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Accounting Policies of Deepak Fertilisers & Petrochemicals Corporation Ltd. Company

Mar 31, 2016

THE COMPANY AND NATURE OF ITS OPERATIONS:

Deepak Fertilizers And Petrochemicals Corporation Limited having corporate office in Pune, Maharashtra, India carries on business in fertilizers, agri services, bulk chemicals, mining chemical and value added real estate. The Company is a public limited company and is listed on the National Stock Exchange of India Limited and The BSE Limited.

Note-1 SIGNIFICANT ACCOUNTING POLICIES

A) Basis for preparation of financial statements

The financial statements are prepared in accordance with the Generally Accepted Accounting Principles (GAAP) in India under the historical cost convention on an accrual basis, and are in conformity with mandatory accounting standards, as prescribed under Section 133 of the Companies Act, 2013 (Act) read with Rule 7 of the Companies (Accounts) Rules, 2014, the provisions of the Act (to the extent notified) and guidelines issued by the Securities and Exchange Board of India (SEBI).

All assets and liabilities have been classified as current or non-current as per the Company''s normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013. The Company has ascertained its operating cycle as twelve months for the purpose of current and non-current classification of assets and liabilities.

B) Use of estimates

The preparation of the financial statements in conformity with GAAP requires the management to make estimates and assumptions that affect the reported balances of assets and liabilities and disclosures relating to contingent assets and liabilities as at the date of the financial statements and reported amounts of income and expenses during the period. Examples of such estimates include provisions for doubtful debts, future obligations under employee retirement benefit plans, income taxes, the useful lives and provision for impairment of fixed assets and intangible assets etc.

The Management believes that the estimates used in the preparation of financial statements are prudent and reasonable. Future results could differ from these estimates.

C) Revenue recognition

- Domestic sales are recognized at the point of dispatch of goods to the customers, which is when substantial risks and rewards of ownership passed to the customers, and are stated net of trade discounts, rebates, sales tax, value added tax and excise duty.

- Export sales are recognized based on the shipped on board date as per bill of lading when significant risk and rewards of ownership are transferred to the customer.

- Sales include product subsidy and claims, if any, for reimbursement of cost escalation receivable from Ministry of Agriculture/Ministry of Fertilizers.

- Revenue in respect of Interest (other than on deposits with banks and others/investments, which are accounted on accrual basis), Insurance claims, Subsidy and reimbursement of cost escalation claimed from Ministry of Agriculture/Ministry of Fertilizers beyond the notified retention price and price concession on Fertilizers pending acceptance of claims by the concerned parties is recognized to the extent the Company is reasonably certain of their ultimate realization.

- Clean Development Mechanism (CDM) benefits known as Carbon Credit for wind energy units generated and N2O reduction in its Nitric Acid plant are recognized as revenue on the actual realization of the applicable credits.

- Credits on account of Duty drawback and other benefits, which are due to be received with reasonable certainty, are accrued upon completion of exports.

- Rental income from realty business is recognized based on the contractual terms. In case of revenue sharing arrangements, the rental income is recognized on the basis of provisional information provided by the lessees where the final data is awaited on the date of revenue recognition.

- Dividend income is accounted for when the right to receive is established.

D) Tangible assets, Intangible assets and Capital work-in-progress

- Fixed Assets (including major modifications/betterments) are recorded at cost of acquisition or construction and other expenditure incidental and related to such acquisition/construction. Tangible fixed assets are stated at original cost net of tax/duty credits availed, if any, less accumulated depreciation and cumulative impairment and those which were revalued are stated at the values determined by the values less accumulated depreciation and cumulative impairment.

- Intangible Assets (Goodwill, Patent, Trademark, Software Licenses etc.) are capitalized at cost of acquisition or development and expenditure incidental and related to such acquisition/development.

- Exchange variation arising from repayment/restatement of the long-term debts/borrowings in foreign currencies for acquisition of fixed assets is capitalized in terms of the option exercised by the Company as per the Ministry of Corporate Affairs (MCA) circular Notification No. G.S.R.378 (E) dated 11th May, 2011 and further amended by pursuant to Circular No. 25/2012 dated 9th August, 2012 issued by MCA.

- Machinery Spares other than those required for regular maintenance are capitalized at cost.

Also refer notes (I) and (K) for capitalization of exchange difference of long term loans and interest on borrowings to acquire qualifying assets.

E) Depreciation and amortization Tangible assets:

- Depreciation on tangible assets is provided on the straight-line method over the useful lives of assets as prescribed in Schedule - II of the Companies Act, 2013. As per requirements of the Companies Act, 2013 the Company has also identified significant components of the assets and its useful life based on the internal technical evaluation. Depreciation charge on such components is based on its useful life. Estimated useful life adopted in respect of the following assets is different from the useful life prescribed in Schedule - II of the Companies Act, 2013.

- Depreciation for assets purchased/sold during a period is proportionately charged.

- Depreciation on exchange rate variances capitalized as part of the cost of Fixed Assets, has been provided prospectively over the residual useful life of the assets.

- Capitalized machinery Spares are depreciated over remaining useful life of the related machinery/equipment. Costs of such spares are charged to the Statement of Profit and Loss when issued for actual use at written down value.

- Cost of Leasehold Land is amortized over the lease period.

Intangible assets:

- Intangible assets are amortized over a period not exceeding 60 months except in the case of right to use of properties which are amortized over a period of effective useful life of such right.

Capital work-in-progress:

- Capital work-in-progress comprises cost of fixed assets that are not yet ready for their intended use at the year end.

Assets taken on operating lease:

- Assets taken on operating lease are recognized in the Statement of Profit and Loss as per the terms of the contract.

Assets given on operating lease:

Assets given on operating lease are recognized as income in the Statement of Profit and Loss as per the terms of the contract.

F) Impairment of assets

The carrying amount of cash generating units/assets is reviewed at Balance Sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated as the higher of net selling price 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 risks specific to the asset. Impairment loss is recognized whenever carrying amount exceeds the recoverable amount. Conversely, previously recognized losses are reversed when the estimated recoverable amount exceeds the carrying amount.

G) Inventories

- Raw materials are valued at lower of moving weighted average cost and net realizable value. However these items are written down to realizable value if the costs of the related finished goods is not expected to recover the cost of raw materials.

- Stores, regular spares, oil, chemicals, catalysts and packing material are valued at moving weighted average cost.

- Cost of inventory of materials is ascertained net of applicable CENVAT/VAT credits.

- Finished goods including those held for captive consumption are valued at lower of factory cost (including depreciation, excise duty payable/paid wherever applicable) or and net realizable value.

- Stock-in-trade is valued at lower of cost and net realizable value.

- Value of Work-in-Process of all products is ignored for the purpose of inventory having regard to the concept of materiality and difficulty of quantifying such stocks with exactitude.

H) Investments

- Long-term (non-current) investments are valued at cost after appropriate adjustment, if necessary, for diminution in their value which are other than temporary in nature.

- Current Investments are stated at lower of cost and fair value.

I) Foreign currency transactions, forward contracts and derivatives

- Transactions in foreign currency are recorded at the rate of exchange prevailing on the dates of the transactions. Foreign currency monetary items are restated at the rate as of the date of Balance Sheet.

- Exchange differences either on settlement or on translation are dealt with in the Statement of Profit and Loss. However exchange differences, arising either on settlement or on translation, in case of long-term borrowings used for acquisition of fixed assets are capitalized.

