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Accounting Policies of KEC International Ltd. Company

Mar 31, 2016

A. Basis of accounting and preparation of the financial statements:

The financial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards specified under Section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014 and other accounting principles generally accepted in India. The financial statements have been prepared on accrual basis under the historical cost convention. The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the previous year.

B. Uses of Estimates:

The preparation of the financial statements in conformity with Indian GAAP requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognised in the periods in which the results are known / materialise.

C. Revenue Recognition:

i. Sale of goods is recognised, on transfer of significant risks and rewards of ownership to the buyer, which generally coincides with the delivery of goods to customers. Sale of services is recognised when services are rendered. Sales exclude sales tax/ value added tax and service tax charged to the customers.

ii. Revenue from turnkey contracts is recognised based on the stage of completion determined with reference to the costs incurred on contracts and their estimated total costs.

When it is probable that the total contract cost will exceed total contract revenue, expected loss is recognised as an expense immediately. Total contract cost is determined based on technical and other assessment of cost to be incurred.

Liquidated damages/ penalties are accounted as per the contract terms wherever there is a delayed delivery attributable to the Company.

iii. Revenue from turnkey contracts awarded to a Jointly Controlled Entity at Saudi Arabia but executed by the Company under the arrangement with the Joint Venture Partner [being in substance in the nature of Jointly Controlled Operations, in terms of Accounting Standard (AS) 27 "Financial Reporting of Interests in Joint Ventures"], is recognised on the same basis as similar turnkey contracts independently executed by the Company.

iv. Share in profit/loss of the projects undertaken by the jointly controlled entities, is accounted on its appropriation to the venturers as per the terms of the respective joint venture contracts.

v. Dividend income is accounted as and when the right to receive the same is established.

vi. Interest income is accounted on time proportion basis.

D. Inventories:

i. Raw materials, work-in-progress, finished goods and stores and erection materials are valued at the lower of cost and net realisable value (NRV). Cost of purchased material is determined on the weighted average basis. Cost of Erection tools and spares is amortised over its estimated useful life. Scrap is valued at net realisable value.

ii. Cost of work-in-progress and finished goods includes material cost, labour cost, and manufacturing overheads absorbed on the basis of normal capacity of production.

E. Fixed Assets:

Fixed assets are stated at cost of acquisition or construction net of impairment loss, if any less accumulated depreciation/ amortisation. Cost comprises of purchase/ acquisition price, non-refundable taxes and any directly attributed cost of bringing the asset to its working condition for its intended use. Financing cost on borrowings for acquisition or construction of qualifying fixed assets, for the period upto the date of acquisition of fixed assets or when the assets are ready to be put in use/ the date of commencement of commercial production, is included in the cost of fixed assets.

Fixed assets retired from active use and held for sale are stated at the lower of their net book value and net realisable value and are disclosed separately.

Assessment of indication of impairment of an asset is made at the year end and impairment loss, if any, is recognised.

F. Depreciation/ Amortisation:

i. Tangible Assets:

a) Leasehold land is amortised over the remaining period of the lease.

b) Depreciation on other tangible fixed assets has been provided on the straight-line method as per the useful life prescribed in Schedule II to the Companies Act, 2013 except in respect of the following categories of assets, in whose case the life of the certain assets has been assessed as under based on technical advice, taking into account the nature of the asset, the estimated usage of the asset, the operating conditions of the asset, past history of replacement, anticipated technological changes, etc.

Plant and Equipment/ Office Equipment – 7 to 23 years, Buildings-40 years, and Vehicles – 7 years.

ii. Intangible Assets:

a) Brand is amortised over twenty years being the useful life certified by the independent valuer.

In terms of the Scheme of Arrangement sanctioned in the year 2007-08, out of the balance in ''Reserve for Amortisation of Brand Account'' an amount equal to annual amortisation of brand is credited to the Statement of profit and Loss each year so that overall depreciation and amortisation gets reduced to that extent. Accordingly, Rs. Nil (Previous Year Rs. 157 lacs) being the amortisation of brand during the year is credited to the Statement of profit and Loss by netting it with Depreciation and amortisation expense.

b) Brand transferred pursuant to the Scheme of Amalgamation referred to in ''Note 42'' is amortised over ten year being its useful life as estimated by the Company.

c) Computer softwares are amortised on straight line method over the estimated useful life ranging between 4-6 years.

