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Notes to Accounts of Kirloskar Oil Engines Ltd.

Mar 31, 2014

1. Additional Notes to the Financial Statements

1.1 In FY 2012-13, after approval of Reserve Bank of India, Company had pre-paid entire outstanding ECB loan balance of JPY1,890.15 Million i.e. Rs.112.14 Crs on 4th March 2013. Resulting from re- payment of all ECBS, the Company has decided to dissolve the Security Trustee arrangements and sought no objection on 4 April 2013, from The Hongkong and Shanghai Banking Corporation Limited, Mumbai (HSBC), the Security Trustee, for release of the charge secured by way of hypothecation (First Charge) on all movable plant and machinery both present and future, located at Khadki, Pune, Nasik, Kagal and Rajkot forRs.750 Crs. The Company has filed Form 17 with Registrar of Companies, Pune for satisfaction of aforesaid charge on 3 May 2013. The Company has received certificate of satisfaction of charge from Registrar of Companies, Pune, on 3 May 2013.

2. Contingent Liabilities in Crs

As at As at

31 Mar 2014 31 Mar 2013

2.1(A) Contingent Liabilities not provided for

a. Disputed Central Excise Demands 4.58 3.32

b. Disputed Sales Tax &Octroi Demands 6.21 6.21

c. Disputed Customs Duty Demands 0.86 1.08

d. Disputed Income Tax Liability - matter under appeal 10.42 22.70

e. Claims against Company not acknowledged as debts 83.68 82.86

f. Bills discounted not matured 37.84 -

143.59 116.17

3. (B) The Company has imported Capital Goods under the Export Promotion Capital Goods Scheme of the Government of India, at concessional rates of duty on an undertaking to fulfill quantified exports against which, remaining future obligations aggregates USD 36.19 million (previous year USD 66.46 million). Non fulfillment of the balance of such future obligations, if any, entails options / rights to the Government to confiscate capital goods imported under the said licenses and other penalties under the above-referred scheme. Minimum Export obligation to be fulfilled by the company under the said scheme, by March 31, 2014 - has been fulfilled.

4. Prior period expenses for the year (net of income) is Rs. 0.58Crs. (PY Rs. 0.30Crs.)

5. The Sales for the current year includes an amount of Rs. 211.62Crs. (PY Rs. 62.15 Crs) on account of deemed exports of goods.

6. The company, as per Ministry of Corporate Affairs notification dated 31 March 2009 as amended vide G.S.R. 378(E) dated 11 May 2011, G.S.R. 913(E) dated 29 December 2011, & clarification provided vide circular 25 / 2012 dated 9 August 2012, had exercised the option of implementing the provisions of paragraph 46 of Accounting Standard (AS 11) "The effects of changes in Foreign Exchange Rates" prescribed by Companies (Accounting Standards) Amendment Rules, 2006. The Company had long term foreign currency loans during the previous year, which were categorized as long-term foreign currency monetary items as mentioned in the notification. The aforesaid loans were utilized for the acquisition of assets. Accordingly company had capitalised exchange difference loss of Rs.NIL (P.Y. loss Rs. 3.41Crs.) for the current financial year in respect of its foreign currency loans.

7. Disclosure pursuant to Accounting Standard (AS15) – Revised 2005 "Employee Benefits" prescribed by Companies (Accounting Standards) Amendment Rules, 2006

(A) Defined Contribution Plans:

Amount of Rs. 9.32 Crs. (P.Y. Rs. 8.39Crs.) is recognised as expenses and included in Note No. 26 "Employee Cost"

vi. Experience Adjustments on plan assets (Loss) / Gain Rs. (0.11) Crs. (P.Y. Rs. 0.52 Crs.)

vii. General Description of the plans :

The Company operates gratuity plan wherein every employee is entitled to the benefit as per scheme of the company, for each completed year of service. The same is payable on retirement or termination whichever is earlier. The benefit vests only after five years of continuous service.

8. The Company had in the previous year identified two separate reportable segments namely "Engines" and "Other". The "Other" comprised of Bearings business and revenue related to non- engine activity. In view of the disposal of Bearings business and with due consideration given to the criteria for reportable business segments as per AS 17 ("Segmental Reporting"), the requirement of Segmental disclosure is not applicable.

