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Notes to Accounts of Cummins India Ltd.

Mar 31, 2017

1 Significant accounting judgements, estimates and assumptions

The preparation of the Company’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, the accompanying disclosures and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcome that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

Judgements

In the process of applying the Company’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognized in the financial statements:

Operating lease commitments - Company as lessor

The Company has leased out one of the commercial property (investment property) on operating lease. The Company had determined, based on an evaluation of the terms and conditions of the arrangement, such as the lease term not constituting a major part of the economic life of the commercial property and the fair value of the assets, that it retains all the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases.

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimation on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

Defined benefit plans:

The cost of the defined benefit gratuity plan and other post - employment medical benefits and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The discount rate is the parameter most subject to change. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds. The mortality rate is based on publicly available mortality tables for India. Mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates. Further details about gratuity obligations are given in note 42.

Fair value measurements of financial instruments:

When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets if available, otherwise, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of the financial instrument. Refer note 47 for further disclosures.

Taxes

MAT credit entitlement is recognised to the extent it is probable that taxable profit will be available against which the MAT credit can be utilised. Significant management judgement is required to determine the amount of MAT credit that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

The Company has a MAT credit entitlement of Rs.7,255 lacs as at March 31, 2017 (March 31, 2016: Rs.7,230 lacs). The Company can utilise the MAT credit for a period oRs.15 years.

Warranty, statutory matters and New Engine Performance Inspection (NEPI)

For estimates relating to warranty, statutory matters and NEPI refer note 41

2 Loans to related party includes an amount of Rs.12,866 lacs (March, 31 2016: Rs.12,866 Lacs; April 1, 2015: Rs.12,866 lacs) placed with Cummins Technologies India Private Limited, a fellow subsidiary. Maximum amount due during the year Rs.12,866 lacs (March 31, 2016: Rs.12,866 lacs).

3 Operating Leases

Lease commitments as a Lessee

The Company has entered into non-cancellable operating leases for warehouse, office and residential premises. These lease arrangements range for a period between 12 months and 60 months with lock in period between 3 months and 24 months, which include both renewal and non-renewal leases. These leases also include escalation clauses.

The minimum lease payments recognised in the Statement of Profit and Loss (included under ‘Rent’ and ‘Computer and other services’ in note 32) for the year amount to Rs.6,138 Lacs (March 31, 2016: Rs.6,437 lacs).

Operating lease commitments as a lessor

The Company has entered into operating leases on its investment property consisting of building. These leases have term between 36 months and 120 months. Leases include a clause for upward revision of the rental charge once in 36 months on the basis of prevailing market conditions.

4 Disclosure on provisions made, utilised and reversed during the year

i) Provision for warranty

Provision for warranty is on account of warranties given on products sold by the Company. The amount of provision is based on historical information of the nature, frequency and average cost of warranty claims and management estimates regarding possible future incidence. The timing and amount of cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in next 12 months is classified as current.

ii) Provision for statutory matters

Provisions for statutory matters are on account of legal matters where the Company anticipates probable outflow. The amount of provision is based on estimates made by the Company considering the facts and circumstances of each case. The timing and amount of cash flows that will arise from these matters will be determined by the relevant authorities only on settlement of these cases.

iii) Provision for New Engine Performance Inspection (NEPI)

Provision for New Engine Performance Inspection (NEPI) is on account of checks to be carried out by the Company at specified intervals. The amount of provision is based on historical information of the nature, frequency and average cost of claims and management estimates regarding possible future incidence. The timing and amount of the cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in next 12 months is classified as current.

ii) Terms and conditions of transactions with related parties:

The sales to and purchase from related parties are made on terms equivalent to those that prevail in arm’s length transaction. Outstanding balances at the year end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended March 31, 2017, the Company has not recorded any impairment of receivables relating to amounts owned by related parties (March 31, 2016: Nil; April 1, 2015: Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

iii) The information given above has been reckoned on the basis of information available with the Company and relied upon by the auditors.

iv) Figures in brackets are in respect of the previous year.

5 As set out in section 135 of the Companies Act, 2013, the Company is required to contribute Rs.1,616 lacs (March, 31 2016: Rs.1,602 lacs) towards Corporate Social Responsibility activities, as calculated basis 2 % of its average net profits of the last three financial years. Accordingly, during the current year, the Company has contributed Rs.1,200 lacs (March, 31 2016: Rs.1,200 Lacs) to Cummins India Foundation towards the eligible projects as mentioned in Schedule III (including amendments thereto) of the Companies Act, 2013.

6 Financial risk management objectives and policies

Financial risk factors:

The Company has well written policies covering specific areas, such as foreign exchange risk and investments which seeks to minimise potential adverse effects on the Company’s financial performance due to external factors. The Company uses derivatives to hedge foreign exchange risk exposures. The Company’s senior management oversees the management of these risks. All derivatives and investment activities for risk management purposes are carried out by specialist team that have appropriate skills, experience and supervision. It is the Company’s policy that no trading in derivatives for speculation purpose may be undertaken. The Board of Directors reviews and approves policies for managing each of these risks.

The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and price risk), credit risk and liquidity risk.

a) Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risks as follows:

i) Foreign currency risk

The Company is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, GBP and Euro. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities denominated in a currency that is not the entity’s functional currency.

Management has set up a policy to which the Company to manage their foreign exchange risk against their functional currency. To manage their foreign exchange risk arising from recognised assets and liabilities, the Company uses forward contracts to cover export sales, transacted by the treasury team.