- In case of forward contracts with underlying assets or liabilities, the difference between the forward rate and the exchange rate on the date of inception of a forward contract is recognized as income or expense and is amortized over the life of the contract. Exchange differences on such contracts are recognized in the Statement of Profit and Loss in the year in which they arise. Any profit or loss arising on cancellation or renewal of forward exchange contracts are recognized as income or expense for the period.

- Wherever the variable interest in respect of External Commercial Borrowings is swapped for fixed interest rates, the fixed interest expense is recognized in the Statement of Profit and Loss.

- The Company has taken option contracts to hedge its currency risks on liabilities in foreign currency. These contracts are Marked to Market (MTM) as at the year end and net loss after considering offsetting effect on the underlying liabilities is charged to Statement of Profit and Loss and capitalized if it is in respect of long-term foreign currency loans taken for acquisition of qualifying assets. Net gain, if any is not recognized.

- Premium on option contracts are amortized and recognized in Statement of Profit and Loss over the period of contract.

J) Employee benefits

- Short-term employee benefits are recognized as an expense at the undiscounted amount in the Statement of Profit and Loss of the year in which the related service is rendered.

Provident fund

- The eligible employees of the Company are entitled to receive benefits under the Provident Fund, a defined contribution plan in which both the employees and the Company make monthly contributions at a specified percentage of the covered employees'' salary (currently 12% of employees'' salary). The contributions as specified under the law are paid to the Regional Provident Fund Commissioner and the Central Provident Fund under the Pension scheme. The Company recognizes such contributions as expense of the year in which the liability is incurred.

Gratuity

- The Company has an obligation towards Gratuity, a defined benefit retirement plan covering eligible employees. The plan provides for a lump sum payments to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 to 30 days salary payable for each completed year of service. Vesting occurs upon completion of five years of service. The plan is managed by a Trust and the fund is invested with recognized Insurance Companies under their Group Gratuity scheme. The Company makes annual contributions to Gratuity fund and recognizes the liability for Gratuity benefits payable in future based on an independent actuarial valuation.

Superannuation

- The Company has an optional Superannuation Plan for its executives, a defined contribution plan. The Company makes annual contributions at 15% of the covered employees'' salary, subject to maximum of '' 1,00,000 per employee, for the executives opting for the benefit. The plan is managed by a Trust and the funds are invested with recognized Insurance Companies under their Group Superannuation Scheme. Annual contributions as specified under the Trust deed are paid to the Insurance Companies and recognized as an expense of the year in which the liability is incurred.

Compensated absences

- The Company provides for the encashment of leave or leave with pay subject to certain rules. The employees are entitled to accumulate leave for a ailment as well as encashment subject to the rules. As per the regular past practice followed by the employees, it is not expected that the entire accumulated leave shall be encased or availed by the employees during the next twelve months and accordingly the benefit is treated as long-term defined benefit. The liability is provided for based on the number of days of unutilized leave at the Balance Sheet date on the basis of an independent actuarial valuation.

Medical Benefits

- The Company has a medical benefit plan according to which employees are entitled to be covered under medic aim policy for the next five years post their superannuation. The amount being insignificant, the liability towards such benefit is recognized based on the actual premium payable.

Post-Retirement Benefits

- The Company has a Post Retirement Benefit plan, which is a defined benefit retirement plan, according to which executives superannuating from the service after ten years of service are eligible for certain benefits like medical, fuel, telephone reimbursement, club membership etc. for specified number of years. The liability is provided for on the basis of an independent actuarial valuation.

K) Borrowing costs

- Borrowing costs that are attributable to the construction/acquisition of qualifying fixed assets are capitalized as a part of the cost of these capitalized assets till the date of completion of physical construction/mechanical completion of the assets. Borrowing costs include exchange differences to the extent treated as finance cost under AS-16 on borrowing cost.

L) Provisions and contingent liabilities

- A provision is made based on a reliable estimate when it is probable that an outflow of resources embodying economic benefits will be required to settle an obligation and in respect of which a reliable estimate can be made. Provision is not discounted and is determined based on best estimate required to settle the obligation at the reporting date.

- Contingent Liabilities are disclosed in respect of:

- Possible obligations that arise from past events but their existence will be confirmed by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the Company, or

- Any present obligation where it is not probable that an outflow of resources embodying economic benefit will be required to settle obligation or a reliable estimate of the amount of obligation cannot be made.

- However, in situations where the likelihood of an outflow of resources is assessed to be remote, no disclosure is made as such items not in the nature of Contingent liabilities.

- Contingent Assets are not recognized or disclosed in the financial statements.

M) Taxes on Income

- Provision for current tax is made, based on the tax payable under the Income Tax Act, 1961. Minimum Alternative Tax (MAT) credit, which is equal to the excess of MAT (calculated in accordance with provisions of Section 115JB of the Income tax Act, 1961) over normal income-tax is recognized as an asset by crediting the Statement of Profit and Loss only when and to the extent there is convincing evidence that the Company will be able to avail the said credit against normal tax payable during the period of ten succeeding assessment years.

- Deferred tax on timing differences between taxable income and accounting income is accounted for, using the tax rates and the tax laws enacted or substantively enacted as on the balance sheet date. Deferred tax assets on unabsorbed tax losses and unabsorbed tax depreciation are recognized only when there is a virtual certainty of their realization. Other deferred tax assets are recognized only when there is a reasonable certainty of their realization.

N) Cash and cash equivalents

- In the Cash Flow Statement, cash and cash equivalents include cash in hand, demand deposits with banks, with original maturities of three months or less.

O) Earnings per Share

- Basic Earnings per Share is calculated by dividing the net profit or loss for the year attributable to Equity Shareholders by the weighted average number of Equity Shares outstanding during the year. Earnings considered in ascertaining the Company''s earnings per Share is the net profit for the year after deducting preference dividends and any attributable tax thereto for the year. For the purpose of calculating diluted Earnings per Share, the net profit or loss for the year attributable to Equity Shareholders and the weighted average number of Shares outstanding during the year is adjusted for the effects of all dilutive potential Equity Shares.

b) Terms/Rights attached with equity shares

The Company has only one class of issued Equity Shares having at par value of '' 10 per Share. Each holder of Equity Shares is entitled to one vote per Share.

The Company declares and pays dividend in Indian Rupee except in the case of overseas Shareholders where dividend is paid in respective foreign currencies considering foreign exchange rate applied at the date of remittance. The dividend proposed by the Board of Directors is subject to the approval of Shareholders in the ensuring Annual General Meeting.

In the event of liquidation of the Company, the holders of Equity Share will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts in proportion to their shareholding.

Notes:

1. Buyer''s credits are generally due within 180 days and carry variable rate of interest (Average Interest rate for the year

0.94% (0.84%)) and are secured by a first charge by way of hypothecation of stocks of raw materials, stock-in-process, consumable stores and book debts.

2. Short-term loan from bank is repayable on 30th April, 2016 and carries interest rate of 9.45% (9.60%)and is secured by a first charge by way of hypothecation of stocks of raw materials, stock-in-process, consumable stores and book debts.

3. Cash credit is repayable on demand and carries variable interest rate (average interest rate for the year is 9.93 % (10.56%). Cash credit facilities sanctioned by banks including working capital demand loans are secured by a first charge by way of hypothecation of stocks of raw materials, stock-in-process, consumable stores and book debts.

