research and development expenses
All revenue expenditure related to research and development are charged
to the respective heads in the Statement of profit and loss. Capital
expenditure incurred on research and development is capitalised as
fixed assets and depreciated in accordance with the depreciation policy
of the Company.
1.22 Impairment of assets
At each balance sheet date, the carrying values of the tangible and
intangible assets are reviewed to determine whether there is any
indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if
any). Where there is an indication that there is a likely impairment
loss for a group of assets, the Company estimates the recoverable
amount of the group of assets as a whole, and the impairment loss is
recognized.
1.23 Provisions and contingencies
Provisions are recognised only when there is a present obligation as a
result of past events and when a reliable estimate of the amount of
obligation can be made. Contingent liability is disclosed for (i)
Possible obligation which will be confirmed only by future events not
wholly within the control of the Company or (ii) Present obligations
arising from past events where it is not probable that an outflow of
resources will be required to settle the obligation or a reliable
estimate of the amount of the obligation cannot be made. Contingent
assets are not recognised in the financial statements.
1.24 Hedge accounting
The Company uses foreign currency forward contracts to hedge its risks
associated with foreign currency fluctuations relating to highly
probable forecast transactions. The Company designates such forward
contracts in a cash flow hedging relationship by applying the hedge
accounting principles set out in "Accounting Standard 30 Financial
Instruments:
Recognition and Measurement". These forward contracts are stated at
fair value at each reporting date. Changes in the fair value of these
forward contracts that are designated and effective as hedges of future
cash flows are recognised directly in "Hedging reserve account" under
Reserves and surplus, net of applicable deferred income taxes and the
ineffective portion is recognised immediately in the Statement of
Profit and Loss. Amounts accumulated in the "Hedging reserve account"
are reclassified to the Statement of Profit and Loss in the same
periods during which the forecasted transaction affects profit and
loss. Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, or exercised, or no longer qualifies
for hedge accounting. For forecasted transactions, any cumulative gain
or loss on the hedging instrument recognised in "Hedging reserve
account" is retained until the forecasted transaction occurs. If the
forecasted transaction is no longer expected to occur, the net
cumulative gain or loss recognised in "Hedging reserve account" is
immediately transferred to the Statement of Profit and Loss.
1.25 Derivative contracts
The Company enters into derivative contracts in the nature of foreign
currency swaps, currency options, forward contracts with an intention
to hedge its existing assets and liabilities, firm commitments and
highly probable transactions. Derivative contracts which are closely
linked to the existing assets and liabilities are accounted as per the
policy stated for Foreign Currency Transactions and Translations.
Derivative contracts designated as a hedging instrument for highly
probable forecast transactions are accounted as per the policy stated
for Hedge Accounting.
Mar 31, 2011
I. Basis of preparation
The consolidated financial statement of Carborundum Universal Limited
(the Company) with its Subsidiaries, interest in Joint ventures and
Associate have been prepared under historical cost convention with the
exception of Land and Buildings (which were revalued) on accrual basis
and in accordance with Generally Accepted Accounting Principles in
India (Indian GAAP). The said financial statements comply with the
relevant provisions of the Companies Act, 1956 (the Act) and the
mandatory Accounting Standards notified by the Central Government of
India under Companies (Accounting Standards) Rules, 2006.
ii. Basis of Consolidation
(a) The financial statements of the Company and its Subsidiaries have
been consolidated in accordance with the principles and procedures for
the preparation and presentation of consolidated financial statements
as laid down under Accounting Standard - 21, on a line-by-line basis by
adding together the book values of the like items of assets,
liabilities, income and expenses, after eliminating intra-group
balances and the unrealized profits/losses on intra-group transactions,
and are presented to the extent possible, in the same manner as the
Companys independent financial statements.
(b) Investments in Associate Company have been accounted for as per
Accounting Standard - 23, by using equity method whereby investment is
initially recorded at cost and the carrying amount is adjusted
thereafter for post - acquisition change in the Companys share of net
assets of the associate.