The following table demonstrates the sensitivity relating to possible change in foreign currencies with all other variables held constant:

The movement in the pre-tax effect is a result of a change in the fair value of derivative financial instruments not designated in a hedge relationship and financial assets and liabilities denominated in various currencies. Although the derivatives have not been designated in a hedge relationship, they act as economic hedge and offset the under lying transactions when they occur.

ii) Interest rate risk

Interest rate risk is the fair value of future cash flows of a financial instrument which fluctuates because of changes in the market interest rates. In order to optimise the Company’s position with regards to interest income and interest expense, treasury team manages the interest rate risk by balancing the portion of fixed rate and floating rate in its total portfolio.

The Company is not exposed to significant interest rate risk as at the respective reporting dates.

iii) Price risk

The Company invests its surplus funds in mutual funds which are linked to debt markets. The Company is exposed to price risk for investments in mutual funds that are classified as fair value through profit or loss. To manage its price risk arising from investments in mutual funds, the Company diversifies its portfolio. Diversification and investment in the portfolio is done in accordance with the limits set by the Board of Directors. Reports on investment portfolio are submitted to the Company’s senior management on a regular basis.

Post-tax profit for the year would increase / decrease as a result of gains / losses on mutual funds classified as fair value through profit or loss.

b) Credit risk

Credit risk is the risk that counterparty will not meet its obligation under financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk primarily from trade receivables, other receivables, deposits with banks and loans given.

Trade receivable

Senior management is responsible for managing and analysing the credit risk for each of their new clients before standard payment, delivery terms and conditions are offered. The Company assess the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external assessment. The utilisation of credit limits is regularly monitored.

An impairment analysis is performed at each reporting date on an individual basis for all customers. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 11.

Other receivables, deposits with banks and loans given

Credit risk from balances with banks is managed by the Company’s treasury department in accordance with Company’s policy approved by the Risk Management Committee. Investments of surplus funds are made within the credit limits and as per the policy approved by the Board of Directors.

No credit limits were exceeded during the reporting period and management does not expect any losses from non-performance of the above assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 5,14 and 15.

c) Liquidity risk

Cash flow forecasting is performed by Treasury function. Treasury team monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet the operational needs. Such forecasting takes into consideration the compliance with internal cash management policy.

As per the Company’s policy, treasury team invests surplus cash in marketable securities and time deposits with appropriate maturities or sufficient liquidity to provide headroom to meet the operational needs. At the reporting date, the Company held mutual funds of Rs.65,723 lacs (March 31, 2016: Rs.28,383 lacs and April 01, 2015: Rs.41,433 lacs) and other liquid assets of Rs.12,376 lacs (March 31, 2016: Rs.8,515 lacs and April 01, 2015: Rs.7,548 lacs) that are expected to readily generate cash inflows for managing liquidity risk.

The table below summarises the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments.

d) Capital management

The Company’s objectives when managing capital is to provide maximum returns to shareholders, benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company manages its capital structure and makes adjustments in light of changes in economic conditions.

The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity as shown in the balance sheet plus all other equity reserves attributable to equity holders of the Holding Company. There are no borrowings as on March 31, 2016 and April 1, 2015, therefore, no gearing ratio is calculated.

7 Fair values

The following table provides a comparison by class of the carrying amounts and fair value of the Company’s financial instruments other than those with carrying amounts that are reasonable approximations of fair values.

The Management assessed that cash and cash equivalents, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short term maturities of these instruments.

The fair value of the financial assets and financial liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The fair value of investments in mutual funds are based on the price quotation at the reporting date obtained from the asset management companies. The fair value of investments in equity are based on the price quotation at the reporting date derived from quoted market prices in active market.

There has been no transfer between Level 1 and Level 2 during the year. For details of valuation method, assumption used for valuation of investment property, refer note 3.

These financial statements, for the year ended March 31, 2017, are the first the Company has prepared in accordance with Ind AS. For periods up to and including the year ended March 31, 2016, the Company prepared its financial statements in accordance with Accounting Standards notified under Section 133 of the Companies Act 2013, read together with paragraph 7 of Companies (Accounts) Rules, 2014 (Indian GAAP).

Accordingly, the Company has prepared financial statements that comply with Ind AS applicable for the year ending March 31, 2017, together with the comparative period data as at and for the year ended March 31, 2016, as described in accounting policy 1(b). In preparing these financial statements, the Company’s opening balance sheet was prepared as at April 1, 2015, the Company’s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the balance sheet as at April 1, 2015 and the financial statements as at and for the year ended March 31, 2016.

Ind AS 101 allows first-time adopters certain exemptions/ exceptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions:

i) Ind AS 102: Share-based payment has not been applied to equity instruments in share-based payment transactions that were vested or settled on or before April 1, 2015.

ii) Ind AS 17: Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. However, the Company has used Ind AS 101 exemption and assessed all arrangement based for embedded leases based on conditions in place as at the date of transition.

iii) Ind AS 16: Deemed Cost: The Company has elected to continue with the carrying value of property, plant and equipment as recognized in financial statements as per Indian GAAP and regard those values as deemed cost on the date of transition.

iv) Estimates: The estimates as at April 1, 2015 and March 31, 2016 are consistent with those made for the same dates in accordance with Indian GAAP except impairment of financial assets based on expected credit loss model.

v) Ind AS 109: Designation of previously recognized financial instruments: Financial assets and financial liabilities are classified as fair value through profit and loss or fair value through other comprehensive income based on facts and circumstances as at the date of transition to Ind AS i.e. April 1, 2015. Financial assets and liabilities are recognized at fair value as at the date of transition to Ind AS i.e. April 1, 2015 and not from the date of initial recognition.

a) Fair valuation of investments

Under Indian GAAP, investments in equity instruments, mutual funds, bonds were classified as long term investments or current investments based on the intended holding period and realisability. Long term investments were carried at cost other than temporary decline in the value of such investments. Current investments were carried at lower of cost and fair value.