9. Related parties, as defined under Clause 3 of Accounting Standard (AS 18) "Related Party Disclosures" prescribed by Companies (Accounting Standards) Amendment Rules, 2006, have been identified on the basis of representation made by the Key Management Persons and taken on record by the Board. Disclosures of transactions with Related Parties are as under:

(A) Nature of Obligation

Warranty is given to customers at the time of sale of engines and generating sets manufactured. Warranty cost includes expenses in connection with repairs, free replacement of parts / engines and after sales services during warranty period which varies from 1 year to 4 years.

(B) Expected Timing of resulting Outflow

Majority of warranty claims will be incurred in the next financial year and balance will be incurred in the following years.

10. Disclosure required as per clause 32 of the Listing Agreement is as follows: Holding Company

Kirloskar Brothers Investments Limited

There are no loans and advances in the nature of loans to firms / companies in which Directors are interested.

There are no Investment in the firms / companies in which Directors are interested.

11. Previous year''s figures have been re-grouped wherever considered necessary to make them comparable with those of the current year.


Mar 31, 2013

1 Terms/Rights attached to the equity shares

The Company has only one class of equity shares having par value of Rs. 2/- each. Each equity shareholder is entitled to one vote per share and has a right to receive dividend as recommended by Board of Directors subject to the necessary approval from the shareholders.

The Board of Directors has recommended a dividend of 250% (Rs. 5/- per share) for the financial year.

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

2 Aggregate number of bonus shares issued, share issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date:

Hon''ble High Court of Judicature at Bombay vide its order dated 31 July 2009 read with its order dated 19 March 2010 had approved the Scheme of Arrangement between Kirloskar Oil Engines Limited (now known as Kirloskar Industries Limited - Demerged Company) and Kirloskar Engines India Limited [now known as Kirloskar Oil Engines Limited - Resulting Company ("Company")] and their respective shareholders and creditors. The appointed date was 1 April 2009 and the Scheme has become effective from 31 March 2010. The Engines and Auto Components business of Demerged Company was transferred and vested with the Company i.e. Kirloskar Oil Engines Limited on the Scheme of Arrangement becoming effective retrospectively with effect from 1 April 2009.

14,56,29,750 Equity Shares of Rs. 2 each were issued and allotted on April 30, 2010 (out of which 465 equity shares of Rs. 2/- each were kept in abeyance) for consideration other than cash under the said Scheme becoming effective from 31 March 2010, sanctioned by the Hon''ble High Court of the Judicature of Bombay.

3 Buyback of shares

The Board of Directors in its meeting held on 25 January 2012, had approved a buy back of fully paid up equity shares of the Company by way of open market purchase through stock exchange route at a maximum price of Rs. 170/- per share and the cumulative buyback value not exceeding Rs. 73.625 Crs which represents 10% of total paid up capital and free reserves computed as per the latest available audited balance sheet as on 31 March 2011. The buyback commenced on 5 March 2012.

As per the terms of the Public Announcement dated 16 February 2012, the Corrigendum to the said Public Announcement dated 1 March 2012 and the Post Offer Public Advertisement dated 24 January 2013 issued in relation to the completion of buyback, the buyback was closed on 24 January 2013.

The Company has bought back and extinguished 10,15,424 equity shares of Rs. 2/- each for Rs. 15.67 Crs, at an average price of Rs. 154.34 under the Buyback Scheme, upto 24 January 2013.

Subsidy for setting up new industrial unit

The Company''s manufacturing facility at Kagal has been granted "Mega Project Status" by Government of Maharashtra and hence is eligible for Industrial Promotion Subsidy (IPS) under Packaged Scheme of Incentive (PSI) 2001. This scheme is for intensifying and accelerating the process of dispersal of industries to the less developed regions and promoting high tech industries in the less developed areas of the State coupled with the object of generating employment opportunities. The Company has been granted Eligibility Certificate issued by the Directorate of Industries, Government of Maharashtra, which stipulates that the eligible unit needs to invest Rs. 500.00 Crs in prescribed area for availing the "Mega Project Status" and the maximum fixed capital investment be restricted to Rs. 598.57 Crs. Additionally, the Eligible Investment should be incurred within a period from 13 April 2006 to 31 March 2013. As at 31 March 2013, the company has complied with the conditions stipulated for being considered "Mega Project Status". IPS consists of following entitlement available for a period of 9 years from the date of commencement of commercial production, i.e., from 1 April 2008 to 31 March 2017:

IPS equivalent to 100% of "Eligible Investments"; or Amount of MVAT and CST payable to the State Government (before adjustment of Set-off) on sales made from Kagal plant, less the amount of benefits availed by way of electricity duty exemption and stamp duty exemption whichever is lower.