G. Investments:

Long-term investments are stated at cost. Provision is made for diminution, other than temporary, in the value of investments.

H. Trade receivables as at the year end under the contracts are disclosed net of advances received relating to the respective contracts for work to be done and outstanding at the year end.

I. Foreign Currency Transactions:

i. Foreign branches ( Integral)

a) Fixed assets are translated at the rates on the date of purchase/acquisition of assets and inventories are translated at the rates that existed when costs were incurred.

b) All foreign currency monetary items outstanding at the year end are translated at the year end exchange rates. Income and expenses are translated at average rates of exchange and depreciation/amortisation is translated at the rates referred to in (i) (a) above for fixed assets.

c) The resulting exchange gains and losses are recognised in the Statement of profit and Loss.

ii. Jointly Controlled Operations (Non Integral)

Assets and liabilities, both monetary and non monetary are translated at the year end exchange rates, income and expense items are translated at the average rate of exchange and all resulting exchange differences are accumulated in a Foreign Currency Translation Reserve.

iii. Other foreign currency transactions:

a) Foreign currency transactions during the year are recorded at the rates of exchange prevailing at the date of transaction. Exchange gains or losses realised and arising due to translation of the foreign currency monetary items outstanding at the year end are accounted in the Statement of profit and Loss. Non-monetary items of the Company are carried at historical cost.

b) Forward Exchange Contracts:

In case of transactions covered by forward exchange contracts, which are not intended for trading or speculation purposes, premium or discounts are amortised as expense or income 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 the exchange rate changes.

profit or loss arising on cancellation or renewal of such forward exchange contracts are recognised as income or as expense for the year.

J. Excise duty payable is accounted on production of finished goods.

K. Employee Benefits:

a) Defined Contribution Plans:

The Company''s contribution to provident fund and superannuation fund are considered as defined contribution plans and are charged as an expense based on the amount of contribution required to be made and when services are rendered by the employees.

b) Defined Benefit Plan / Long Term employee benefits:

The Company''s liability towards defined benefit plan (viz. gratuity) and long term employee benefits (viz. long term compensated absences) is determined on the basis of year end actuarial valuation done by an independent actuary. The actuarial gains or losses determined by the actuary are recognised in the Statement of profit and Loss as income or expense.

c) Short term employee benefits:

The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees are recognised during the year when the employees render the service.

L. Leases

a) Assets acquired under lease where the Company has substantially all the risks and rewards incidental to ownership are classified as finance leases. Such assets are capitalised at the inception of the lease at the lower of the fair value and the present value of minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic rate of interest on the outstanding liability for each period.

b) Assets acquired on leases where significant portions of the risks and rewards incidental to ownership are retained by the lessors, are classified as operating leases. Lease rentals are charged to the Statement of profit and Loss on a straight line basis over the term of the relevant lease.

M. Taxation:

Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and the provisions of the Income-tax Act, 1961 and other applicable tax laws.

Deferred tax is recognised on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets are recognised for timing differences of items other than unabsorbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. However, if there are unabsorbed depreciation and carry forward of losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realise the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their realisability.

Minimum Alternative Tax (MAT) credit asset is recognised only when and to the extent there is convincing evidence that the Company will pay normal Income tax during the specified period. The carrying amount of MAT credit asset, if any, is reviewed at each Balance Sheet date.

N. Receivables and loans and advances identified as doubtful of recovery are provided for / written off.

O. Provisions and contingencies :

A provision is recognised when the Company has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. Contingent liabilities are disclosed in the Notes. Contingent assets are not recognised in the financial statements.

P. Derivative Contracts and Hedge Accounting

a) Derivative Contracts:

Derivative instrument are used to hedge risk associated with foreign currency fluctuations, interest rates and commodity prices. The Company enters into derivative contracts in the nature of foreign currency swaps, currency options, forward contracts with an intention to hedge its existing assets and liabilities, firm commitments and highly probable transactions in foreign currency. Derivative contracts which are closely linked to the existing assets and liabilities are accounted as per the policy stated for Foreign currency transactions and translations. The Company does not enter into any derivative contracts for speculations or trading purposes.

Derivative contracts designated as a hedging instrument for highly probable forecast transactions are accounted as per the policy stated for Hedge Accounting.