(c) The Companys interest in Jointly Controlled Entities are
consolidated as per Accounting Standard - 27, on a line-by-line basis
by adding together the book values of assets, liabilities, income and
expenses, after eliminating the unrealized profits/losses on intra
group transactions. Joint venture interests accounted as above are
included in the segments to which they relate.
(d) Consolidated financial statements are prepared using uniform
accounting policies except as stated in (iv)
(f), (vii)(b) & (c) and (xii)(b) & (d) of this Schedule, the
adjustments arising out of the same are not considered material.
(e) The overseas subsidiaries viz., CUMI Australia Pty Ltd, CUMI
Abrasives & Ceramics Company Limited, CUMI International Limited and
its subsidiaries Volzhsky Abrasives Works, Foskor Zirconia Pty Ltd,
CUMI America Inc, CUMI Middle East FZE and CUMI Canada Inc, are
classified as Non-Integral foreign operation. The financials were
translated into Indian Currency as per the Accounting Standard - 11
(Revised) and the exchange gains / (losses) arising on conversion are
accumulated under Foreign Currency Translation ReserveÃ.
iii. Use of Estimates
The preparation of financial statements requires estimates and
assumptions to be made that affect the reported amount of assets and
liabilities on the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Management
believes that the estimates used in the preparation of financial
statements are prudent and reasonable. Differences, if any, between the
actual results and estimates are recognised in the period in which the
result are known / materialised.
iv. Fixed assets and depreciation/ amortisation
(a) Fixed assets are stated at historical cost less accumulated
depreciation except land and buildings added up to 31st August 1984
which are shown as per the revaluation done in that year; and land and
buildings of Sterling Abrasives Limited which are shown as per the
revaluation done on 31st December 1993.
(b) Cost comprises of direct cost, related taxes, duties, freight and
attributable finance costs (Refer (vi) below) till such assets are
ready for its intended use and net of CENVAT/ VAT wherever applicable.
Subsidy received from State Government towards specific assets is
reduced from the cost of fixed assets. Fixed Assets taken on finance
lease are capitalised.
(c) Capital work in progress is stated at the amount expended up to the
Balance sheet date.
(d) Machinery spares used in connection with a particular item of fixed
asset and the use of which is irregular, are capitalized at cost net of
CENVAT / VAT, as applicable.
(e) Expenditure directly relating to new projects prior to commencement
of commercial production is capitalised. Indirect expenditure (net of
income) attributable to the new projects or which are incidental
thereto are also capitalised.
(f) Depreciation on fixed assets has been provided on straight-line
method at rates specified in Schedule XIV of the Companies Act 1956,
except that :
i. Leased vehicles which are depreciated over four years and Lease hold
improvements are depreciated over six years, are higher than Schedule
XIV rates.
ii. In respect of Assets held by Indian Subsidiaries & Overseas
Subsidiaries, Joint Ventures and Associate, depreciation is provided
based on the estimated useful life of those assets as estimated by the
respective Companies.
iii. Assets held by Ciria India Ltd (Joint Venture) are depreciated at
Schedule XIV rates on Written Down Value basis.
iv The difference between the depreciation for the year on the revalued
assets and depreciation calculated on the original cost is recouped
from the fixed assets revaluation reserve.
(g) Intangible assets are amortised over the estimated useful life of
the assets on straight line basis.
v. Impairment of assets
At each balance sheet date, the carrying values of the tangible and
intangible assets are reviewed to determine whether there is any
indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if
any).
Where there is an indication that there is a likely impairment loss for
a group of assets, the company estimates the recoverable amount of the
group of assets as a whole and the impairment loss is recognised.
vi. Borrowing costs
Borrowing costs are capitalised as part of qualifying fixed assets when
it is possible that they will result in future economic benefits. Other
borrowing costs are expensed.
vii. Inventories
(a) Inventories are valued at lower of cost and net realisable value.