In terms of the Accounting Standard (AS 12) "Accounting for Government Grants" prescribed by Companies (Accounting Standards) Amendment Rules, 2006, eligible incentive is considered to be in the nature of promoters'' contribution. Therefore, incentive of Rs. 22.74 Crs for the year (P.Y. Rs. 19.14 Crs) has been credited to the Capital Reserve. Subsidy Receivable as at 31 March 2013 is Rs. 37.36 Crs (P.Y. Rs. 43.42 Crs)

Buyback ofShares

Pursuant to the approval of the Board of Directors in its meeting held on 25 January 2012, the Company had bought back and extinguished 10,15,424 equity shares of Rs. 2/- each by way of open market purchases through stock exchange route for Rs. 15.67 Crs, at an average price of Rs. 154.34 under the Buyback Scheme, upto 24 January 2013.

Capital Redemption Reserve created out of General Reserve for Rs. 0.20 Crs, being the nominal value of shares bought back in terms of Section 77A of The Companies Act, 1956 is included in the amount utilized for equity shares buyback

Nature of Security and Terms of Repayment

1. The Company had availed Foreign Currency Term Loan i.e. External Commercial Borrowings ("ECB") of JPY 3,420.15 Million (equivalent to USD 30.00 Million) i.e. Rs. 124.48 Crs from BNP PARIBAS, Singapore at the rate of interest equal to six months'' JPY London Inter-bank Offer Rate i.e. "LIBOR" plus a Margin of 0.585% p.a. [balance outstanding as on 31 March 2013: Rs. NIL]. [P.Y. Rs. 117.30 Crs]

As per the original repayment schedule, this loan was to be repaid in five six-monthly installments starting from 2 March 2012. On 31 January 2013, the Company received approval from Reserve Bank of India, for pre-payment of entire outstanding balance of JPY 1,890.15 Million of the said ECB. Accordingly, on 4 March 2013, the Company has paid the entire outstanding balance of JPY 1,890.15 Million i.e. Rs. 112.14 Crs.

2. The Company had availed ECB of JPY 2,336.32 Million i.e. Rs. 79.70 Crs from ICICI Bank Limited, Hongkong at a rate of interest equal to six months'' JPY LIBOR plus a Margin of 0.84% p.a. [balance outstanding as on 31 March 2013: Rs. NIL].[P.Y. Rs. 18.12 Crs]

As per the repayment schedule, this loan was to be repaid in eight six-monthly equal installments starting from 31 October 2008. Accordingly, final installment of JPY 292.04 Million i.e. Rs. 19.01 Crs was paid on 27 April 2012.

3. The Company had availed ECB of JPY 405.28 Million i.e. Rs. 13.30 Crs from ICICI Bank Limited, Hongkong at a rate of interest equal to six months'' JPY LIBOR plus a Margin of 0.84% p.a. [balance outstanding as on 31 March 2013: Rs. NIL]. [P.Y Rs. 25.15 Crs].

As per the original repayment schedule, this loan was to be repaid in a single tranche on 20 June 2012. Based on approval received from ICICI Bank ("Authorised Dealer"), the loan was prepaid in a single tranche of JPY 405.28 Million i.e., Rs. 26.39 Crs on 27 April 2012.

ECB, to the extent repayable within one year from the balance sheet date, are grouped under ''Other current liabilities'' (Refer note 9)

ECBs were secured by way of hypothecation (First Charge) on all movable plant and machinery both present and future, located at Khadki, Pune, Nasik, Kagal and Rajkot, in favour of The Hongkong and Shanghai Banking Corporation Limited, Mumbai (HSBC), the Security Trustee for Rs. 750.00 Crs.