4. Commercial Paper Borrowings carries variable interest rate. Average interest rate for the year is 8.51% (8.89%).

Details of Micro and Small Enterprises as define under MSMED ACT, 2006

To comply with the requirement of The Micro, Small And Medium Enterprises Development Act, 2006, the Company requested its suppliers to confirm it whether they are covered as Micro, Small or Medium enterprise as is defined in the said Act. Based on the communications received from such suppliers confirming their coverage as such enterprise, the Company has recognized them for the necessary treatment as provided under the Act, from the date of receipt of such confirmations and are disclosed in note below.

(#) Rs, 40.22 Lacs (Rs, 34.89 Lacs) transferred to the Investor Education and Protection Fund during the year.

(*) Other payables includes Rs, 1,765.60 Lacs (Rs, 1,191.65 Lacs) related to employees and Rs, 2,875.08 Lacs (Rs, 2,089.05 Lacs) related to sales and marketing expenses.

1. Cost of ''Freehold land includes: .

a. Rs, 3,600 Lacs (Rs, 3,600 Lacs) represented by 24,000 Equity Shares of Rs, 10/- each in a company, which is the legal owner of the land in respect of which the Company has acquired exclusive rights of development.

b. Rs, 2,442.54 Lacs (Rs, 2,442.54 Lacs) represented by 1,41,764 Equity Shares (1,41,764) of Rs, 10/- each in the said company, which is the legal owner of the land on which the Company has been granted the rights of use and occupation by virtue of the shares so held.

2. Buildings include a sum of Rs, 11,398.32 Lacs (Rs, 11,398.32 Lacs) represented by 38,236 (38,236) Equity Shares of Rs, 10/- each in a company which is the legal owner of the buildings in respect of which the Company has an exclusive right of use and occupation by virtue of the shares so held.

3. The above equity shares so held do not really represent financial investments implicitly but rather the means to acquire and hold the properties for use in Company’s operations. Accordingly the cost of acquisition of the shares is treated as cost of fixed assets and is dealt with in accordance with Accounting Standard - 10 on "Fixed Assets”.

4. Gross Block of Plant and Machinery includes Rs, 11,240.90 Lacs (Rs, 10,453.95 Lacs) towards foreign exchange fluctuations on Long-Term Loans .

5. Impairment of Assets: In case there are any indicators of impairment, the Company examines carrying cost of its identified Cash Generating Units (CGU) by comparing present value of estimated future cash flows from such CGUs, in terms of Accounting Standard-28 on Impairment of Assets. Accordingly to which no provision for impairment is required as assets of none of CGUs are impaired during the financial year ended 31st March, 2016.

Sundry debtors includes Rs, 79,476.73 Lacs (Rs, 33,498.73 Lacs) towards fertilizer subsidy receivable from the Government of India. Sundry debtors are net of realization of Rs, 24,250.34 Lacs (Rs, 17,213.03 Lacs ) from short-term finance facility provided by a bank to the Company’s fertilizer dealers.

* Rs, 1,159.23 Lacs (Rs, 624.94 Lacs) kept as fixed deposit with Bank of Baroda, London, as a lien for ECBs and Rs, Nil (0.20 Lacs) with Sales Tax Authorities.

Note: Raw material consumption figures is derived from purchases and stock variations. Wastages if any is within the tolerable limit and included in above amounts.

During the previous year, the Company had provided depreciation over estimated useful lives of assets as prescribed in Schedule - II of the Companies Act, 2013, or as assessed by the management based on technical evaluation. This had resulted in an additional charge of depreciation amounting to Rs, 1,060.37 Lacs for the year ended 31st March, 2015. The written down value of asset of Rs, 359.17 Lacs as on 1st April, 2014 (net of deferred tax of Rs, 226.45 Lacs) whose residual life was exhausted, had been adjusted against retained earnings.

(@) Foreign exchange fluctuation expenses includes premium on foreign currency derivative contracts of Rs, 2,841.92 Lacs (3,519.93 Lacs). (#) Includes donation to Chief ministers drought relief fund Rs, 5.00 Lacs (Nil) and to a political party, Bhartiya Janta Party Rs, Nil (Rs, 50 Lacs).

The expected contribution is based on same assumptions used to measure the Company''s Gratuity obligations as of 31st March, 2016. The Company is expected to contribute ? 367 Lacs (? 350 Lacs) for the year ended 31st March, 2017.

*Includes customs duty amounting to Rs, 9,347.27 Lacs on duty free import of fertilizer during the period 2005-06 to 2009-10. Under

the applicable policy of Government on subsidy, any customs duty needs to be reimbursed by Government.

b. (i) Effective 15th May, 2014, domestic gas supply to the Company was arbitrarily stopped pursuant to an order passed by

the Ministry of Petroleum and Natural Gas. The Company successfully challenged the same before the Hon''ble Delhi High Court, which by its orders dated 7th July, 2015 (single bench) and 19th October, 2015 directed the Government of India (GOI) to restore the gas supply. Review petition filed by the GOI, challenging the said order, has been rejected by the Court by an order dated 2nd February, 2016. Pursuant to this, GAIL offered to resume gas supply but at higher tariff rate, not matching to the domestic gas prices. As the proposed commercial terms of the offer were not in conformity with the direction of the Honorable Court, the Company has Challenged it before the Court.

(ii) The Department of Fertilizers (DoF), Ministry of Chemicals and Fertilizers, has withheld subsidy of Rs, 79,477 Lacs (net of Rs, 3,516 Lacs released against Bank Guarantee), due to the Company in accordance with applicable Nutrient Based Subsidy (NBS) scheme of GOI, alleging undue gain arising on account of supply of cheap domestic gas. The Company has filed a writ petition before the Honble Bombay High Court, challenging the withholding of subsidy, as being arbitrary and discriminatory. According to the submission made by the (DoF) before the Hon''ble Bombay High Court, formal framework of alleged undue gain is being deliberated and is yet to be notified. The petition is pending before the Court. The Company believes that it has a good case in the matter having regard to the facts and merits of the matter. Accordingly, no provision in the financial statement is considered necessary.

c. The Company has provided Stand by Letter of Credit (SBLC) of Aus $ 37 Lacs during the year to an overseas bank in respect of credit facilities granted by the bank to Platinum Blasting Services Pty. Limited. (Also refer note 40)


Mar 31, 2013

A) Basis for preparation of financial statements

The financial statements have been prepared under historical cost convention on accrual basis and comply with notified Accounting Standards as referred to in Section 211(3C) and other relevant provisions of the Companies Act, 1956. All assets and liabilities have been classified as current or non-current as per the Company''s normal operating cycle and other criteria set out in the Revised Schedule VI to the Companies Act, 1956.

B) Use of estimates

The preparation of the financial statements in conformity with GAAP requires the management to make estimates and assumptions that affect the reported balances of assets and liabilities and disclosures relating to contingent assets and liabilities as at the date of the financial statements and reported amounts of income and expenses during the period. Examples of such estimates include provisions for doubtful debt, future obligations under employee retirement benefit plans, income tax, the useful lives and provision for impairment of fixed assets and intangible assets.

The Management believes that the estimates used in the preparation of financial statements are prudent and reasonable. Future results could differ from these estimates.

