Accounting Policies of Modern Dairies Ltd. Company

Mar 31, 2015

BACKGROUND AND NATURE OF OPERATIONS

Modern Dairies Limited ('the Company') was incorporated in 1992 and is primarily engaged in business of manufacturing/ processing of milk and milk products like milk powders, Cheese, Butter, Pure ghee and other milk based products like Casein, Whey protein concentrate and Lactose, etc.

(i) Basis of preparation

These financial statements have been prepared under the historical cost convention on a going concern basis, on the accrual basis of accounting in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP). Indian GAAP comprises mandatory accounting standards as specified under Section 133 of the Companies Act, 2013 ('the Act'), read with Rule 7 of the Companies (Accounts) Rules, 2014 (as amended) and other accounting pronouncements of The Institute of Chartered Accountants of India.

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 III to the Companies Act, 2013. Based on the nature of services and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as twelve months for the purpose of current/ non-current classification of its assets and liabilities.

(ii) Use of estimates

In preparing the financial statements in conformity with accounting principles generally accepted in India, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Any revisions to accounting estimates are recognised in the current and future periods.

(iii) Fixed assets

Tangible assets

Fixed assets are stated at historic cost less accumulated depreciation and amortization and impairment losses (if any).

Cost comprises the purchase price and any attributable costs of bringing the assets to their working condition for their intended use.

Borrowing costs directly attributable to acquisition or construction of fxed assets, which necessarily take a substantial period of time to get ready for their intended use, are capitalized.

Intangible assets

Software which is not an integral part of the related hardware is classifed as an intangible asset.

(iv) Depreciation and amortization

Depreciation on fixed assets for the year ended 31st March, 2014 is provided on straight line method as per the useful life of assets estimated by the management, which correspond to the rates prescribed under Schedule xIV of the Companies Act, 1956.

Pursuant to the notification in Part II of Schedule II to the Companies Act, 2013, effective from 1st April, 2014, the management has reassessed and changed, wherever necessary the useful lives to compute depreciation, to conform to the requirements of the Companies Act, 2013. Depreciation on fixed assets for year ended 31st March, 2015 is provided on straight line method based on life prescribed as per Schedule II of the Companies Act, 2013. Revised useful lives of assets are as below:

(v) Investments

- Investments that are readily realizable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long term investments.

Current investments are carried at lower of cost and Fair value determined on an individual investment basis. Long- term investments are carried at cost; however, provision for diminution in value is made to record other than temporary diminution in the value of such investments. Profit/Loss on sale of investments is computed with reference to their average cost of investments.

(vi) Inventories

Inventories are valued as follows:

a) Raw materials, packing materials, store and spare parts

Lower of cost and net realizable value, Cost includes purchase price, taxes (those subsequently recoverable by the Company from the concerned revenue authorities), freight inwards and other expenditure incurred in bringing such inventories to their present location and condition. Cost is determined on first -in first-out basis. However, materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost.

b) Work-in Progress and Finished goods

Lower of cost and net realizable value. Cost includes direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Cost is determined on monthly weighted average basis.

c) By-Products

At net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and to make the sale.

(vii) Revenue recognition

Revenue is recognised to the extent that it can be reliably measured and is probable that the economic benefits will flow to the Company.

Sale of goods

Revenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods are transferred to the customer. It includes excise duty wherever applicable but excludes value added tax/ sales tax and is net of sales returns. Excise duty shown as deduction from revenue is the amount that is included in the amount of revenue and not the entire amount of liability that arose during the year.

Interest income

Revenue is recognized on a time proportion basis taking into account the amount outstanding and the applicable rate of interest.

Dividends

Dividend is recognised if the right to dividend is established by the balance sheet date.

Export benefit/incentives

Export benefits entitlements under the 'Duty Entitlement Pass Book' Scheme are recognised in the statement of Profit and loss when the right to receive credit as per the terms of the scheme is established in respect of the exports made.

(viii) Foreign exchange transactions

Investments in foreign entities are recorded at the exchange rate prevailing on the date of making the investment. Transactions in foreign currencies are recorded at the rates prevailing on the date of the transaction and monetary items denominated in foreign currency are restated at the rate prevailing on the balance sheet date.

Differences arising on foreign currency translations of transactions settled during the year are recognised in the statement of Profit and loss.