Under Ind AS these investments are required to be measured at fair value. The resulting fair value changes of these investments have been recognised in retained earnings as at the date of transition and subsequently in Statement of Profit and Loss for the year ended March 31, 2016. This resulted in a reduction in retained earnings by Rs.188 lacs as at March 31, 2016 (April 1, 2015: Rs.68 lacs).

b) Forward contracts

Under Indian GAAP, the Company applied the requirements of AS 11 - The effects of changes in foreign exchange rates to account for forward contracts and the related underlying receivable/ payable. At the inception of the forward contract the forward premium was separated and amortised as an expenses over the tenure of the forward contract. The underlying receivable/ payable and the forward contracts were restated at the closing spot exchange rate.

Under Ind AS, derivatives that are not designated as hedging instruments are fair valued with resulting changes being recognised in the Statement of Profit and Loss. The fair valuation of forward contracts resulting in increase/ (decrease) in retained earnings by f (47) lacs as at March 31, 2016 (April 1, 2015: Rs.54 lacs).

c) Deferred tax

Deferred tax have been recognised on the adjustments made on transition to Ind AS.

d) Provisions

Under Indian GAAP, discounting of provisions was not allowed. Under Ind AS, provisions are measured at discounted amounts, if the effect of time value is material, accordingly, provisions have been discounted to their present values. Ind AS also provides that where discounting is used the carrying amount of the provision increases in each period to reflect the passage of time. This has resulted in a reduction of provisions by Rs.1,494 lacs as at March 31, 2016 (April 1, 2015: Rs.1,470 lacs).

Consequently, profit for the year and equity as at March 31, 2016 increased proportionately.

e) Excise duty

Under Indian GAAP, revenue from sale of products was presented excluding excise duty. Under Ind AS, revenue from sale of products is presented inclusive of excise duty. Excise duty paid is presented on the face of the Statement of Profit and Loss as part of expenses. This change has resulted in an increase in total revenue and total expenses for the year ended March 31, 2016 by Rs.37,924 lacs. There is no impact on total equity and profits.

f) Proposed dividend and dividend distribution thereon

Under Indian GAAP, dividends proposed by the Board of Directors after the balance sheet date but before the approval of financial statements were considered as adjusting events. Accordingly, provision for proposed dividend was recognised as a liability. Under Ind AS such dividends are recognised when the same are approved by the shareholders in the general meeting, accordingly, liability for proposed dividend for Rs.30,027 lacs as at March 31, 2016 (April 1, 2015: Rs.30,027 lacs) included under provisions has been reversed with corresponding adjustment to retained earnings. Correspondingly, total equity increased by this amount.

g) Remeasurements of post - employment benefits obligations

Under Ind AS, remeasurements i.e. actuarial gains and losses and return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognised in other comprehensive income instead of Statement of Profit and Loss. Under Indian GAAP, these Remeasurements were forming part of the Statement of Profit and Loss for the year. As a result of this change, the profit for the year ended March 31, 2016 has increased by Rs.538 lacs. There is no impact on total equity.

h) Employee stock option expense

Under Ind AS equity settled share based payment transactions between the employees of an entity and its parent company need to be recognised as an employee cost in the Statement of Profit and Loss with a corresponding impact in other equity as equity contribution from the Holding Company. Under Indian GAAP, equity settled transactions between employees of an entity and the Holding Company were not required to be accounted for. This change has resulted in an increase in other reserves by Rs.329 lacs and decrease in retained earnings as at April 1, 2015.

i) Retained earnings

Retained earnings as at April 1, 2015 have been adjusted consequent to the above Ind AS transition adjustments.

j) Other comprehensive income

Under Ind AS, all items of income and expense recognised in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognised in profit and loss but are shown in the Statement of Profit and Loss as ‘other comprehensive income’ includes remeasurements of defined benefit plans.

The concept of other comprehensive income did not exists under Indian GAAP. k) Revenue

Under Indian GAAP, discounts and certain customer incentives are reported as a separate expenditure in the Statement of Profit and Loss Under Ind AS, revenue is measured at fair value of the consideration received or receivable taking into account the amount of any trade discounts, volume rebates allowed by the entity. Accordingly, revenue for the year ended March 31, 2016 has reduced by Rs.1,999 lacs and correspondingly expenses have reduced. This change has no impact on the profits and total equity for the year.

8 Standards issued but not yet effective

In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7, ‘Statement of cash flows’ and Ind AS 102, ‘Share-based payment.’ These amendments are in accordance with the recent amendments made by International Accounting Standards Board (IASB) to IAS 7, ‘Statement of cash flows’ and IFRS 2, ‘Share-based payment,’ respectively. The amendments are applicable to the Company from April 1, 2017.

Ind AS 7- Cash flow statements

The amendment to Ind AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and noncash changes. These amendments are effective for annual periods beginning on or after April 1, 2017. Application of the amendments will result in additional disclosures provided by the Company.

Amendment to Ind AS 102: Share-based Payment

The amendment to Ind AS 102 address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled.