C) Revenue recognition

- Domestic sales are recognised at the point of dispatch of goods to the customers, which is when substantial risks and rewards of ownership are passed on to the customers, and are stated net of trade discounts, rebates, sales tax, value added tax and excise duty.

- Export sales are recognised based on the date of bill of lading.

- Sales include product subsidy and claims, if any, for reimbursement of cost escalation receivable from Ministry of Agriculture /Ministry of Fertilisers.

- Grants and subsidies from the Government are recognized when there is reasonable certainty of realisation of the receipt thereof on the fulfillment of the applicable conditions.

- Revenue in respect of Interest (other than on deposits with banks and others/investments, which are accounted on accrual basis), Insurance claims, subsidy and reimbursement of cost escalation claimed from Ministry of Agriculture/Ministry of Fertilisers beyond the notified retention price and price concession on fertilisers pending acceptance of claims by the concerned parties is recognized to the extent the Company is reasonably certain of their ultimate realisation.

- Clean Development Mechanism (CDM) benefits known as Carbon Credit for wind energy units generated and N2O reduction in its Nitric Acid Plant are recognised as revenue on the actual realisation of the applicable credits.

- Credits on account of Duty drawback and other benefits, which are due to be received with reasonable certainty, are accrued upon completion of exports.

- Rental income from realty business is recognised based on the contractual terms. In case of revenue sharing arrangements, the rental income is recognised on the basis of provisional information provided by the lessees where the final data is awaited on the date of revenue recognition.

- Dividend income is accounted for when the right to receive is established.

D) Tangible assets, Intangible assets and Capital work-in-progress

- Fixed assets (including major modifications/betterments) are recorded at cost of acquisition or construction (including interest/ financial charges, project restructuring cost and other expenditure incidental and related to such acquisition/construction).

- Intangible Assets (Goodwill, Patent, Trademark, Software Licenses etc.) are capitalised at cost of acquisition or development and expenditure incidental and related to such acquisition/ development.

- Exchange variation arising from repayment/restatement of the long term debts/borrowings in foreign currencies for acquisition of fixed assets is capitalised in terms of the option exercised by the Company as per the Ministry of Corporate Affairs (MCA) Notification No. G.S.R.378 (E) dated 11th May, 2011 and further amended pursuant to Circular No. 25/2012 dated 9th August, 2012 issued by MCA.

- Machinery Spares other than those required for regular maintenance are capitalised at cost.

- Relief/Incentive granted by the Government of India by way of refund of customs duty paid on NP Project imports, is treated as a special reserve and adjusted against depreciation, over the remaining useful life of fixed assets of NP Project.

E) Depreciation and amortisation

Tangible assets

- Depreciation is provided on Straight Line basis, except for relocated DNA-III Plant which is depreciated on Written Down Value basis.

- Tangible assets, owned by the Company, are depreciated in accordance with the rates prescribed in Schedule XIV to the Companies Act, 1956 except in the following cases where higher rates are applied to the factors of accelerated obsolescence, relocation of plant, modifications of existing plants etc.

- Depreciation on exchange rate variances are capitalised as a part of the cost of fixed assets and has been provided prospectively over the residual useful life of the assets.

- Capitalised machinery spares are depreciated over remaining useful life of the related machinery/ equipment. Costs of such spares are charged to the Statement of Profit and Loss when issued for actual use at written down value.

- Cost of Leasehold Land is amortised over the lease period.

Intangible assets

- Intangible assets are amortised over a period not exceeding 60 months except in the case of right to use of properties which are amortised over a period of effective useful life of such right.

Capital work-in-progress

- Capital work-in-progress comprises cost of fixed assets that are not yet ready for their intended use at the year end.

Assets taken on operating lease

- Assets taken on operating lease are recognised in the Statement of Profit and Loss as per the terms of the contract.

Assets given on operating lease

- Assets given on operating lease are recognised as income in the Statement of Profit and Loss as per the terms of the contract.

F) Impairment of assets

- The Company assesses at each Balance Sheet date whether there is any indication that any asset may be impaired. If any such indication exists, the recoverable amount of the asset is estimated. Impairment loss is recognised if the carrying value exceeds the recoverable amount.

G) Inventories

- Raw materials are valued at lower of weighted average cost and net realisable value. However, these items are considered to be realisable at cost if the finished products in which they will be used are expected to be sold at or above cost.

- Stores, regular spares, oil, chemicals, catalysts and packing materials are valued at moving weighted average cost.

- Cost of inventory of materials is ascertained net of applicable CENVAT / VAT credits.

- Finished goods including those held for captive consumption are valued at lower of factory cost (including depreciation and excise duty payable/paid where applicable but excluding interest cost) and net realisable value.

- Stock-in-trade is valued at lower of cost and net realisable value.

- Value of work-in-process of all products is ignored for the purpose of inventory having regard to the concept of materiality and difficulty of quantifying such stocks with exactitude.

H) Investments

- Long term investments are valued at cost after appropriate adjustment, if necessary, for diminution in their value which are other than temporary in nature.

- Current investments are stated at lower of cost or fair value.

I) Foreign currency transactions, forward contracts and derivatives

- Transactions in foreign currency are recorded at the rate of exchange prevailing on the dates of the transactions. Foreign currency monetary items are restated at the rate as on the date of Balance Sheet.

- In case of forward contracts with underlying assets or liabilities, the difference between the forward rate and the exchange rate on the date of inception of a forward contract is recognised as income or expense and is amortised over the life of the contract. Exchange differences on such contracts are recognised in the Statement of Profit and Loss in the year in which they arise. Any profit or loss arising on cancellation or renewal of forward exchange contracts are recognised as income or expense for the period.

- Exchange differences either on settlement or on translation are dealt within the Statement of Profit and Loss. However exchange differences, arising either on settlement or on translation, in case of long-term borrowings used for acquisition of fixed assets are capitalised. Wherever the variable interest in respect of External Commercial Borrowings is swapped for fixed interest rates, the fixed interest expense is recognised in the Statement of Profit and Loss.

J) Employee benefits

- Short-term employee benefits are recognised as an expense at the undiscounted amount in the Statement of Profit and Loss of the year in which the related service is rendered.

Provident fund

- The eligible employees of the Company are entitled to receive benefits under the Provident Fund, a defined contribution plan in which both the employees and the Company make monthly contributions at a specified percentage of the covered employees'' salary (currently 12% of employees'' salary). The contributions as specified under the law are paid to the Regional Provident Fund Commissioner and the Central Provident Fund under the Pension Scheme. The Company recognises such contributions as expense of the year in which the liability is incurred.

Gratuity

- The Company has an obligation towards Gratuity, a defined benefit retirement plan covering eligible employees. The plan provides for a lump sum payments to vested employees at retirement or death while in employment or on termination of employment of an amount equivalent to 15 to 30 days salary payable for each completed year of service. Vesting occurs upon completion of five years of service. The plan is managed by a Trust and the funds are invested with the Life Insurance Corporation of India under its Group Gratuity Scheme. The Company makes annual contributions to the Gratuity Fund and recognises the liability for Gratuity benefits payable in future based on an independent actuarial valuation.

Superannuation

- The Company has a Superannuation Plan for its executives, a defined contribution plan. The Company makes annual contributions at 15% of the covered employees'' salary. The plan is managed by a Trust and the funds are invested with the Life Insurance Corporation of India under its Group Superannuation Scheme.