Resulting from re-payment of all ECBs, the Company decided to dissolve the Security Trustee arrangement and sought no objection from the Security Trustee for release of the aforesaid charge of Rs. 750.00 Crs. On 4 April 2013 the Company has received No Objection Certificate from the Security Trustee and is in the process of completing the formalities related to the registration for the satisfaction of charge with Registrar of Companies.

Company''s fund and non-fund based working capital facilities aggregating to Rs. 310.00 Crs. are secured to the extent of Rs. 310.00 Crs. by way of hypothecation (First Charge) on the whole of the current assets of the Company both present and future and to the extent of Rs. 60.00 Crs. by way of second charge on the whole of the movable fixed assets of the Company together with all its movable plant and machinery, machineryspares, tools, accessories and other movables both present and future, in favour of the consortium of banks (SBI Consortium) comprising of State Bank of India, Pune (Lead Bank), Bank of Maharashtra, ICICI Bank Limited, HDFC Bank Limited, and The Hongkong and Shanghai Banking Corporation Limited (HSBC).

4.1 Contingent Liabilities

Rs. in Crs. As at As at 31 March 2013 31 March 2012

4.1 (A) Contingent Liabilities not provided for

(a) Disputed Central Excise demands 3.32 1.04

(b) Disputed Sales Tax & Octroi demands 6.21 6.09

(c) Disputed Customs Duty demands 1.08 1.08

(d) Disputed Income-Tax Liability - matter under appeal 22.70 13.06

(e) Claims against Company not acknowledged as debts 82.86 82.18

(f) Guarantees given on behalf of third parties - 14.38

116.17 117.83

4.2 Prior period expenses for the year (net of income) is Rs. 0.30 Crs. (PY Rs. 0.01 Crs.)

4.3 The Sales for the current year includes an amount of Rs. 62.15 Crs. on account of deemed export of goods.

4.4 The company, as per Ministry of Corporate Affairs notification dated 31 March 2009 as amended vide G.S.R. 378(E) dated 11 May 2011, G.S.R. 913(E) dated 29 December 2011, & clarification provided vide circular 25/2012 dated 9 August 2012, had exercised the option of implementing the provisions of paragraph 46 of Accounting Standard (AS 11) "The Effects of Changes in Foreign Exchange Rates" prescribed by Companies (Accounting Standards) Amendment Rules, 2006. The Company had outstanding long term foreign currency loans during the year, which were categorized as long-term foreign currency monetary items as mentioned in the notification. The aforesaid loans were utilized for the acquisition of assets. Accordingly company has capitalised exchange difference loss of Rs. 3.41 Crs. (P.Y. loss Rs. 13.68 Crs.) for the current financial year in respect of its foreign currency loans.

4.5 Disclosure pursuant to Accounting Standard (AS15) - Revised 2005 "Employee Benefits" prescribed by Companies (Accounting Standards) Amendment Rules, 2006

(A) Defined Contribution Plans:

Amount of Rs. 8.39 Crs. (P.Y. Rs. 9.27 Crs.) is recognised as expense and included in Note No. 27 "Employee Cost"

i. Experience Adjustments on plan assets ( Loss ) /Gain Rs. 0.52 Crs. (P.Y. Rs. (0.34) Crs.)

ii. General Description of the plans

The Company operates gratuity plan wherein every employee is entitled to the benefit as per scheme of the company, for each completed year of service. The same is payable on retirement or termination whichever is earlier. The benefit vests only after five years of continuous service.

4.6 Segment information as required by Accounting Standard (AS 17) "Segment Reporting" prescribed by Companies (Accounting Standards) Amendment Rules, 2006 is set out in a separate statement annexed hereto.

(A) Nature of Obligation

Warranty is given to customers at the time of sale of engines and generating sets manufactured. Warranty cost includes expenses in connection with repairs, free replacement of parts / engines and after sales services during warranty period which varies from 1 year to 4 years.

(B) Expected Timing of resulting Outflow

Majority of warranty cost will be incurred in the next financial year and balance will be incurred in the following years.

4.7 Disclosure required as per clause 32 of the Listing Agreement is as follows:

Holding Company

Kirloskar Brothers Investments Limited

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested.

There are no Investments in the firms/companies in which Directors are interested.