The amendments are effective for annual periods beginning on or after April 1, 2017.

These amendments are not expected to have any impact on the Company.


Mar 31, 2015

As at As at March 31, 2015 March 31, 2014 Rs. Lacs Rs. Lacs

1. Contingent liabilities

a. Bills discounted not matured* 1,465 0

b. Income Tax matters 14,927 10,923

c. Central excise duty/service tax matters 1,023 267

d. Duty drawback matters (excludes interests, if any) 2,604 2,604

e. Sales Tax matters 8,380 8,650

f. Claims against the Company not acknowledged as debts (excludes 9 9 interests, penalties if any, and claims which cannot be quantified)

g. Civil liability / secondary civil liability in respect of suits filed 51 21 against the Company

Total 28,459 22,474

* Amount below rounding off norm adopted by the Company

2. Inter corporate deposit includes an amount of Rs. 12,977 lacs (March 31, 2014; Rs. 14,601 Lacs) placed with Cummins Technologies India Private Limited, a fellow subsidiary. Maximum amount due during the year Rs. 14,626 lacs (March 31, 2014; Rs. 14,601 lacs)

3. Other expenses include provision for doubtful debts Rs. 300 lacs (March 31, 2014; Rs. 207 lacs)

4. Operating Leases

The company has entered into non-cancellable operating leases for warehouse, office and residential premises. These lease arrangements range for a period between 12 months and 60 months with lock in period between 3 months and 24 months, which include both renewal and non-renewal leases. These leases also include escalation clauses.

The minimum lease payments recognised in the Statement of Profit and Loss (included under ''Rent'' in note no. 23) for the year amount to Rs. 487 lacs (March 31, 2014; Rs. 931 lacs).

5. Segment Information

a. Primary Segment

On a review of all the relevant aspects including, in particular, the system of internal financial reporting to the Board of Directors and Managing Director, the relative "risks and returns" governing the operations and products & its related services, the Company is of the view that it operates in a single segment viz. ''Engine Business Segment''. This is in accordance with Accounting Standard 17, ''Segment Reporting'' issued under Companies (Accounting Standards) Rules, 2006.

6. As set out in section 135 of the Companies Act, 2013, the Company is required to contribute Rs. 1,590 lacs towards Corporate Social Responsibility activities, as calculated basis 2 % of its average net profits of the last three financial years. Accordingly, during the current year, the Company has contributed Rs. 810 lacs to Cummins India Foundation towards the eligible projects as mentioned in Schedule VII (including amendments thereto) of the Companies Act, 2013.

7. Previous year''s figures have been regrouped / reclassified, wherever necessary.


Mar 31, 2014

1) Purchase of fixed assets include payments for items in capital work in progress and advances for purchase of fixed assets.

Adjustments for increase/decrease in liabilities related to acquisition of fixed assets have been made to the extent identified.

2) The figures in brackets represent outflows of cash and cash equivalents.

3) Previous year''s figures have been regrouped/reclassified, wherever necessary.


Mar 31, 2013

1. Earning per share (EPS)

Earnings per share is calculated by dividing the profit attributable to the Equity Shareholders by the weighted average number of Equity Shares outstanding during the year. The numbers used in calculating basic and diluted earnings are stated below :

As at As at March 31, 2013 March 31, 2012 Rs. Lacs Rs. Lacs

2. Contingent liabilities

a. Bills discounted not matured 17 265

b. Income Tax matters 9,385 8,735

c. Central excise duty/service tax matters 456 456

d. Duty drawback matters (excludes interests, if any) 4,816 4,816

e. Sales Tax matters 8,315 6,872

f. Claims against the Company not acknowledged as debts (excludes 9 9 interests, penalties if any, and claims which cannot be quantified)

g Civil liability / secondary civil liability in respect of suits filed against the Company 19 19

Total 23,017 21,172

3. Other expenses include provision for doubtful debts Rs.147 lacs (previous year Rs. 354 lacs)

4. Operating Leases

The company has entered into non-cancellable operating leases for warehouse, office and residential premises. These lease arrangements range for a period between 12 months and 60 months with lock in period between 12 months and 24 months, which include both renewal and non-renewal leases. These leases also include escalation clauses.

The minimum lease payments recognised in the Statement of Profit and Loss (included under ''Rent'' in note no. 23) for the year amount to Rs. 1,397 lacs (previous year Rs. 1,156 lacs).

5. Disclosure on Provisions made, utilised and reversed during the year as per AS-29

(i) Provision for Warranty

The provision for warranty is on account of warranties given on products sold by the Company. The provision is based on historical information of the nature, frequency and average cost of warranty claims and management estimates regarding possible future incidence. The timing and amount of cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in 1 year is classified as Current

(ii) Provision for Statutory Matters

The provisions for statutory matters are on account of legal matters where the Company anticipates probable outflow. The amount of provision is based on estimates made by the Company considering the facts and circumstances of each case. The timing and amount of cash flows that will arise from these matters will be determined by the relevant authorities only on settlement of these cases.

(iii) Provision for New Engine Performance Inspection (NEPI)

The provision for New Engine Performance Inspection (NEPI) is on account of checks to be carried out by the Company at specified intervals. The provision is based on historical information of the nature, frequency and average cost of claims and management estimates regarding possible future incidence. The timing and amount of the cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in 1 year is classified as Current.