Cost includes all direct costs and applicable production overheads to
bring the goods to the present location and condition. Excise duty on
the finished goods is added to the cost.
(b) In respect of Raw materials, accessories and stores and spares,
cost is determined on weighted average basis which includes freight,
taxes and duties net of CENVAT credit wherever applicable, except Ciria
India Ltd (joint venture) where cost is determined on First in First
out method. Customs duty payable on material in bond is added to cost.
(c) In respect of Parent company, Trading stocks are valued at weighted
average basis and in respect of others, Trading stocks are valued in
First in First out method.
(d) Work-in-process relating to construction contracts are valued
at cost. Direct expenses identifiable to a specific job are debited to
that job. Indirect expenses are not allocated but charged as period
cost in the year it is incurred.
viii. Investments
Long term investments are stated at cost/valuation and provision for
diminution is made if such diminution is other than temporary in
nature.
Short term investments are stated at lower of cost and market value.
ix. Revenue recognition
(i) Domestic sales are accounted on despatch of products to customers
and export sales are accounted on the basis of Bill of Lading. Sales
are accounted net of Sales Tax / VAT, Discounts and Returns as
applicable.
(ii) Service income is recognised on the basis of percentage of
completion. Revenue for divisible contracts is recognised in respect of
supplies as and when the supplies are completed and in respect of
construction on the percentage completion method.
Revenue from indivisible contracts is recognised on a percentage
completion method based on the billing schedules agreed with customers.
The relevant cost is recognised in Accounts in the year of recognition
of revenue. Profit so recognised is adjusted to ensure that it does not
exceed the estimated overall contract margin. The total costs of the
contracts are estimated based on technical and other estimates.
Foreseeable loss, if any, is recognized when it becomes probable and
could be estimated.
(iii) Benefits on account of entitlement to import goods free of duty
under Duty Entitlement Pass Book Scheme, are accounted in the year of
export.
(iv) Dividend income on investments is accounted for when the right to
receive the payment is established.
x. Research and Development
All revenue expenditure related to research and development are charged
to the respective heads on the Profit and Loss Account. Capital
expenditure incurred on research and development is capitalised as
fixed assets and depreciated in accordance with the depreciation policy
of the Company.
xi. Voluntary Retirement Compensation
In the parent company compensation to employees who have retired under
voluntary retirement scheme is written off to revenue.
xii. Employee Benefits
(a) Defined Contribution Plan
Fixed contributions to the Superannuation Fund and recognized Provident
Fund are absorbed in the accounts.
(b) Defined Benefit Plan
The liability for Gratuity to employees of the Parent and its domestic
subsidiaries and domestic joint ventures, as at Balance Sheet date is
determined on the basis of actuarial valuation using Projected Unit
Credit Method and is funded to a Gratuity fund administered by the
trustees and managed by Life Insurance Corporation of India & SBI Life
Insurance Ltd and the contribution there of paid / payable is absorbed
in the accounts. The actuarial gains / losses are recognised in the
Profit and Loss account.
The Parent Company and its employees make monthly fixed contributions
to Carborundum Universal Limited Employees Provident Fund Trust, equal
to a specified percentage of the covered employees salary. In respect
of domestic subsidiaries, the contribution is made to the Recognised
Provident Fund. The interest rate payable by the Trust to the
beneficiaries is being notified by the Government every year. The
Parent 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.
(c) Long term Compensated absences
In respect of long term portion of compensated absences [Leave
benefits], the liability is determined on the basis of actuarial
valuation and is provided for.
(d) Short term employee benefits
Short term employee benefits determined as per companys policy/scheme
are recognised as expense based on expected obligation on undiscounted
basis in the case of parent company and other Indian subsidiaries and
joint ventures except in the case of Southern Energy Development
Corporation Limited, an Indian subsidiary, where leave encashment
benefit on retirement to eligible employees is ascertained on actual
basis and provided for.