Annual contributions as specified under the Trust Deed are paid to the Life Insurance Corporation of India and recognised as an expense of the year in which the liability is incurred.

Compensated absences

- The Company provides for the encashment of leave or leave with pay subject to certain rules. The employees are entitled to accumulate leave for availment as well as encashment subject to the rules. As per the regular past practice followed by the employees, it is not expected that the entire accumulated leave shall be encashed or availed by the employees during the next twelve months and accordingly the benefit is treated as long term defined benefit. The liability is provided for based on the number of days of unutilised leave at the Balance Sheet date on the basis of an independent actuarial valuation.

Wealth creation scheme

- The Company had a Wealth Creation Scheme for its executives, a defined contribution plan. The Company had been making annual contributions at 3% of the covered employees'' salary which were then invested by the Company in approved securities. Subject to Company''s policy the vested employees are eligible to receive accumulated balance at retirement or death while in employment or on termination of employment. Annual contributions made by the Company were recognised as an expense in the Statement of Profit and Loss in the year of incurrence of the liability. The Scheme was operational till 31st March, 2012.

Medical benefits

- The Company has a medical benefit plan according to which employees are entitled to be covered under mediclaim policy for the next five years post their superannuation. The amount being insignificant, the liability towards such benefit is recognised based on the actual premium payable.

The Company has a retirement policy, a defined benefit retirement plan, according to which executives superannuating from the service after ten years of service are eligible for certain benefits like medical, fuel, telephone reimbursement, club membership etc. for specified number of years. The liability is provided for on the basis of an independent actuarial valuation.

K) Borrowing costs

- Borrowing costs that are attributable to the construction/acquisition of qualifying fixed assets are capitalised as a part of the cost of these capitalised assets till the date of completion of physical construction/mechanical completion of the assets. Borrowing costs includes exchange differences to the extent treated as finance cost under AS-16 on borrowing cost.

L) Provisions and contingents liabilities

- Contingent liabilities are disclosed in respect of possible obligations that arise from past events but their existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or where any present obligation cannot be measured in terms of future outflow of resources or where a reliable estimate of the obligation cannot be made.

- A provision is made based on a reliable estimate when it is probable that an outflow of resources embodying economic benefits will be required to settle an obligation and in respect of which a reliable estimate can be made. Provision is not discounted and is determined based on best estimate required to settle the obligation at the year end date. Contingent assets are not recognised or disclosed in the financial statements.

M) Taxes on Income

- Provision for current tax is made based on the tax payable under the Income Tax Act, 1961. Minimum Alternative Tax (MAT) credit which is equal to the excess of MAT (calculated in accordance with the provisions of Section 115JB of the Income Tax Act, 1961) over normal income tax is recognised as an asset by crediting the Statement of Profit and Loss only when and to the extent there is convincing evidence that the Company will be able to avail the said credit against normal tax payable during the period of ten succeeding assessment years.

- Deferred tax on timing differences between taxable income and accounting income is accounted for using the tax rates and the tax laws enacted or substantively enacted as on the Balance Sheet date. Deferred tax assets on unabsorbed tax losses and unabsorbed tax depreciation are recognised only when there is a virtual certainty of their realisation. Other deferred tax assets are recognised only when there is a reasonable certainty of their realisation.

N) Cash and cash equivalents

In the Cash Flow Statement, cash and cash equivalents includes cash in hand, demand deposits with banks with original maturities of three months or less.

O) Earning per share

Basic earning per share is calculated by dividing the net profit or loss for the period attributable to Equity Shareholders by the weighted average number of Equity Shares outstanding during the period. Earnings considered in ascertaining the Company''s earning per share is the net profit for the period after deducting preference dividends and any attributable tax thereto for the period. For the purpose of calculating diluted earning per share, the net profit or loss for the period attributable to Equity Shareholders and the weighted average number of shares outstanding during the period is adjusted for the effects of all dilutive potential Equity Shares.


Mar 31, 2012

A) BASIS FOR PREPARATION OF FINANCIAL STATEMENTS

The financial statements have been prepared under historical cost convention on accrual basis and comply with notified accounting standards as referred to in Section 211(3C) and other relevant provisions of the Companies Act, 1956.

B) REVENUE RECOGNITION

- Sales include product subsidy and claims, if any, for reimbursement of cost escalation receivable from FICC/Ministry of Agriculture/Ministry of Fertilizers.

- Grants and subsidies from the government are recognized when there is reasonable assurance of the receipt thereof on the fulfillment of the applicable conditions.

- Revenue in respect of Interest other than on deposits, Insurance claims, subsidy and reimbursement of cost escalation claimed from FICC/Ministry of Agriculture/Ministry of Fertilizers beyond the notified retention price and price concession on fertilizers, pending acceptance of claims by the concerned parties is recognized to the extent the Company is reasonably certain of their ultimate realization.

- Clean Development Mechanism (CDM) benefits known as Carbon Credit for wind energy units generated and N20 reduction in its Nitric Acid plant are recognized as revenue on the actual receipts of the applicable credits and estimated at prevailing realizable values.

- Export benefit in the form of EPCG license is recognized as and when it is received for the value of the certificate.

- Rental income from realty business is recognized based on the contractual terms. In case of revenue sharing arrangements, the rental income is recognized on the basis of provisional information provided by the lessees where the final data is awaited on the date of revenue recognition.

C) FIXED ASSETS

- Fixed Assets (including major modifications/betterments) are recorded at cost of acquisition or construction (including interest/financial charges, project restructuring cost and other expenditure incidental and related to such acquisition/ construction).

- Intangible Assets (Goodwill, Patent, Trademark, Software Licenses etc.) are capitalized at cost of acquisition or development (including interest/financial charges and expenditure incidental and related to such acquisition/development).

- Exchange variation arising from repayment/restatement of the debts/borrowings in foreign currencies for acquisition of fixed assets is capitalized as per the Accounting Standard-11 as amended by the Notification No. G.S.R.378 (E) dated 11.05.11.

- Machinery Spares other than those required for regular maintenance are capitalized at cost.

- Cost of fixed assets, the ownership of which does not vest with the Company as also expenditure on installation/erection etc. of assets taken on lease is capitalized.

- Relief/Incentive granted by the Government of India by way of refund of Customs Duty paid on NP Project imports, is treated as a special reserve and adjusted against depreciation, over the remaining useful life of Fixed Assets of NP Project.

- Depreciation on exchange rate variance capitalized as part of the cost of Fixed Assets upto 31st March, 2012, has been provided prospectively over the residual useful life of the assets.

- Machinery Spares other than those required for regular maintenance are capitalized as per Accounting Standard-10 on Fixed Assets and depreciated over remaining useful life of the related machinery/equipments. Costs of such spares are charged to Statement of Profit and Loss when issued for actual use at written down value.

- Cost of Fixed Assets, ownership of which does not vest with the Company, is amortized over a period of 60 months.

- Intangible assets are amortized over a period not exceeding 60 months except in the case of right to use of properties which are amortized over the effective useful life of such rights.

- Cost of Leasehold Land is amortized over the lease period.

E) IMPAIRMENT OF ASSETS

The Company assesses at each Balance Sheet date whether there is any indication that any asset may be impaired. If any such indication exists, the recoverable amount of the asset is estimated. Impairment loss is recognized if the carrying value exceeds the recoverable amount.