6. The Company has 50% interest in Joint Ventures namely Cummins Research and Technology India Limited, Cummins Svam Sales & Service Limited (w.e.f. January 17, 2012), and Valvoline Cummins Limited incorporated in India. The following represents the Company''s share of Assets and Liabilities as at 31st March, 2013 and Income and Expenses for the year ended on that date.

7. Segment Information

a) Primary Segment

The Company had in the previous years identified two separate reportable business segments, namely ''Engine Business Segment'' (manufacture and sale of Internal combustion engines, gensets and parts thereof) and ''Others'' (Service solutions business). On a review of all the relevant aspects including, in particular, the system of internal financial reporting to the Board of Directors and Managing Director, the relative "risks and returns" governing the operations and products & its related services, the Company has now identified a single segment viz. '' Engine Business Segment'' without distinguishing between the products & its related services.

b) Secondary Segment

Two secondary segments have been identified based on the geographical locations of customers: domestic and export.

8. Previous year''s figures have been regrouped / reclassified, wherever necessary.


Mar 31, 2012

A. Rights, preferences and restrictions attached to shares

The Company has only one class of equity shares having a par value of Rs. 2 per share. Each shareholder is entitled to one vote per share held. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend. In the event of liquidation of the Company, the equity shareholders are eligible to receive remaining assets of the Company, after distribution of all preferential amounts, in the proportion to their shareholding.

b. Of the above equity shares, 141,372,000 (previous year 100,980,000) shares of Rs. 2 each are held by the Holding Company, Cummins Inc. USA

* Exceptional item of Rs. 5,144 Lacs represents profit realised on divestment of the Company's entire shareholding in Cummins Exhaust India Limited (CEIL).

* The Company has issued Bonus shares in the ratio of 2:5 pursuant to approval by the members at the Extra Ordinary General Meeting held on September 9, 2011. Accordingly, Basic and Diluted Earnings Per Share (EPS) have been restated for the corresponding period to give effect to the said issue of Bonus shares, in accordance with Accounting Standard (AS) 20 "Earnings Per Share" notified under Section 211(3C) of the Companies Act, 1956.

1 The amount of further interest due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23 of the MSMED Act, 2006.

The Company has compiled this information based on intimations received from the suppliers of their status as Micro or Small Enterprises and / or its registration with the appropriate authority under the Micro, Small and Medium Enterprises Development Act, 2006.

As at As at March 31, 2012 March 31, 2011 Rs. in Lacs Rs. in Lacs

2. Contingent liabilities

a. Bills discounted not matured 265 326

b. Income tax matters 8,735 5,658

c. Central excise duty/service tax matters 456 286

d. Duty drawback demand pending in appeal 4,816 2,604 (excludes interests, if any)

e. Sales Tax Matters pending in appeal 6,872 2,403

f. Claims against the Company not acknowledged as debts 9 7 (excludes interests, penalties if any, and claims which cannot be quantified)

g. Civil liability / secondary civil liability in respect of 19 19 suits filed against the Company

3. Inter corporate deposit includes an amount of Rs. NIL (previous year Rs. 2,750 lacs) placed with Cummins Technologies India Limited, a fellow subsidiary. Maximum amount due during the year Rs. 3,950 lacs (previous year Rs. 2,908 lacs).

4. Other expenses include provision for doubtful debts Rs. 354 lacs (previous year Rs. 178 lacs).

5. Operating Leases

The company has entered into non-cancellable operating leases for warehouse and office premises. These lease arrangements range for a period between 12 months and 60 months with lock in periods between 11 months and 24 months, which include both renewal and non-renewal leases. These leases also include escalation clauses.

The minimum lease payments recognised in the statement of Profit and Loss (included under 'Rent' in note no. 24) for the year amount to Rs. 1,156 lacs (previous year Rs. 753 lacs).

(i) Provision for Warranty

The provision for warranty is on account of warranties given on products sold by the Company. The provision is based on the historic data and estimated figures. The timing and amount of the cash flows that will arise from these matters will be determined based on the receipt of claims from customers. Amount expected to be paid in 1 year is classified as Current.

(ii) Provision for Statutory Matters

The provisions for statutory matters are on account of legal matters where the Company anticipates probable outflow. The amount of provision is based on estimate made by the Company considering the facts and circumstances of each case. The timing and amount of cash flows that will arise from these matters will be determined by the relevant authorities on settlement of these cases.

(iii) Provision for New Engine Performance Inspection (NEPI)

The provision for New Engine Performance Inspection (NEPI) is on account of installation checks to be carried out by the Company at specified intervals after the equipment is commissioned. The provision is based on the historic data and estimated figures. The timing and amount of the cash flows that will arise from these matters will be determined based on the receipt of claims from dealers. Amount expected to be paid in 1 year is classified as Current.

6. The Company has 50% interest in Joint Ventures namely Cummins Research and Technology India Limited, Cummins Svam Sales & Service Limited (w.e.f. January 17, 2012), Valvoline Cummins Limited and Cummins Exhaust India Limited (upto April 29, 2011), incorporated in India. The following represents the Company's share of Assets and Liabilities as at 31st March, 2012 and Income and Expenses for the year ended on that date.

Item (iii) includes the cost of accessories sold and cost of purchased components sold as spare parts (for the goods manufactured and sold by the Company), this activity being ancillary to the Company's manufacturing activity.

All of the above have been included in the line 'Contribution to provident and other funds', in Note 22 of the Stateme of Profit and Loss.

The overall expected rate of return on assets is based on the expectations of the average long term rate of return expected on investments of the fund during the estimated term of obligations.