All other derivative contracts are marked-to-market and losses are recognised in the Statement of profit and Loss. Gains arising on the same are not recognised, until realised, on grounds of prudence.

b) Hedge Accounting:

To designate contract as an effective hedge, the management objectively evaluates and evidences with appropriate supporting documents at the inception of each contract whether the contract is effective in achieving offsetting cash flows attributable to the hedged risk.

The Company designates financial instruments as hedging instrument for hedging foreign currency risk. Changes in the fair value of financial instrument that are designated and qualify as cash flow hedges and are determined to be an effective hedge are recognized in the ''Hedging Reserve'' under Reserve and Surplus, net of applicable deferred taxes.

The gain or losses on the contracts which do not qualify for hedge accounting or considered as ineffective hedge transactions are charged to Statement of profit and Loss. Amounts accumulated in the Hedging Reserve are reclassified to the Statement of profit and Loss in the same periods when the hedged item affects profit and loss.

Q. Operating Cycle

Assets and liabilities other than those relating to long-term contracts (i.e. supply or turnkey contracts) are classified as current if it is expected to realize or settle within 12 months after the balance sheet date.

In case of long-term contracts, the time between acquisition of assets for processing and realisation of the entire proceeds under the contracts in cash or cash equivalent exceeds one year. Accordingly for classification of assets and liabilities related to such contracts as current, duration of each contract is considered as its operating cycle.

R. Cash and cash equivalents (for purposes of Cash Flow Statement)

Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.

S. Cash Flow Statement

Cash flows are reported using the indirect method, whereby profit / (loss) before extraordinary items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information.

T. Basis of Incorporation of integral foreign operations:

Figures in respect of the Company''s overseas branches in Afghanistan, Algeria, Bangladesh, Congo, Egypt, Ethiopia, Georgia, Ghana, Indonesia, Ivory Coast, Kazakhstan, Kenya, Laos, Lebanon, Libya, Malaysia, Nepal, Nigeria, Oman, Philippines, South Africa, Sri Lanka, Tanzania, Tunisia, Uganda, United Arab Emirates and Zambia have been incorporated on the basis of financial statements (the Branch Returns) audited by the auditors of the respective branches. Further, in respect of overseas branches in Bhutan, Cameroon, Kuwait and Namibia, the financial statements have been prepared and audited in India.


Mar 31, 2014

A) Basis of accounting and preparation of financial statements :

The financial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards notified under Section 211(3C) of the Companies Act, 1956 ("the 1956 Act") (which continue to be applicable in respect of Section 133 of the Companies Act, 2013 ("the 2013 Act") in terms of General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate Affairs) and the relevant provisions of the 1956 Act/ 2013 Act, as applicable. The financial statements have been prepared on accrual basis under the historical cost convention. The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the previous year.

B) uses of Estimates :

The preparation of the financial statements in conformity with Indian GAAP requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognised in the periods in which the results are known / materialise.

C) Revenue Recognition :

i. Sale of goods is recognised, on transfer of Significant risks and rewards of ownership to the buyer, which generally coincides with the delivery of goods to customers. Sale of services is recognised when services are rendered. Sales exclude sales tax/ value added tax and service tax charged to the customers.

ii. Revenue from turnkey contracts is recognised based on the stage of completion determined with reference to the costs incurred on contracts and their estimated total costs.

When it is probable that the total contract cost will exceed total contract revenue, expected loss is recognised as an expense immediately. Total contract cost is determined based on technical and other assessment of cost to be incurred. Liquidated damages/ penalties are accounted as per the contract terms wherever there is a delayed delivery attributable to the Company.

iii. Revenue from turnkey contracts awarded to a Jointly Controlled Entity at Saudi Arabia but executed by the Company under the arrangement with the Joint Venture Partner [being in substance in the nature of Jointly Controlled Operations, in terms of Accounting Standard (AS) 27 "Financial Reporting of Interests in Joint Ventures"], is recognised on the same basis as similar turnkey contracts independently executed by the Company.

iv. Share in profit/loss of the projects undertaken by the jointly controlled entities, is accounted on its appropriation to the ventures as per the terms of the respective joint venture contracts.

v. Subsidy is accounted on accrual basis.

vi. Dividend income is accounted as and when the right to receive the same is established.

vii. Interest income is accounted on time proportion basis.