F) INVENTORIES

- Inventories of raw materials are valued at lower of moving weighted average cost, written down to realizable value if the costs of the related finished goods exceed their net realizable value.

- Inventories of stores, regular spares, oil, chemicals, catalysts and packing material are valued at moving weighted average cost.

- Inventories of finished goods including those held for captive consumption are valued at lower of factory cost (including depreciation but excluding interest) and net realizable value.

- Value of Work-in-Process of all products is ignored for the purpose of inventory having regard to the concept of materiality and difficulty of quantifying such stocks with exactitude.

- CENVAT is accounted as per exclusive method of accounting in terms of Accounting Standard-2 on "Valuation of Inventories".

G) INVESTMENTS

Long term investments are valued at cost after appropriate adjustment, if necessary, for diminution in their value which are other than temporary in nature. Current Investments are stated at lower of cost and fair value.

H) FOREIGN CURRENCY TRANSACTIONS, FORWARD CONTRACTS AND DERIVATIVES

- Transactions in foreign currency are recorded at the rate of exchange prevailing on the dates of the transactions. Foreign currency monetary items are restated at the rate as of the date of Balance Sheet or, as the case may be, at forward contract rates.

- Exchange differences either on settlement or on translation are dealt with in the Statement of Profit and Loss. However exchange differences, arising either on settlement or on translation, in case of borrowings used for acquisition of fixed assets are capitalised. Wherever the variable interest in respect of External Commercial Borrowings is swapped for fixed interest rates, the fixed interest expense is recognized in the accounts.

- The Company uses foreign currency forward contracts to hedge its actual underlying exposures and not for trading or speculation purpose. The use of these forward contracts reduces the risk and/or cost to the Company.

- The outstanding derivative contracts at the Balance Sheet date other than forward exchange contracts mentioned above are valued by marking them to market and losses, if any, are recognized in the Statement of Profit and Loss. For this purpose, the net effect of all the related streams of cash flows are taken into consideration.

I) EMPLOYEE BENEFITS

- Short-term employee benefits are recognized as an expense at the undiscounted amount in the Statement of Profit and Loss of the year in which the related service is rendered.

- The eligible employees of the Company are entitled to receive benefits under the Provident Fund, a defined contribution plan in which both the employees and the Company make monthly contributions at a specified percentage of the covered employees' salary (currently 12% of employees' salary). The contributions as specified under the law are paid to the Regional Provident Fund Commissioner and the Central Provident Fund under the Pension Scheme. The Company recognizes such contributions as expense of the year in which the liability is incurred.

- The Company has an obligation towards Gratuity, a defined benefit retirement plan covering eligible employees. The plan provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 to 30 days salary payable for each completed year of service. Vesting occurs upon completion of five years of service. The plan is managed by a trust and the fund is invested with Life Insurance Corporation of India under its Group Gratuity Scheme. The Company makes annual contributions to Gratuity Fund and the Company recognizes the liability for Gratuity benefits payable in future based on an independent actuarial valuation.

- The Company has a Superannuation Plan for its executives - a defined contribution plan. The Company makes annual contributions at 15% of the covered employees' salary. The plan is managed by a trust and fund is invested with Life Insurance Corporation of India under its Group Superannuation Scheme. The contributions as specified under the trust deed are paid to the Life Insurance Corporation of India. The Company is liable for annual contributions and recognizes such contributions as an expense of the year in which the liability is incurred.

- The Company provides for the encashment of leave or leave with pay subject to certain rules. The employees are entitled to accumulate leave for a ailment as well as encashment subject to the rules. As per the regular past practice followed by the employees, it is not expected that the entire accumulated leave shall be encased or availed by the employees during the next twelve months and accordingly the benefit is treated as long term defined benefit. The liability is provided for based on the number of days of unutilized leave at the Balance Sheet date on the basis of an independent actuarial valuation.

- The Company has a Wealth Creation Scheme for its executives - a defined contribution plan. The Company makes annual contributions at 3% of the covered employees' salary which are then invested by the Company in securities. Subject to Company's Policy the vested employees are eligible to receive accumulated balance at retirement, death while in employment or on termination of employment. The Company is liable for annual contributions and recognizes such contributions as an expense of the year in which the liability is incurred.

- The Company has a medical benefit plan according to which employees are entitled to be covered under medic aim policy for the next five years post their superannuation. The amount being insignificant, the liability towards such benefit is recognized based on the actual premium payable.

- The Company has a retirement policy, a defined benefit retirement plan, according to which executives superannuating from the service after ten years of service are eligible for certain benefits like medical, fuel, telephone reimbursement, club membership etc. for specified number of years. The liability is provided for on the basis of an independent actuarial valuation.

J) BORROWING COST

- Borrowing cost on working capital is charged against the profit/loss for year in which it is incurred.

- Borrowing costs that are attributable to the construction/acquisition of fixed assets are capitalised as a part of the cost of these capitalized assets till the date of completion of physical construction/mechanical completion of the assets.

- Borrowing costs that are attributable to the development/acquisition of intangible assets are capitalized till the date of use.

K) PRIOR PERIOD ITEMS

Significant items of Income and Expenditure which relate to prior accounting periods, are accounted in the Statement of Profit and Loss under the head "Prior Years' Adjustments" other than those occasioned by events occurring during or after the close of the year and which are treated as relatable to the current year.

L) CONTINGENT LIABILITIES

Contingent Liabilities as defined in Accounting Standard-29 are disclosed by way of notes to accounts. Provision is made if it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability.

M) TAXES ON INCOME

Current tax is determined as the amount of tax payable in respect of taxable income for the period. Deferred tax is recognized, subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the differences between ' taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. For this purpose, deferred tax liabilities and assets are reckoned on net basis, after inter-se set-off, for each component of the timing differences.


Mar 31, 2011

A) BASIS FOR PREPARATION OF FINANCIAL STATEMENTS

The financial statements have been prepared under historical cost convention on accrual basis and comply with notified accounting standards as referred to in Section 211(3C) and other relevant provisions of the Companies Act, 1956.

B) REVENUE RECOGNITION

. Sales include product subsidy and claims, if any, for reimbursement of cost escalation receivable from FICC/ Ministry of Agriculture/Ministry of Fertilisers.

. Grants and subsidies from the government are recognized when there is reasonable assurance of the receipt thereof on the fulfilment of the applicable conditions.

. Revenue in respect of Interest other than on deposits, Insurance claims, Subsidy and Reimbursement of cost escalation claimed from FICC/Ministry of Agriculture/Ministry of Fertilisers beyond the notified Retention Price and Price Concession on fertilisers, pending acceptance of claims by the concerned parties is recognised to the extent the Company is reasonably certain of their ultimate realisation.

. Clean Development Mechanism (CDM) benefits known as Carbon Credit for wind energy units generated and N20 reduction in its Nitric Acid plant are recognized as revenue on the actual receipts of the applicable credits and estimated at prevailing realisable values.

. Export benefit in the form of EPCG licence is recognized as and when it is received for the value of the certificate.

. Rental income from realty business is recognized based on the contractual terms. In case of revenue sharing arrangements, the rental income is recognized on the basis of provisional information provided by the lessees where the final data is awaited on the date of revenue recognition.

C) FIXED ASSETS

. Fixed Assets (including major modifications/betterments) are recorded at cost of acquisition or construction (including interest/financial charges, project restructuring cost and other expenditure incidental and related to such acquisition/construction).