The estimates of future salary increases considered in actuarial valuation takes into account inflation, seniority, promotion and other relevant factors.

ii) Reimbursement of expenses incurred by related parties for and on behalf of the company and vice-versa have not been included above.

iii) The Chairman and Managing Director and some senior employees are also entitled to participate in the Employees Stock Option plan of Cummins Inc. (the holding company), the cost of which is borne by Cummins Inc.

iv) The information given above, has been reckoned on the basis of information available with the Company and relied upon by the auditors.

v ) Figures in brackets are in respect of the previous year.

7. Segment Information

a. Primary Segment

The Company's operations predominantly relate to manufacture of Internal combustion engines, gensets and parts thereof (Engine Business segment) used for various applications such as power generation, construction, compressor, mining, marine, locomotive, fire-fighting etc. Others includes income from Service solutions business.

b. Secondary Segment

Two secondary segments have been identified based on the geographical locations of customers: domestic and export.

Notes:

i) The Company's tangible assets are located entirely in India.

ii) Figures in brackets are in respect of the previous year.

* Amount is below the rounding off norm adopted by the Company.

8. The financial statements for the year ended March 31, 2011 had been prepared as per the then applicable, pre-revised Schedule VI to the Companies Act, 1956. Consequent to the notification of Revised Schedule VI under the Companies Act, 1956, the financial statements for the year ended March 31, 2012 are prepared as per Revised Schedule VI. Accordingly, the previous year figures have also been reclassified to conform to this year's classification. The adoption of Revised Schedule VI for previous year figures does not impact recognition and measurement principles followed for preparation of financial statements.


Mar 31, 2011

1. a) Inter corporate deposit includes an amount of Rs. (000) 275,000 (previous year Rs. (000) 265,000) placed with Cummins Technologies India Limited, a fellow subsidiary. Maximum amount due during the year Rs. (000) 290,840 (previous year Rs. (000) 273,836).

2 The amount of further Interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under Section 23 of the Micro, Small and Medium Enterprises Development Act, 2006.

Included in S. No. 4(b) above is Rs. NIL being interest on amounts outstanding as at the beginning of the accounting year.

The figures in brackets are in respect of the previous year.

The Company has compiled this information based on intimations received from the suppliers of their status as Micro or Small Enterprises and / or its registration with the appropriate authority under the Micro, Small and Medium Enterprises Development Act, 2006.

3. Contingent liabilities

As at As at

31st March, 2011 31st March, 2010

Rs. 000 Rs. 000

a) Bills discounted not matured 32,586 337,804

b) Income tax matters pending in appeal including effect of similar matters in respect of appeals decided in favour of the Company (refer note below) 318,365 66,176

c) Central excise duty matters 28,598 25,141

d) Duty drawback demand pending in appeal (excludes interests, if any) 260,357 -

e) Sales Tax Matters pending in appeal - 240,325 178,943

f) Claims against the Company not acknowledged as debts (excludes interests, penalties if any, and claims which cannot be quantified) 667 665

g) Civil liability / secondary civil liability in respect of suits filed against the Company 1,944 1,944

In addition to above, the company has received a draft assessment order u/s 143 (3) read with Section 144C of the Income Tax Act, 1961 proposing adjustments to income returned by the company by Rs.(OOO) 735,054 on account of transfer pricing matters for the assessment year 2007-08, the tax impact of which could range upto Rs. (000) 247,419 (previous year Rs (000) 171,900), The company has filed objections with the Dispute Resolution Panel which are yet to be heard and only post this hearing a demand may potentially be raised. Pending hearing before the Dispute Resolution Panel, the management is of the opinion that the said amount is not payable.

Notes:

i) The names of the related parties under the appropriate relationship included in notes 5(b) and (c) above are as follows:

Nature of Relationship Name of the Party

Holding Company Cummins Inc.

Fellow subsidiaries

Name of the Party

Cummins Engine (China) Investment Co. Ltd.

Cummins, Belgium

Cummins Brazil Limited

Cummins Commercializadora S. de R.L. de C.V.

Cummins De Los Andes S.A.

Cummins Deutschland GmbH

Cummins Diesel Italia Spa

Cummins Diesel N.V.

Cummins Diesel Recon

Cummins Diesel Sales Corporation, Singapore

Cummins DKSH (Singapore) Re. Ltd.

Cummins DKSH (Thailand) Limited

Cummins Emission Solutions

Cummins Engine (Shanghai) Trading And Service Co.

Cummins Firepower

Cummins France, S.A.

Cummins Generator Technologies (China) Co. Ltd.

Cummins Ghana Limited

Cummins Japan Limited

Cummins Limited

Cummins Middle East Fze

Cummins Natural Gas Engines, Inc.

Cummins Power Generation (China) Co., Ltd.

Cummins Power Generation (S) Re. Ltd.

Cummins Power Generation Limited

Cummins Power Generation Limited, U.S.A.

Cummins Power Generation, Australia

Cummins Rocky Mountain LLC

Cummins S De R L De C V

Cummins Sales & Service Philippines, Inc.

Cummins Sales and Service Korea Co., Ltd.

Cummins Sales and Service Singapore Re. Ltd.

Cummins Serbomonte

Cummins South Africa (Pty.) Ltd.

Cummins South Pacific Pty. Limited

Cummins Spain S.L

Cummins Technologies India Limited

Cummins Turbo Technologies (US)

Cummins Turbo Technologies Limited

Cummins Westport

Diesel Recon UK Depot

Distribuidora Cummins S.A.