D) Inventories :

i. Raw materials, work-in-progress, finished goods and stores and erection materials are valued at the lower of cost and net realisable value (NRV). Cost of purchased material is determined on the weighted average basis. Cost of Tools and Dies is amortised over its estimated useful life. Scrap is valued at net realisable value.

ii. Cost of work-in-progress and finished goods includes material cost, labour cost, and manufacturing overheads absorbed on the basis of normal capacity of production.

E) Fixed Assets :

Fixed assets are stated at cost of acquisition or construction net of impairment loss, if any less accumulated depreciation/ amortisation. Cost comprises of purchase/ acquisition price, non-refundable taxes and any directly attributed cost of bringing the asset to its working condition for its intended use. Financing cost on borrowings for acquisition or construction of qualifying fixed assets, for the period upto the date of acquisition of fixed assets or when the assets are ready to be put in use/ the date of commencement of commercial production, is included in the cost of fixed assets.

Assessment of indication of impairment of an asset is made at the year end and impairment loss, if any, is recognised.

F) Depreciation/ Amortisation :

i. Tangible Assets :

a) Leasehold land is amortised over the remaining period of the lease.

b) Cost of buildings of semi-permanent nature is amortised over 3 years.

c) Depreciation on other tangible fixed assets is provided on straight line method at the rates so as to reduce them to their estimated salvage value at the end of their useful lives or at the rates prescribed in Schedule XIV to the Companies Act, 1956 whichever is higher.

The estimated useful lives of assets which are different from the estimated useful lives derived from the principal rates specified in Schedule XIV to the Companies Act, 1956 are as follows:

Plant and Equipment/ Office Equipment – 1 to 19 years, Furniture and Fixtures – 10 years, Vehicles – 7 years and Computers – 4 years.

ii. Intangible Assets :

a) Brand is amortised over twenty years being the useful life certified by the independent valuer.

In terms of the Scheme of Arrangement sanctioned in the year 2007-08, out of the balance in ''Reserve for Amortisation of Brand Account'' an amount equal to annual amortisation of brand is credited to the Statement of Profit and Loss each year so that overall depreciation and amortisation gets reduced to that extent. Accordingly, Rs. 1,200 lacs being the amortisation of brand during the year (Previous year Rs. 1,200 lacs) have been credited to the Statement of Profit and Loss by netting it with Depreciation and amortisation expense.

b) Computer software’s are amortised on straight line method over the estimated useful life ranging between 4-6 years.

G) Investments :

Long-term investments are stated at cost. Provision is made for diminution, other than temporary, in the value of investments.

H) Trade receivables as at the year end under the contracts are disclosed net of advances received relating to the respective contracts for work to be done and outstanding at the year end.

I) Foreign Currency Transactions :

i. Foreign branches (Integral) :

a) Fixed assets are translated at the rates on the date of purchase/acquisition of assets and inventories are translated at the rates that existed when costs were incurred.

b) All foreign currency monetary items outstanding at the year end are translated at the year end exchange rates. Income and expenses are translated at average rates of exchange and depreciation and amortisation is translated at the rates referred to in i. a) above for fixed assets.

c) The resulting exchange gains and losses are recognised in the Statement of Profit and Loss.

ii. Jointly Controlled operations (Non Integral) :

Assets and liabilities, both monetary and non monetary are translated at the year end exchange rates, income and expense items are translated at the average rate of exchange and all resulting exchange differences are accumulated in a Foreign Currency Translation Reserve.

iii. other foreign currency transactions :

a) Foreign currency transactions during the year are recorded at the rates of exchange prevailing at the date of transaction. Exchange gains or losses realised and arising due to translation of the foreign currency monetary items outstanding at the year end are accounted in the Statement of Profit and Loss.

b) Forward Exchange Contracts

In case of transactions covered by forward exchange contracts, which are not intended for trading or speculation purposes, premium or discounts are amortised as expense or income 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 the exchange rate changes.

Profit or loss arising on cancellation or renewal of such forward exchange contracts are recognised as income or as expense for the year.

J) Excise duty payable is accounted on production of finished goods.