. Intangible Assets (Goodwill, Patent, Trademark, Software Licenses etc.) are capitalised at cost of acquisition or development (including interest/financial charges and expenditure incidental and related to such acquisition/ development).

. Exchange variation arising from repayment/restatement of the debts/borrowings in foreign currencies for acquisition of fixed assets is capitalized as per the Accounting Standard 11 as amended by the Notification No. G.S.R.225 (E) dated 31.03.09.

. Machinery Spares other than those required for regular maintenance are capitalised at cost.

. Cost of fixed assets, the ownership of which does not vest with the Company as also expenditure on installation/ erection etc. of assets taken on lease is capitalised.

. Relief/Incentive granted by the Government of India by way of refund of Customs Duty paid on NP Project imports, is treated as a special reserve and adjusted against depreciation, over the remaining useful life of Fixed Assets of NP Project.

D) DEPRECIATION

. Depreciation is provided by Straight Line Method, except for relocated DNA-III Plant which is depreciated by Written Down Value method.

. Tangible assets, owned by the Company, are depreciated in accordance with the rates prescribed in Schedule XIV to the Companies Act, 1956 except in the following cases where higher rates are applied to the factors of accelerated obsolescence, relocation of plant, modifications of existing plants etc.

. Depreciation on exchange rate variance capitalised as part of the cost of Fixed Assets upto 31st March, 2011, has been provided prospectively over the residual useful life of the assets.

. Machinery Spares other than those required for regular maintenance are capitalised as per Accounting Standard- 10 on Fixed Assets and depreciated over remaining useful life of the related machinery/equipments. Costs of such spares are charged to Profit and Loss Account when issued for actual use at written down value.

. Cost of Fixed Assets, ownership of which does not vest with the Company, is amortised over a period of 60 months.

. Intangible assets are amortised over a period not exceeding 60 months except in the case of right to use of properties which are ammortised over the effective useful life of such rights.

. Cost of Leasehold Land is amortised over the lease period.

E) IMPAIRMENT OF ASSETS

The Company assesses at each Balance Sheet date whether there is any indication that any asset may be impaired. If any such indication exists, the recoverable amount of the asset is estimated. Impairment loss is recognised if the carrying value exceeds the recoverable amount.

F) INVENTORIES

. Inventories of raw materials are valued at lower of moving weighted average cost, written down to realisable value if the costs of the related finished goods exceed their net realisable value.

. Inventories of stores, regular spares, oil, chemicals, catalysts and packing material are valued at moving weighted average cost.

. Inventories of finished goods including those held for captive consumption are valued at lower of factory cost (including depreciation but excluding interest) and net realisable value.

. Value of Work-in-Process of all products is ignored for the purpose of inventory having regard to the concept of materiality and difficulty of quantifying such stocks with exactitude.

. CENVAT is accounted as per exclusive method of accounting in terms of Accounting Standard (AS)-2 on "Valuation of Inventories".

6) INVESTMENTS

Long term investments are valued at cost after appropriate adjustment, if necessary, for diminution in their value which are other than temporary in nature. Current Investments are stated at lower of cost and fair value.

H) FOREIGN CURRENCY TRANSACTIONS, FORWARD CONTRACTS AND DERIVATIVES

. Transactions in foreign currency are recorded at the rate of exchange prevailing on the dates of the transactions. Foreign currency monetary items are restated at the rate as of the date of Balance Sheet or, as the case may be, at forward contract rates.

. Exchange differences either on settlement or on translation are dealt with in the Profit and Loss Account. However exchange differences, arising either on settlement or on translation, in case of borrowings used for acquisition of fixed assets are capitalised.

. Wherever the variable interest in respect of External Commercial Borrowings is swapped for fixed interest rates, the fixed interest expense is recognised in the accounts.

. The Company uses foreign currency forward contracts to hedge its actual underlying exposures and not for trading or speculation purpose. The use of these forward contracts reduces the risk and/or cost to the Company.

. The outstanding derivative contracts at the Balance Sheet date other than forward exchange contracts mentioned above are valued by marking them to market and losses, if any, are recognised in the Profit and Loss Account. For this purpose, the net effect of all the related streams of cash flows are taken into consideration.

I) EMPLOYEE BENEFITS

. Short-term employee benefits are recognised as an expense at the undiscounted amount in the Profit and Loss Account of the year in which the related service is rendered.

. The eligible employees of the Company are entitled to receive benefits under the Provident Fund, a defined contribution plan in which both the employees and the Company make monthly contributions at a specified percentage of the covered employees salary (currently 12% of employees salary). The contributions as specified under the law are paid to the Regional Provident Fund Commissioner and the Central Provident Fund under the Pension scheme. The Company recognises such contributions as expense of the year in which the liability is incurred.

. The Company has an obligation towards Gratuity, a defined benefit retirement plan covering eligible employees. The plan provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 to 30 days salary payable for each completed year of service. Vesting occurs upon completion of five years of service. The plan is managed by a trust and the fund is invested with Life Insurance Corporation of India under its Group Gratuity Scheme. The Company makes annual contributions to gratuity fund and the Company recognises the liability for Gratuity benefits payable in future based on an independent actuarial valuation.

. The Company has a Superannuation Plan for its executives - a defined contribution plan. The Company makes annual contributions at 15% of the covered employees salary. The plan is managed by a trust and fund is invested with Life Insurance Corporation of India under its Group Superannuation Scheme. The contributions as specified under the trust deed are paid to the Life Insurance Corporation of India. The Company is liable for annual contributions and recognises such contributions as an expense of the year in which the liability is incurred.

. The Company provides for the encashment of leave or leave with pay subject to certain rules. The employees are entitled to accumulate leave for availment as well as encashment subject to the rules. As per the regular past practice followed by the employees, it is not expected that the entire accumulated leave shall be encashed or availed by the employees during the next twelve months and accordingly the benefit is treated as long term defined benefit. The liability is provided for based on the number of days of unutilised leave at the Balance Sheet date on the basis of an independent actuarial valuation.

. The Company has a Wealth Creation Scheme for its executives - a defined contribution plan. The Company makes annual contributions at 3% of the covered employees salary which are then invested by the Company in securities. Subject to Companys Policy the vested employees are eligible to receive accumulated balance at retirement, death while in employment or on termination of employment. The Company is liable for annual contributions and recognises such contributions as an expense of the year in which the liability is incurred.

. The Company has a medical benefit plan according to which employees are entitled to be covered under mediclaim policy for the next five years post their superannuation. The amount being insignificant, the liability towards such benefit is recognised based on the actual premium payable.

J) BORROWING COST

. Borrowing cost on working capital is charged against the profit/loss for year in which it is incurred.

. Borrowing costs that are attributable to the construction/acquisition of fixed assets are capitalised as a part of the cost of these capitalised assets till the date of completion of physical construction/mechanical completion of the assets.

. Borrowing costs that are attributable to the development/acquisition of intangible asset are capitalised till the date of use.

K) PRIOR PERIOD ITEMS

Significant items of Income and Expenditure which relate to prior accounting periods, are accounted in the Profit and Loss Account under the head "Prior Years Adjustments" other than those occasioned by events occurring during or after the close of the year and which are treated as relatable to the current year.