With respect to overseas Subsidiaries & Joint Ventures the Company has
provided for employee benefits as per the local regulations.
(e) Employee Stock Option Scheme
Stock options granted to the employees under the stock option scheme by
Parent company are evaluated as per the accounting treatment prescribed
by the Employee Stock Option Scheme and Employee Stock Purchase Scheme
Guidelines, 1999 issued by Securities Exchange Board of India. The
Parent Company follows the intrinsic value method of accounting for the
options and accordingly, the excess of market value of the stock
options as on date of grant, if any, over the exercise price of the
options is recognized as deferred employee compensation and is charged
to the Profit and Loss Account on graded vesting basis over the vesting
period of the options.
xiii. Foreign Currency Transaction
(a) Foreign currency transactions are recorded at the rates of exchange
prevailing on the date of transactions. Monetary assets & liabilities
outstanding at the year-end are translated at the rate of exchange
prevailing at the year-end and profit or loss is recognised in the
profit and loss account.
(b) Exchange differences arising on actual payments / realisations and
year end restatements are dealt with in the Profit & Loss Account.
(c) The premium or discount arising at the inception of forward
exchange contracts (other than those relating to a firm commitment or a
highly probable forecast) are amortized as expense or income over the
life of the contract.
xiv. Government Grants
Lump sum capital subsidies, not relating to any specific fixed asset,
received from State Governments for setting up new projects are
accounted as capital reserve.
xv. Excise Duty / Service Tax
CENVAT credit on materials purchased/ services availed for
production/input services are taken into account at the time of
purchase and CENVAT credit on purchase of capital items wherever
applicable are taken into account as and when the assets are acquired.
The CENVAT credits so taken are utilised for payment of excise duty on
goods manufactured / service tax on output services. The unutilised
CENVAT credit is carried forward in the books.
xvi. Segment reporting
(a) The accounting policies adopted for Segment reporting are in line
with the accounting policies of the Group with the following additional
policies.
(b) Inter-segment revenues have been accounted on the basis of prices
charged to external customers.
(c) Revenue and expenses have been identified to segments on the basis
of their relationship to the operating activities of the Segment.
Revenue and expenses, which relate to the enterprise as a whole and are
not allocable to Segments on a reasonable basis have been included
under Un-allocated Corporate expensesÃ.
xvii. Income Tax
(i) Current Tax is determined on income for the year chargeable to tax
in accordance with the Tax laws in force in the country of
incorporation of the respective companies into consolidation.
(ii) Deferred tax is recognised for all the timing differences.
Deferred Tax assets in respect of unabsorbed depreciation and carry
forward of losses are recognized if there is virtual certainty that
there will be sufficient future taxable income available to realize
such losses. Other deferred tax assets are recognized if there is
reasonable certainty that there will be sufficient future taxable
income available to realise such assets.
xviii. Provisions, Contingent Liabilities and Contingent Assets
Provisions are recognised only when there is a present obligation as a
result of past events and when a reliable estimate of the amount of
obligation can be made. Contingent liability is disclosed for (i)
Possible obligation which will be confirmed only by future events not
wholly within the control of the Company or (ii) Present obligations
arising from past events where it is not probable that an outflow of
resources will be required to settle the obligation or a reliable
estimate of the amount of the obligation cannot be made. Contingent
assets are not recognised in the financial statements.
Mar 31, 2010
(i) Accounting Convention
The financial statements have been prepared under the historical cost
convention, with the exception of Land and Buildings (which were
revalued), on accrual basis and in accordance with Generally Accepted
Accounting Principles in India (Indian GAAP). The said financial
statements comply with the relevant provisions of the Companies Act,
1956 (the Act) and the Accounting Standards notified by the Central
Government of India under Companies (Accounting Standards) Rules, 2006,
as applicable.
(ii) Use of Estimates
The preparation of financial statements requires estimates and
assumptions to be made that affect the reported amount of assets and
liabilities on the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Management
believes that the estimates used in the preparation of financial
statements are prudent and reasonable. Future results may vary from
these estimates.