K) Employee Benefits :

a) Defined Contribution Plans :

The Company''s contribution to provident fund and superannuation fund are considered as defined contribution plans and are charged as an expense based on the amount of contribution required to be made and when services are rendered by the employees.

b) Defined Benefit Plan / Long Term employee Benefits :

The Company''s liability towards defined benefit plan (viz. gratuity) and long term employee Benefits (viz. long term compensated absences) is determined on the basis of year end actuarial valuation done by an independent actuary. The actuarial gains or losses determined by the actuary are recognised in the Statement of Profit and Loss as income or expense.

c) Short term employee Benefits :

The undiscounted amount of short-term employee Benefits expected to be paid in exchange for the services rendered by employees are recognised during the year when the employees render the service.

L) Leases :

a) Assets acquired under lease where the Company has substantially all the risks and rewards incidental to ownership are classified as finance leases. Such assets are capitalised at the inception of the lease at the lower of the fair value and the present value of minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic rate of interest on the outstanding liability for each period.

b) Assets acquired on leases where Significant portions of the risks and rewards incidental to ownership are retained by the lessors, are classified as operating leases. Lease rentals are charged to the Statement of Profit and Loss on a straight line basis over the term of the relevant lease.

M) Taxation :

Current tax is determined as the amount of tax payable in respect of estimated taxable income for the period.

Deferred tax is recognised on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets are recognised for timing differences of items other than unabsorbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. However, if there are unabsorbed depreciation and carry forward of losses, deferred tax assets are recognised only if there is virtual certainty that there will be sufficient future taxable income available to realise the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their reliability.

Minimum Alternative Tax (MAT) credit asset is recognised only when and to the extent there is convincing evidence that the Company will pay normal Income Tax during the specified period. The carrying amount of MAT credit asset is reviewed at each Balance Sheet date.

N) Receivables and loans and advances identified as doubtful of recovery are provided for.

O) Provisions and contingencies :

A provision is recognised when the Company has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions (excluding retirement Benefits) are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. Contingent liabilities are disclosed in the Notes. Contingent assets are not recognised in the financial statements.

P) Derivative Contracts :

The Company enters into derivative contracts in the nature of full currency swaps, interest rate swaps, currency options, forward contracts and commodity hedges with an intention to hedge its existing assets, liabilities, raw material requirements and firm commitments. Derivative contracts which are closely linked to the underlying transactions are recognised in accordance with the contract terms. All contracts are marked-to-market and losses are recognised in the Statement of Profit and Loss. Gains arising on the same are not recognized on grounds of prudence.

q) Operating Cycle :

Assets and liabilities other than those relating to long-term contracts (i.e. supply or turnkey contracts) are classified as current if it is expected to realize or settle within 12 months after the balance sheet date.

In case of long-term contracts, the time between acquisition of assets for processing and realisation of the entire proceeds under the contracts in cash or cash equivalent exceeds one year. Accordingly for classification of assets and liabilities related to such contracts as current, duration of each contract is considered as its operating cycle.

R) Cash and cash equivalents (for purposes of Cash Flow Statement) :

Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.

S) Cash Flow Statement :

Cash flows are reported using the indirect method, whereby profit / (loss) before extraordinary items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information.

T) Basis of Incorporation of integral foreign operations :

Figures in respect of the Company''s overseas branches in Afghanistan, Algeria, Bangladesh, Congo, Egypt, Ethiopia, Georgia, Ghana, Ivory Coast, Kazakhstan, Kenya, Lebanon, Libya, Malaysia, Nepal, Nigeria, Oman, Philippines, South Africa, Sri Lanka, Tanzania, Tunisia, Uganda and United Arab Emirates have been incorporated on the basis of Financial Statements (the Branch Returns) audited by the auditors of the respective branches. Further, in respect of overseas branches in Bhutan, Cameroon, Indonesia, Kuwait, Laos, Namibia and Tajikistan the accounts have been prepared and audited in India.


Mar 31, 2013

A. Basis of preparation of Financial Statements:

The Financial Statements have been prepared on historical cost convention. The Company follows the accrual basis of accounting. The Financial Statements are prepared in accordance with the accounting standards specified in the Companies (Accounting Standards) Rules, 2006 notified by the Central Government in terms of Section 211(3C) of the Companies Act, 1956.

B. Revenue Recognition:

i. Sales of Products and Services are recognised on delivery. Sales and services exclude sales tax/ value added tax and service tax charged to the customers.

ii. Revenue from turnkey contracts is recognised based on the stage of completion determined with reference to the costs incurred on contracts and their estimated total costs.