L) CONTINGENT LIABILITIES

Contingent Liabilities as defined in Accounting Standard-29 are disclosed by way of notes to accounts. Provision is made if it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability.

M) TAXES ON INCOME

Current tax is determined as the amount of tax payable in respect of taxable income for the period. Deferred tax is recognised, subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the differences between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. For this purpose, deferred tax liabilities and assets are reckoned on net basis, after inter-se set-off, for each component of the timing differences.


Mar 31, 2010

A) Basis of preparation of financial statements

The financial statements are prepared under historical cost convention on the accrual basis of accounting and in accordance with accounting principles generally accepted in India.

bj Management estimates

The preparation of financial statements in conformity with generally accepted accounting principles in India requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reported period.The Management believes that the estimates used in preparation of the financialstatements are prudent and reasonable. Future results could differ from these estimates.

c) Fixed Assets:

Fixed assets are carried at cost of acquisition or construction and include amounts added on revaluation, less accumulated depreciation and impairment loss.

d) Depreciation/Amortisation:

1. In respect of fixed assets revalued, depreciation is provided on the basis of useful life of assets as estimated by the external valuers or that calculated on original cost whichever is higher.

2. Depreciation on other fixed assets has been provided in the accounts at the rates and in the manner specified in Schedule XIV to the Companies Act, 1956 as under:

i. Sheet Metal Divisions (Honda, Bhuimpal, Jejuri) : On Written Down Value Method in respect of buildings, furniture and fixtures and vehicles and on Straight Line Method in respect of plant and machinery.

ii. Bus Body Division: On straight line method.

3. Cost of leasehold land is amortised over the period of lease.

ej Impairment Loss:

Impairment loss is provided to the extent the carrying amount of assets exceeds their recoverable amount. Recoverable amount is the higher of an assets net selling price and its value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of the asset and from its disposal at the end of its useful life. Net selling price is the amount obtainable from the sale of the asset in an arms length transaction between knowledgeable, willing parties, less the cost of disposal.

f) Intangible Assets

Intangible assets are stated ar cost less accumulated amortisation. Computer software is amortised over a period of four years.

g) Investments:

Current investments are carried at lower of cost and fair value. Long Term investments are carried at cost However when there is a decline, other than temporary, the carrying amount is reduced to recognise the decline.

h) Inventories:

Items of inventory are valued on the basis given below: •

i. Raw material :at cost or net realisable value, whichever is lower. Cost is determined by the Weighted Average Method.

ii. Components, Stores and Spares: at cost or net realisable value, whichever is lower. Cost is determined by the Weighted Average Method ( Refer note 27 of Schedule 14)

iii. Work in process and Finished goods: at cost or net realisable value, whichever is lower. Cost is determined on the basis of absorption costing.

iv. Scrap: at net realisable value.

i) Employee Benefits:

i) Gratuity

The Company has an obligation towards gratuity, a defined benefit retirement plan covering eligible employees. The plan provides for lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 to 30 days salary payable for each completed year of service. Vesting occurs upon completion of five years of service. The company has obtained insurance policy with Life Insurance Corporation of India The company accounts for the Bability for gratuity benefits payable in future based on an independent actuarial valuation, carried out as at the year end.

ii) Superannuation

The company has a Superannuation plan (defined contribution plan) .The Company maintains separate irrevocable trust for employees covered and entitled to benefits. The company has obtained insurance policy with Life Insurance Corporation of India. The company contributes) 5% of eligible employees salary to the trust every year. The company recognizes such contributions as an expense when incurred. The company has no further obligation beyond this contribution

Hi) Provident Fund

The eligible, employees of the Company are entitled to receive benefits under the provident fund, a defined contribution plan, in which both employees and the company make monthly contributions at a specified percentage of the covered employees salary ( currently 12% of employees salary j.The contributions as specified under the law are paid to the provident fund trust. Contribution towards Pension fund is paid to the Regional Provident fund commissioner at specified percentage of the covered employees salary on monthly basis.

iv) Compensated absences

The company provides for the encashment of leave or leave with pay subject to certain rules. The employees are entitled to accumulate leave subject to certain limits, for future encashment. The liability is provided based on the number of days of unutilized leave at each balance sheet date on the basis of an independent actuarial valuation, carried out as at the year end.

v) Actuarial gains and losses

The actuarial gains and losses are recognised immediately in the statement of profit and loss.

jj Accounting of Cenvai Credit;

Cenvat credit is accounted as per actual credit availed in the Excise records, on receipt of materials.

k) Foreign Currency Transactions:

Transactions in foreign currency eve recorded at the original rates of exchange in force at the time the transactions are effected. At the year-end, monetary items denominated in foreign currency are reported using the closing rates of exchange. Exchange differences arising thereon and on realisation / payments of foreign exchange are accounted as income or expense in the relevant year.

I) Revenue recognition:

Revenue (income) is recognised when no significant uncertainty as to measurability or collectibility exists.

m) Borrowing costs:

Borrowing costs that are attributable to the acquisition, construction or production of qualifying assets are capitalised as part of the cost of such assets. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use. All other borrowing costs are charged to revenue.

nj Leases

Assets acquired on leases where significant portions of the risks and rewards incidental 1o ownership are retained by the lessors are classified as operating leases. Lease rentals are charged to the profit & loss account on accrual basis.

Rentals received on assets given on operating leases are recognised as income in the profit and loss account on straight-line basis over the period of the lease as per the terms of agreement.

oj SEGMENTAL ACCOUNTING

The following accounting policies have been followed for segment reporting:

Segment Revenue includes Sales and other income directly identifiable with / allocable to the segment.

Expenses that are directly identifiable with / allocable to segments are considered for determining the Segment Results. The expenses which relate to the Company as a whole and not allocable to segments are included under Unallocable expenses.

Segment assets and liabilities include those directly identifiable with the respective segments. Unallocable corporate assets and liabilities represent the assets and liabilities that relate to the Company as a whole and not allocable to any segment. Unallocated assets mainly comprise Cash and Bank balances.

Unallocable liabilities include Deferred tax. Secured loans. Provision for tax (net of advance payment of taxes) and Other liabilities.

p) Fringe Benefit Tax:

Provision for Fringe Bejiefit Tax is made in accordance with Chapter Xll-H of the Income Tax Act, 1961.

q) Taxes on Income:

Tax expense comprise both current tax and deferred tax at the applicable enacted/ substantively enacted rates. Current tax represents the amount of income tax payable / recoverable in respect of taxable income / loss for the reporting period. Deferred tax represents the effect of timing differences between taxable income and accounting income for the reporting period that originate in one period and are capable of reversal in one or more subsequent periods.

r) Product Warranty Expenses

The estimated liability for product warranties is recorded when products are sold. These estimates are established using historical information on the nature, frequency and average cost of warranty claims.

s) Provisions and contingencies:

A provision is recognised where the Company has a legal and constructive obligation as a result of a past event, for which it is probable that cash outflow will be required and a reliable estimate can be made of the amount of the obligation. A Contingent liability is disclosed when the Company has a possible or present obligation where it is not probable that an outflow of resources will be required to settle it. Contingent assets are neither recognised nor disclosed.

t) Government Grants:

Grants related to specific Fixed Assets are disclosed as a deduction from the value of concerned Assets. Grants related to revenue are credited to the Profit and Loss Account. Grants in the nature of promoters contribution are treated as Capital Reserve.

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