Dongfeng Cummins Engine Company

Komatsu Cummins Chile, Limited

OOO Cummins

Shanghai Cummins Trade Co. Ltd.

Key Management Personnel Anant Talaulicar (Chairman and Managing Director)

Raj Menon (Chief Operating Officer)

Associate Cummins Generator Technologies India Limited

Joint Venture Valvoline Cummins Limited

Cummins Exhaust India Limited

Cummins Reseach and Technology India Limited

Enterprise with common Key Management Personnel Tata Cummins Limited

(Anant Talaulicar)

ii) Reimbursement of expenses incurred by related parties for and on behalf of the company and vice-versa have not been included above.

iii) The information given above, has been reckoned on the basis of information available with the Company and relied upon by the auditors.

iv) Figures in brackets are in respect of the previous year.

6. Segmental Information

a) Primary Segment

The Companys operations predominantly relate to manufacture of Internal combustion engines, gensets and parts thereof (Engines business segment) used for various applications such as power generation, construction, compressor, mining, marine, locomotive, fire-fighting etc. Others includes income from Service solutions business.

b) Secondary Segment

Two secondary segments have been identified based on the geographical locations of customers: domestic and export.

4. Lease commitments Operating lease:

There are no future minimum lease payments under these leases as at the end of the year.

The minimum lease payments recognized in the statement of profit and loss (included under other expenses) for the year are Rs. NIL (previous year Rs. (000) 16,473).

5. The net exchange differences (gains/(losses)) arising during the year appropriately recognised in the profit and loss account is Rs. (000) 12,752 (previous year Rs. (000) 101,973).

c) The Chairman, Managing Director and some senior employees are also entitled to participate in the Employees Stock Option plan of Cummins Inc. (the holding company), the cost of which is borne by Cummins Inc.

6. a) Other expenses include provision for doubtful debts Rs. (000) 17,837 (previous year Rs. (000) 24,405). b) Other Income includes commission income of Rs. (000) 541,863 (previous year Rs. (000) 154,182).

7. The Company has 50% interest in Joint Ventures namely Cummins Exhaust India Limited, Cummins Research and Technology India Limited and Valvoline Cummins Limited, incorporated in India. The following represents the Companys share of Assets and Liabilities as at 31st March, 2011 and Income and Expenses for the year ended on that date.

2. Defined Benefit Plans -

The following figures are as per actuarial valuation, as at the Balance Sheet date, carried out by an independent actuary.

i. Para 132 of AS15 (revised 2005) does not require any specific disclosures except where expense resulting from compensated absence is of such size, nature or incidence that its disclosure is relevant under Accounting Standard No. 5 or Accounting Standard No. 18. In the opinion of the management the expense resulting from compensated absence is not significant and hence no disclosures are prepared under various paragraphs of AS 15 (revised 2005).

8. Previous years figures have been regrouped / reclassified, wherever necessary.


Mar 31, 2010

1. a ) Inter Corporate deposits include –

i) An inter corporate deposit of Rs. (’000) 265,000 (previous year Rs. (’000) 230,000) placed with Cummins Technologies India Limited (previously known as Cummins Turbo Technologies India Limited), a fellow subsidiary. Maximum amount due during the year Rs. (’000) 273,836 (previous year Rs. (’000) 235,361).

ii) An inter corporate deposit of Rs. (’000) NIL (previous year Rs. (’000) 70,000) placed with Cummins Research and Technology India Limited, a Joint Venture. Maximum amount due during the year Rs. (’000) 70,538 (previous year Rs. (’000) 70,490).

iii) An inter corporate deposit of Rs. (’000) NIL (previous year Rs. (’000) 100,000) placed with Valvoline Cummins Limited, a Joint Venture. Maximum amount due during the year Rs. (’000) 106,301(previous year Rs. (’000) 104,242).

2 The amount of further Interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under Section 23 of the Micro, Small and Medium Enterprises Development Act, 2006.

Included in S. No. 4(b) above is Rs. NIL being interest on amounts outstanding as at the beginning of the accounting year.

The figures in brackets are in respect of the previous year.

The Company has compiled this information based on intimations received from the suppliers of their status as Micro or Small Enterprises and / or its registration with the appropriate authority under the Micro, Small and Medium Enterprises Development Act, 2006.

3. Contingent liabilities

As at As at 31st March, 2010 31st March, 2009 Rs. ’000 Rs. ’000

a) Bills discounted not matured 337,804 240,208

b) Income tax matters pending in appeal including effect of similar matters in respect of appeals decided in favour of the Company 66,176 58,345

c) Central excise duty/customs duty – demands not accepted by the Company 25,141 23,564

d) Sales Tax Matters pending in appeal 178,943 53,249

e) Claims against the Company not acknowledged as debts (excludes interests, penalties if any, and claims which cannot be quantified) 665 --

f) Civil liability / secondary civil liability in respect of suits filed against the Company 1,944 43,150

During the year the company has received a draft assessment order u/s 143 (3) read with Section 144C of the Income Tax Act, 1961 proposing adjustments to income returned by the company by Rs. (’000) 510,700 on account of transfer pricing and other matters for the assessment year 2006-07, the tax impact of which could range upto Rs. (’000) 171,900. The company has filed objections with the Dispute Resolution Panel which are yet to be heard and only post this hearing a demand may potentially be raised. Pending hearing before the Dispute Resolution Panel, the management is of the opinion that the said amount is not payable.