When it is probable that the total contract cost will exceed total contract revenue, expected loss is recognised as an expense immediately. Total contract cost is determined based on technical and other assessment of cost to be incurred. Liquidated damages/ penalties are accounted as per the contract terms wherever there is a delayed delivery attributable to the Company.

iii. Revenue from turnkey contracts awarded to Jointly Controlled Entity at Saudi Arabia but executed by the Company under the arrangement with the Joint Venture Partner [being in substance in the nature of Jointly Controlled Operations, in terms of Accounting Standard (AS) 27 "Financial Reporting of Interests in Joint Ventures"], is recognised on the same basis as similar turnkey contracts independently executed by the Company.

iv. Share in profit/loss of the projects undertaken by the jointly controlled entities, is accounted on its appropriation to the venturers as per the terms of the respective joint venture contracts.

v. Subsidy is accounted on accrual basis.

vi. Dividend income is accounted as and when the right to receive the same is established.

vii. Interest income is accounted on time proportion basis.

C. Inventories:

i. Raw materials, work-in-progress, finished goods and stores and erection materials are valued at the lower of cost and net realisable value (NRV). Cost of purchased material is determined on the weighted average basis. Cost of Tools and Dies is amortised over its estimated useful life. Scrap is valued at net realisable value.

ii. Cost of work-in-progress and finished goods includes material cost, labour cost, and manufacturing overheads absorbed on the basis of normal capacity of production.

D. Fixed Assets:

Fixed assets are stated at cost of acquisition or construction net of impairment loss, if any less accumulated depreciation/ amortisation. Cost comprises of purchase/ acquisition price, non-refundable taxes and any directly attributed cost of bringing the asset to its working condition for its intended use. Financing cost on borrowings for acquisition or construction of qualifying fixed assets, for the period upto the date of acquisition of fixed assets or when the assets are ready to be put in use/ the date of commencement of commercial production, is included in the cost of fixed assets. Assessment of indication of impairment of an asset is made at the year end and impairment loss, if any, is recognised.

E. Depreciation/ Amortisation:

i. Tangible Assets:

a) Leasehold land is amortised over the remaining period of the lease.

b) Cost of buildings of semi-permanent nature is amortised over 3 years.

c) Depreciation on other tangible fixed assets is provided on straight line method at the rates so as to reduce them to their estimated salvage value at the end of their useful lives or at the rates prescribed in Schedule XIV to the Companies Act, 1956 whichever is higher.

The estimated useful lives of assets which are different from the estimated useful lives derived from the principal rates specified in Schedule XIV to the Companies Act, 1956 are as follows:

Plant and Equipment/ Office Equipment - 1 to 19 years, Furniture and Fixtures - 10 years, Vehicles - 7 years and Computers - 4 years.

ii. Intangible Assets:

a) Brand is amortised over twenty years being the useful life certified by the independent valuer.

In terms of the Scheme of Arrangement sanctioned in the year 2007-08, out of the balance in ''Reserve for Amortisation of Brand Account'' an amount equal to annual amortisation of brand is credited to the Statement of Profit and Loss each year so that overall depreciation and amortisation gets reduced to that extent. Accordingly, Rs. 1,200 lacs being the amortisation of brand during the year (Previous Year Rs. 1,200 lacs) have been credited to the Statement of Profit and Loss by netting it with Depreciation and amortisation expense.

b) Computer softwares are amortised on straight line method over the estimated useful life ranging between 4-6 years.

F. Investments:

Long-term investments are stated at cost. Provision is made for diminution, other than temporary, in the value of investments.

G. Trade receivables as at the year end under the contracts are disclosed net of advances received relating to the respective contracts for work to be done and outstanding at the year end.