(iii) Fixed assets and depreciation / amortisation
Fixed assets are stated at historical cost (net of CENVAT/VAT wherever
applicable) except land and buildings added up to 31st August 1984
which are shown as per the revaluation done in that year, less
accumulated depreciation / amortisation.
Cost comprises of direct cost, related taxes, duties, freight and
attributable finance costs (Refer (v) below) till such assets are ready
for its intended use. Subsidy received from State Government towards
specific assets is reduced from the cost of fixed assets. Fixed assets
taken on finance lease are capitalised.
Capital work in progress is stated at the amount expended up to the
Balance sheet date.
Machinery spares used in connection with a particular item of fixed
asset and the use of which is irregular, are capitalized at cost net of
CENVAT / VAT, as applicable.
Expenditure directly relating to new projects prior to commencement of
commercial production is capitalised. Indirect expenditure (net of
income) attributable to the new projects or which are incidental
thereto are also capitalised.
Depreciation on fixed assets has been provided on straight-line method
at rates and in the manner specified in Schedule XIV to the Companies
Act 1956, except for:
leased vehicles which are depreciated over four years lease hold
improvements are depreciated over six years,
The difference between the depreciation for the year on the revalued
assets and depreciation calculated on the original cost is recouped
from the fixed assets revaluation reserve.
Depreciation on additions to fixed assets is provided on a pro-rata
basis from the date of commissioning of the individual asset.
Premium on Lease hold Land is amortised over the tenure of the lease.
Individual assets costing less than Rs.5,000 are depreciated in full in
the year of acquisition.
Intangible assets are amortised over their estimated useful life of 5
years on straight line basis.
(iv) Impairment of assets
At each balance sheet date, the carrying values of the tangible and
intangible assets are reviewed to determine whether there is any
indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if
any). Where there is an indication that there is a likely impairment
loss for a group of assets, the Company estimates the recoverable
amount of the group of assets as a whole, and the impairment loss is
recognized.
(v) Borrowing costs
Borrowing costs, if any, are capitalised as part of qualifying fixed
assets when it is possible that they will result in future economic
benefits. Other borrowing costs are expensed.
(vi) Investments
Investments that are intended to be held for more than a year, from the
date of acquisition, are classified as long term investments and are
carried at cost. However, provision for diminution is made in the value
of investments if such diminution is other than that of temporary in
nature. Current investments are stated at lower of cost or fair value.
(vii) Inventories
Inventories are valued at lower of cost and net realizable value. Cost
includes freight, taxes and duties net of CENVAT / VAT credit wherever
applicable. Customs duty payable on material in bond is added to the
cost.
In respect of raw materials, stores and spare parts, cost is determined
on weighted average basis. In respect of Work in Process and Finished
goods, cost includes all direct costs and applicable production
overheads, to bring the goods to the present location and condition.
(viii) Revenue recognition
Domestic sales are accounted on despatch of products to customers and
export sales are accounted on the basis of Bill of Lading. Sales are
accounted net of Sales Tax / VAT, Discounts and Returns as applicable.
The revenues from divisible contracts are recognized on the percentage
completion method in respect of works contracts and from supplies on
despatch. In respect of indivisible contracts, the revenues are
recognized on a percentage completion method based on the billing
schedules agreed by the customers.
Benefits on account of entitlement to import goods free of duty under
Duty Entitlement Pass Book Scheme, are accounted in the year of export.
Dividend income on investments is accounted for, when the right to
receive the payment is established.
(ix) Research and Development
All revenue expenditure related to research and development are charged
to the respective heads in the profit and loss account. Capital
expenditure incurred on research and development is capitalised as
fixed assets and depreciated in accordance with the depreciation policy
of the Company.
(x) Employee Benefits
a. Defined contribution plan
Fixed contributions to the Superannuation Fund which is administered by
Company nominated trustees and managed by Life Insurance Corporation of
India and to Employee State Insurance Corporation [ESI] are charged to
the Profit and Loss account.