4.8 Previous year''s figures have been re-grouped wherever considered necessary to make them comparable with those of the current year.


Mar 31, 2012

Rs in Crs.

As at As at 31-Mar-12 31-Mar-11

1 (A) Contingent Liabilities not provided for

(a) Disputed Central Excise demands 1.04 0.98

(b) Disputed Sales Tax & Octroi Demands 6.09 7.09

(c) Disputed Customs Duty demands 1.08 1.08

(d) Disputed Income-Tax Liability - matter under appeal 13.06 17.22

(e) Claims against Company not acknowledged as debts 82.18 79.06

(f) Guarantees given on behalf of third parties 14.38 48.89

117.82 154.32

2. The company, as per Ministry of Corporate Affairs notification dated 31 March 2009 as amended vide G.S.R. 378(E) dated 11 May 2011, had exercised the option of implementing the provisions of paragraph 46 of Accounting Standard (AS 11) "The effects of changes in Foreign Exchange Rates" prescribed by Companies (Accounting Standards) Amendment Rules, 2006. The Company has outstanding long term foreign currency loans which are categorized as long-term foreign currency monetary items utilized for the acquisitions of assets as referred in the said notification. Accordingly company has capitalised exchange difference loss of Rs 13.68 Crs. [P.Y. loss Rs 14.27 Crs.] is pertaining to the current financial year in respect of its foreign currency loans.

vii. Experience Adjustments on plan assets ( Loss ) /Gain Rs 0.34 Crs. (P.Y. Rs (0.62) Crs.)

viii. General Description of the plans

The Company operates gratuity plan wherein every employee entitled to the benefit as per scheme of the company, for each completed year of service. The same is payable on retirement or termination whichever is earlier. The benefit vests only after five years of continuous service.

3. Segment information as required by Accounting Standard (AS 17) "Segment Reporting" prescribed by Companies (Accounting Standards) Amendment Rules, 2006 is set out in a separate statement annexed to the schedule.

* Chairman & Managing Director up to close of working hours of 25 January 2012 and appointed as the Executive Chairman with effect from 26 January 2012

** Joint Managing Director upto close of working hours of 25 January 2012 and appointed as the Executive Vice Chairman with effect from 26 January 2012 *** Whole Time Director upto close of working hours of 21 January 2012 and continues as Non Executive Director **** Managing Director with effect from 26 January 2012

i. Nature of Obligation

Warranty is given to customers at the time of sale of engines and generating sets manufactured. Warranty cost includes expenses in connection with repairs, free replacement of parts / engines and after sales services during warranty period which varies from 1 year to 4 years.

ii. Expected Timing of resulting Outflow

Majority of warranty cost will be incurred in the next financial year and balance will be incurred in the following years.

4. Pursuant to the approval of shareholders, obtained through postal ballot results of which were announced on 31 March 2011 and consent of the lenders, the Company has completed the hive off of Bearings Business Division (BBD) on 30 September 2011.

The information regarding comparison of sales, profitability and assets of the BBD against corresponding figures of the Company in respect of the year ended 31 March 2012 is given in the table below. Considering the insignificant scale of operations of the BBD compared to the Company's total operations, the hive off of the BBD does not have a material impact on the Company's financials. Hence, the management of the Company is of the view that the disclosure requirements under Accounting Standard (AS-24) relating to Discontinuing Operations will not apply.

5. Disclosure required as per clause 32 of the Listing Agreement is as follows:

A. Holding Company

Kirloskar Brothers Investments Limited.

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested. There are no Investments in the firms/companies in which Directors are interested.

6. Previous year's figures have been re-grouped wherever considered necessary to make them comparable with those of the current year.


Mar 31, 2010

Rs in 000s

As at 31 March 2010

1 Contingent Liabilities not provided for

(a) Disputed Central Excise demands 13,166

(b) Disputed Sales Tax & Octroi demands 65,897

(c) Disputed Custom Duty demands 10,799

(d) Disputed Income Tax liability - matter under appeal 143,321

(e) Claims against the Company not acknowledged as debts 739,689

(f) Guarantees given on behalf of third parties 152

973,024

2. Security

A. Term Loans

1. Term Loan of INR 300 Million availed from HDFC Bank Limited was prepaid 31 August 2009. It was secured by hypothecation by way of first charge of Specific movable Plant and Machinery. The Charge is satisfied during the period.