H. Foreign Currency Transactions:

i. Foreign branches ( Integral)

a) Fixed assets are translated at the rates on the date of purchase/acquisition of assets and inventories are translated at the rates that existed when costs were incurred.

b) All foreign currency monetary items outstanding at the year end are translated at the year end exchange rates. Income and expenses are translated at average rates of exchange and depreciation and amortisation is translated at the rates referred to in (i) (a) above for fixed assets.

c) The resulting exchange gains and losses are recognised in the Statement of Profit and Loss.

ii. Jointly Controlled Operations (Non Integral)

Assets and liabilities, both monetary and non monetary are translated at the year end exchange rates, income and expense items are translated at the average rate of exchange and all resulting exchange differences are accumulated in a Foreign Currency Translation Reserve.

iii. Other foreign currency transactions:

a) Foreign currency transactions during the year are recorded at the rates of exchange prevailing at the date of transaction. Exchange gains or losses realised and arising due to translation of the foreign currency monetary items outstanding at the year end are accounted in the Statement of Profit and Loss.

b) Forward Exchange Contracts:

In case of transactions covered by forward exchange contracts, which are not intended for trading or speculation purposes, premium or discounts are amortised as expense or income 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 the exchange rate changes.

Profit or loss arising on cancellation or renewal of such forward exchange contracts are recognised as income or as expense for the year.

I. Excise duty payable is accounted on production of finished goods.

J. Employee Benefits:

i. Defined Contribution Plans:

The Company''s contributions to the Provident Fund and the Superannuation Fund are charged to the Statement of Profit and Loss.

ii. Defined Benefit Plan / Long Term Compensated Absences:

The Company''s liability towards gratuity and compensated absences is determined on the basis of year end actuarial valuation done by an independent actuary. The actuarial gains or losses determined by the actuary are recognised in the Statement of Profit and Loss as income or expense.

K. Taxation:

Current tax is determined as the amount of tax payable in respect of estimated taxable income for the period.

Deferred tax is calculated at current statutory income tax rate and is recognised, subject to the consideration of prudence, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods.

Deferred tax assets are recognised on unabsorbed depreciation and carry forward of the losses only to the extent that there are timing differences, the reversal of which will result in sufficient income or there is virtual certainty that sufficient taxable income will be available against which such deferred tax assets can be realised. The carrying amount of deferred tax assets is reviewed at each Balance Sheet date.

Minimum Alternative Tax (MAT) credit asset is recognised only when and to the extent there is convincing evidence that the Company will pay normal Income Tax during the specified period. The carrying amount of MAT credit asset is reviewed at each Balance Sheet date.

L. Receivables and loans and advances identified as doubtful of recovery are provided for.

M. Contingencies/ provisions :

Provision is recognised when the Company has a present obligation as a result of past event; it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to its present value and are determined based on best estimates of the expenditure required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. A contingent liability is disclosed, unless the possibility of an outflow of resources embodying economic benefits is remote.

N. Uses of Estimates:

The preparation of financial statements requires estimates and assumptions to be made that affect the reported amount of assets and liabilities on the date of financial statements and the reported amount of revenue and expenses during the reporting period. Difference between the actual results and estimates are recognised in the period in which results are known/ materialised.

O. Derivative Contracts

The Company enters into derivative contracts in the nature of full currency swaps, interest rate swaps, currency options, forward contracts and commodity hedges with an intention to hedge its existing assets, liabilities, raw material requirements and firm commitments. Derivative contracts which are closely linked to the underlying transactions are recognised in accordance with the contract terms. All contracts are marked-to-market and losses are recognised in the Statement of Profit and Loss. Gains arising on the same are not recognised on grounds of prudence.

P. Operating Cycle

Assets and liabilities other than those relating to long-term contracts (i.e. supply or turnkey contracts) are classified as current if it is expected to realise or settle within 12 months after the balance sheet date.

In case of long-term contracts, the time between acquisition of assets for processing and realisation of the entire proceeds under the contracts in cash or cash equivalent exceeds one year. Accordingly for classification of assets and liabilities related to such contracts as current, duration of each contract is considered as its operating cycle.

Q. Basis of Incorporation of integral foreign operations:

Figures in respect of the Company''s overseas branches in Afghanistan, Algeria, Bangladesh, Congo, Egypt, Ethiopia, Georgia, Ghana, Kazakhstan, Kenya, Lebanon, Libya, Malaysia, Nepal, Nigeria, Oman, Philippines, South Africa, Sri Lanka, Tunisia, Uganda and United Arab Emirates have been incorporated on the basis of Financial Statements (Branch Returns) audited by the auditors of the respective branches. Further, in respect of overseas branches in Bhutan, Cameroon, Ivory Coast, Kuwait, Namibia and Tajikistan the accounts have been prepared and audited in India.

 
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