Company also contributes to a government administered Pension fund on
behalf of its employees, which are charged to the Profit and Loss
account.
b. Defined benefit plan
The liability for Gratuity to employees as at Balance Sheet date is
determined on the basis of actuarial valuation using Projected Unit
Credit method and is funded to a Gratuity fund administered by the
trustees and managed by Life Insurance Corporation of India and SBI
Life Insurance Company Limited. The liability there of paid / payable
is absorbed in the accounts. The actuarial gains / losses are
recognised in the Profit and Loss account.
The employees and the Company make monthly fixed contributions to the
Carborundum Universal Limited Employees Provident Fund Trust, equal to
a specified percentage of the covered employees salary. The interest
rate payable by the Trust to the beneficiaries is being notified by the
Government every year. 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.
c. Long term Compensated absences
In respect of long term portion of compensated absences [Leave
benefits], the liability is determined on the basis of actuarial
valuation and is provided for.
d. Short term employee benefits
Short term employee benefits including accumulated compensated absences
determined as per Companys policy/scheme are recognized as expense
based on expected obligation on undiscounted basis.
(xi) Voluntary Retirement Compensation
Compensation to employees who have retired under voluntary retirement
scheme is charged off to revenue.
(xii) Employee Stock Option Scheme
Stock options granted to the employees under the stock option scheme
are evaluated as per the accounting treatment prescribed by the
Employee Stock Option Scheme and
Employee Stock Purchase Scheme Guidelines, 1999 issued by Securities
Exchange Board of India. The Company follows the intrinsic value method
of accounting for the options and accordingly, the excess of market
value of the stock options as on date of grant, if any, over the
exercise price of the options is recognized as deferred employee
compensation and is charged to the Profit and Loss Account on graded
vesting basis over the vesting period of the options.
(xiii) Government Grants
Lump-sum capital subsidies, not relating to any specific fixed asset,
received from State Governments for setting up new projects are
accounted as capital reserve.
(xiv) CENVAT/ServiceTax/VAT
CENVAT/VAT credit on materials purchased / services availed for
production / Input services are taken into account at the time of
purchase. CENVAT/VAT credit on purchase of capital items wherever
applicable are taken into account as and when the assets are acquired.
The CENVAT credits so taken are utilised for payment of excise duty on
goods manufactured / Service tax on Output services. The unutilised
CENVAT/VAT credit is carried forward in the books.
(xv) Segment reporting
The accounting policies adopted for segment reporting are in line with
the accounting policies of the Company with the following additional
policies:
a. Inter-segment revenues have been accounted on the basis of prices
charged to external customers.
b. Revenue and expenses have been identified to segments on the basis
of their relationship to the operating activities of the segment.
Revenue and expenses, which relate to the enterprise as a whole and are
not allocable to segments on a reasonable basis have been included
under "Unallocated Corporate Expenses"
(xvi) Income Tax
Current tax is determined on income for the year chargeable to tax in
accordance with the Income Tax Act, 1961.
Deferred tax is recognised for all the timing differences. Deferred Tax
assets in respect of unabsorbed depreciation and carry
forward of losses are recognized if there is virtual certainty that
there will be sufficient future taxable income available to realize
such losses. Other deferred tax assets are recognized if there is
reasonable certainty that there will be sufficient future taxable
income available to realise such assets.
(xvii) Provisions, Contingent Liabilities and Contingent Assets
Provisions are recognised only when there is a present obligation as a
result of past events and when a reliable estimate of the amount of
obligation can be made. Contingent liability is disclosed for
(i) Possible obligation which will be confirmed only by future events
not wholly within the control of the Company or
(ii) Present obligations arising from past events where it is not probable
that an outflow of resources will be required to settle the obligation
or a reliable estimate of the amount of the obligation cannot be made.
Contingent assets are not recognised in the financial statements.