2. Foreign Currency Term Loan i.e. External Commercial Borrowings (ECB) of JPY 1,417.40 Million (USD 12 Million) i.e. INR 526 Million availed from HSBC Bank pic, London [balance outstanding as at 31 March 2010: Rs. 341,219,141/-]. This loan is to be repaid in eight six-monthly equal installment starting from 2 June 2008. Accordingly two installments of JPY 177.17 Million each i.e. Rs. 84,836,092/- were repaid on 2 June 2009 and Rs. 85,674,728/- on 1 December 2009 respectively.

3. Foreign Currency Term Loan i.e. External Commercial Borrowings (ECB) of JPY 3,420.15 Million (USD 30 Million) i.e. INR 1,245 Million availed from BNP PARIBAS, Singapore [balance outstanding as at 31 March 2010: Rs. 1,496,792,974/-]. This loan is to be repaid in five six-monthly installments starting from 2 March 2012.

4. Foreign Currency Term Loan i.e. External Commercial Borrowings (ECB) of JPY 2336.32 Million i.e. INR 797 Million availed from ICICI Bank Limited, Hongkong [balance outstanding as at 31 March 2010: Rs. 637,054,965/-].This loan is to be repaid in eight six-monthly equal installments starting from 31 October 2008. Accordingly two installment of JPY 292.04 Million i.e Rs. 149,227,755/- was repaid on 30 April 2009 and JPY292.04 Million i.e Rs. 150,546,620/-was repaid on 31 October 2009.

5. Foreign Currency Term Loan i.e. External Commercial Borrowings (ECB) of JPY 405.28 Million i.e. INR 133 Million availed from ICICI Bank Limited, Hongkong [balance outstanding as at 31 March 2010: Rs. 183,077,382/-]. This is to be repaid in a single tranche on 20 June 2012.

The Security Trustee Agreement entered into between Kirloskar Oil Engines Limited (now known as Kirloskar Industries Limited) and The Hongkong and Shanghai Banking Corporation Limited, Mumbai (HSBC) on 30 April 2008 has been transferred pursuant to the Scheme of Arrangement to the Company and resultantly the security by way of hypothecation (First Charge) on all movable plant and machinery both present and future, located at Khadki, Pune (except Auto Components Division), Nasik, Kagal and Rajkot in favour of HSBC Bank, the Security Trustee upto Rs. 7,500,000,000/- has been transferred to the Company.

B. Working Capital

In respect of the working capital facilities sanctioned by the consortium of banks (SBI Consortium) comprising of State Bank of India, Mumbai (Lead Bank), Bank of Maharashtra, Pune, ICICI Bank Limited, Pune, HDFC Bank Limited, Pune and The Hongkong and Shanghai Corporation Limited, Pune, the first charge by way of hypothecation on the whole of the current assets of the Company (other than its Bearing Division) both present and future for Rs. 350 Crores and also the second charge on the whole of the movable fixed assets of the Company (other than its Bearing Division) both present and future for Rs. 100 Crores in favour of SBI Consortium as security for fund based working capital facilities have also been transferred to the Company pursuant to the said Scheme.

The Company is under process of completion of formalities with respect to transfer of charges in respect of Terms Loans and Working Capital facilities with Registrar of Companies, Pune, Maharashtra.

3. The company, as per Ministry of Corporate Affairs notification dated 31 March, 2009 has exercised the option of implementing the provisions of paragraph 46 of Accounting Standard (AS 11) "The effects of changes in Foreign Exchange Rates" prescribed by Companies (Accounting Standards) Amendment Rules, 2006. The Company has outstanding long term foreign currency loans which are categorised as long-term foreign currency monetary items as referred in the said notification. Accordingly company has de-capitalised exchange difference gain of Rs 243,517,627/-pertaining to the current financial year in respect of its foreign currency loans.

Further, exchange difference so de-capitalized is amortised over the balance life of the asset and credit for the period is Rs 28,609,486/-included in depreciation.

As a result, profit for the period is lower by Rs 214,908,141/-.