4. Related Party Disclosures

a) Name of the related party and nature of relationship where control exists

Name of the related party Nature of relationship

Cummins Inc. Holding Company

Notes:

i) The names of the related parties under the appropriate relationship included in notes 5 (b) and (c) above are as follows:

Nature of Relationship Name of the Party

Holding Company Cummins Inc.

Fellow subsidiaries Cummins (China) Investment Company Ltd.

Cummins Business Services, Nashville Cummins Commercializadora Cummins Deutschland Gmbh Cummins Diesel N.V.

Cummins Diesel Sales Corporation, Singapore Cummins Diesel South Africa Pvt. Ltd. Cummins Diesel UK Cummins Diethelm Limited Cummins Engine (China) Investment Co. Ltd. Cummins Engine (Shanghai) Trading And Service Co. Cummins Engine (Beijing) Co., Ltd. Cummins Filtration Australia Cummins Firepower Cummins France Sa

Cummins Generator Technologies (China) Co., Ltd. Cummins Generator Technologies Limited, UK Cummins Hong Kong Limited Cummins Indiana Cummins Italia Spa Cummins Japan Ltd. Cummins Mexico Sa Cummins Middle East Fze Cummins Mid-South, LLC Cummins Natural Gas Engines, Inc. Cummins Power Generation (China) Co., Ltd. Cummins Power Generation, Australia Cummins Power Generation Limited, U.S.A. Cummins Power Generation Limited, Kent Cummins Power Generation Singapore PTE Ltd. Cummins Power Generation(China) Co. Ltd. Cummins Rocky Mountain Llc Cummins Sales & Service Philippines Inc. Cummins South Africa (Pty) Ltd. Cummins Taiwan Pte. Ltd. Cummins Technologies India Limited Cummins Turbo Technologies (US) Cummins Turbo Technologies Ltd. Cummins UK Cummins Westport

Cummmins Generator Technologies (China) Co., Ltd. Diesel Recon Co. Diesel Recon, El Paso Shanghai Cummins Trade Co. Ltd. Cummins Npower Cummins Brasil Ltd. Cummins Limited Cummins S De R L De C V

Nature of Relationship Name of the Party

Key Management Personnel Anant Talaulicar

Associate Cummins Generator Technologies India Limited

Joint Venture Valvoline Cummins Limited

Cummins Exhaust India Limited

Cummins Reseach and Technology India Limited

Enterprise with common Tata Cummins Limited

Key Management Personnel

ii) Reimbursement of expenses incurred by related parties for and on behalf of the company and vice versa have not been included above.

iii) The information given above, has been reckoned on the basis of information available with the Company and relied upon by the auditors.

iv) Figures in brackets are in respect of the previous year.

5. Segmental Information

a) Primary Segment

The Company’s operations predominantly relate to manufacture of Internal combustion engines, gensets and parts thereof (Engines business segment) used for various applications such as power generation, construction, compressor, mining, marine, locomotive, fire-fighting, etc. Others includes income from Service solutions business.

6. Disclosure on Provisions made, utilised and reversed during the year as per Accounting Standard 29 issued by The Institute of Chartered Accountants of India

i) The provision for warranty is on account of warranties given on products sold by the Company. The provision is based on the historic data and estimated figures. The timing and amount of the cash flows that will arise from these matters will be determined at the time of receipt of claims from customers.

ii) The provision for overhaul is on account of engines given on rent to various customers. The provision is based on the data on overhaul costs on various types of gensets as accumulated by the Company. The timing and amount of the cash flows that will arise from these matters will be determined at the time of actual overhauling of the gensets.

Provision for service costs comprise of dealer claims. Provision is made on the amount claimed by the dealers. The timing and the amount of cash flows that will arise from the dealer claims will be determined at the time of settlement of these claims.

iii) The provisions for statutory matters are on account of legal matters where the Company anticipates probable outflow. The amount of provision is based on estimate made by the Company considering the facts and circumstances of each case. The timing and amount of cash flows that will arise from these matters will be determined by the relevant authorities only on settlement of these cases.

7. Lease income

The Company has not provided any equipment under finance / operating lease arrangements during the year and does not have any such arrangements outstanding as at the end of the year.

8. Lease commitments

i) Finance lease :

The Company had acquired computers under finance lease arrangements in earlier years for a period of three years which expired during the year and no amount is outstanding as at the end of the year.

ii) Operating lease :

The Company had acquired equipment under operating lease arrangements in earlier years at stipulated rentals for a period of five years. There are no future minimum lease payments under these leases as at the end of the year.

The minimum lease payments recognized in the statement of profit and loss (included under other expenses) for the year are Rs. (’000) 16,473 (previous year Rs. (’000) 10,420).

9. The net exchange differences (gains/(losses)) arising during the year appropriately recognised in the profit and loss account is Rs. (’000) 101,973 (previous year Rs. (’000) 228,690).

10. Other expenses include provision for doubtful debts Rs. (’000) 24,405 (previous year Rs. (’000) 86,695).

11. The Company has 50% interest in Joint Ventures namely Cummins Exhaust India Limited, Cummins Research and Technology India Limited and Valvoline Cummins Limited, incorporated in India. The following represents the Company’s share of Assets and Liabilities as at 31st March, 2010 and Income and Expenses for the year ended on that date.

12. The Company had sold its Power Generation Rental Power Business in the previous year which resulted in a profit of Rs. 192,037 (’000) which was reflected as “Exceptional item” in the Profit & Loss Account.

13. Previous year’s figures have been regrouped / reclassified, wherever necessary.

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