4. In case of long term Investments made by the Company, diminution in the value of quoted investments, if any, are not considered to be of a permanent nature. However provision of estimated diminution in the value wherever considered necessary by the Management has been made in the Financial Statements.

5. Disclosure pursuant to Accounting Standard (AS 15) - Revised 2005 "Employee Benefits" prescribed by Companies (Accounting Standards) Amendment Rules, 2006

a. Defined Contribution Plans:

Amount of Rs 65,233,826/- is recognised as expense and included in Schedule No 17 "Employee Cost".

b. Defined Benefit Plans:

(vii) The liability for the compensated absences as defined in AS 15 (revised 2005) has been provided on actuarial basis. Para 132 of AS 15 (revised 2005) does not require any specific disclosure except where the expense resulting from compensated absences is of such size, nature of incidence that its disclosure is relevant under other accounting standard. In the opinion of the management, the expenses resulting from compensated absences is not significant and hence no disclosure is prepared under various paragraph of AS 15 (revised 2005). Unfunded liability as at 31 March 2010 is Rs 298,070,195/-.

(viii) General descriptions of Significant Defined plans:

The Company operates gratuity plan wherein every employee is entitled to the benefit as per scheme of the Company, for each completed year of service. The same is payable on retirement or termination whichever is earlier. The benefit vests only after five years of continuous service.

6. Segment information as required by Accounting Standard (AS 17) "Segment Reporting" prescribed by Companies (Accounting Standards) Amendment Rules, 2006 is set out in a separate statement annexed to the schedule.

7. Related parties, as defined under Clause 3 of Accounting Standard (AS 18) "Related Party Disclosures" prescribed by Companies (Accounting Standards) Amendment Rules, 2006, have been identified on the basis of representation made by the Key Management Persons and taken on record by the Board. Disclosure of transactions with Related Parties are as under.

(A) Name of the related party and nature of relationship where control exists:

1. Holding Company

Kirloskar Industries Limited

2. Associate Company

Kirloskar Integrated Technologies Limited

(Formerly Known as Kirloskar Kisan Equipment Limited)

3. Companies controlled by Key Management Personnel

Cess Investments & Consultants Private Limited #

Navsai Investments Private Limited #

Kirloskar Consultants Limited

Achyut & Neeta Holding & Finance Private Limited

Alpak Investments Private Limited

* Refer Note No 2

i. Nature of Obligation

Warranty is given to customers at the time of sale of engines and generating sets manufactured. Warranty cost includes expenses in connection with repairs, free replacement of parts / engines and after sales services during warranty period which varies from 1 yearto4years.

ii. Expected Timing of resulting Outflow:

Majority of warranty cost will be incurred in the next financial year and balance will be incurred in the following years.

8. Company has outstanding currency option contracts (hedging instruments) which are bought by the company to hedge a part of its highly probable forecast export transactions. These currency option contracts are designated as cash-flow hedges in terms of Accounting Standard (AS 30) "Financial Instruments - Recognition and Measurement" prescribed by Companies (Accounting Standards) Amendment Rules, 2006. These currency option contracts are effective hedges on applying the principles of hedge accounting as set out in AS-30. As detailed in Note No 2, the debit balance in Hedging Reserve is transferred and vested with the Company. Balance in this account of Rs 162,355,976/- represents mark to market (MTM) loss (as per the computation provided by the Forex consultant) in respect of these currency option contracts as at 31 March, 2010. Actual gain or loss on exercise of these currency option contracts or any part thereof is recognised in the profit & loss account. Hedge accounting will be discontinued if the hedging instrument is sold, terminated or no longer qualifies for hedge accounting.

9. Disclosure required as per clause 32 of the Listing Agreement are as follows:

A. Holding Company Kirloskar Industries Limited

B. Associate Company

Kirloskar Integrated Technologies Limited There are no loans and advances in the nature of loans to firms/companies in which Directors are interested. There are no Investment in the firms/companies in which Directors are interested.

10. The financial statements of the Company are prepared for the first time since incorporation for the extended financial year i.e. 12 January 2009 to 31 March 2010. Consequently,

i. Statement of cash flows has not been drawn up under the Indirect Method adopted by the Company.

ii. There are no previous years figures.

11. Information required in terms of Part IV of Schedule VI of the Companies Act, 1956 is attached.





 
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