Forward exchange contracts not covered under Accounting Standard 11 'Effect of change in Foreign Exchange Rates', that are entered to hedge the foreign currency risk of highly probable forecast transactions and unrecognized firm commitments are marked to market at the balance sheet date and exchange loss is recognised in the statement of Profit and loss immediately. Any gain is ignored and not recognised in the financial statements, in accordance with the principles of prudence enunciated in Accounting Standard 1- Disclosure of Accounting Policies.

- The premium or discount arising at the inception of the forward contracts other than those entered into to hedge the foreign currency risk of firm commitments or highly probable forecast transactions is amortised as expense or income over the life of the contract.

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

(ix) Employee benefits

Contribution to Provident Fund

The Company makes contributions to statutory provident fund in accordance with Employees Provident Fund and Miscellaneous Provisions Act, 1952. Provident Fund is a defined contribution scheme and the contributions are charged to the statement of Profit and loss of the year when the contributions to the respective funds are due. There are no other obligations other than the contribution payable to the Fund.

Gratuity

Gratuity liability are defined benefit obligations made at the end of each financial year and are provided for on the basis of an actuarial valuation on projected unit credit method made at the end of each financial year.

Actuarial gains/ losses are immediately taken to the statement of Profit and loss and are not deferred.

Compensated absences

The employees of the Company are entitled to compensated absences which are non-accumulating in nature. Expense on non-accumulating compensated absences is recognized in the period in which the absence is occurring.

(x) Taxes on income

Tax expense comprises current and deferred tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act, 1961. Deferred income tax reflect the impact of current year timing differences between the taxable income and accounting income for the year and reversal of timing differences of earlier years.

Deferred tax is measured based on the tax rates and tax laws enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognized only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised in situations where the Company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that they can be realised against future taxable Profits.

At each balance sheet date, the Company re-assesses unorganized deferred tax assets. It recognises unrecognised deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income be available against which such deferred tax assets can be realised.

The carrying amount of deferred tax assets are reviewed at each balance sheet date. The Company writes down the carrying amount of a deferred tax asset to the extent that is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realised. Any such right-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that suffcient future taxable income will be available.

Minimum Alternate Tax ('MAT') credit is recognised as an asset only when and to the extent there is convincing evidence that the company will pay normal income tax during the specified period. In the year in which the MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in Guidance Note issued by the Institute of Chartered Accountants of India ('ICAI'), the said asset is created by way of a credit to the statement of Profit and loss and shown as MAT Credit Entitlement. The Company reviews the same at each balance sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the effect that Company will pay normal income-tax during the specified period.

(xi) Contingent liabilities and provisions

The Company makes a provision when there is a present obligation as a result of a past event where the outflow of economic resources is probable and a reliable estimate of the amount of the obligation can be made. A disclosure is made for a contingent liability when there is a

i) Possible obligation, the existence of which will be confirmed by the occurrence/non-occurrence of one or more uncertain events, not fully with in the control of the Company; ii) Present obligation, where it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; (iii) Present obligation, where a reliable estimate cannot be made.

(xii) Earnings per share

Basic earnings per share are calculated by dividing the net Profit or loss for the period attributable to equity shareholders (after deducting preference dividends and at attributable taxes) by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they were entitled to participate in dividends relative to a fully paid equity share during the reporting period. The weighted average numbers of equity shares outstanding during the period are adjusted for events of bonus issue and share split.

For the purpose of calculating diluted earnings 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 are adjusted for the effects of all dilutive potential equity shares.

(xiii) Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of Profit and loss. If at the balance sheet date there is an indication that if a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost.

(xiv) Government grants and subsidies

Grants and subsidies from the government are recognized when there is reasonable assurance that the grant/ subsidy will be received and all attaching conditions will be complied with.

Government grants related to revenue are recognised on systematic basis in the statement of Profit and loss over the periods necessary to match them with the related cost which they are intended to compensate. Where the grant or subsidy relates to an asset, its value is deducted in arriving at the carrying amount of the related asset. Government grants of the nature of promoters' contribution are credited to capital reserve and treated as apart of shareholders' funds.

(xv) Cash and cash equivalents

Cash and cash equivalents comprise cash and deposit with banks. The Company considers all highly liquid investments with a remaining maturity at the date of purchase of three months or less and that are readily convertible to known amounts of cash to be cash equivalents.

Note:

i) Excise duty: During 2005-06, the Company had availed CENVAT credit of M 77.21 lacs on certain steel and other similar items (i.e. 'supporting goods') as inputs used in fabrication of storage tanks and other structures. As per the Excise Authorities, this credit of M 77.21 lacs pertains to inputs used in fabrication of milk storage tanks and other supporting structures of storage tanks and has therefore denied all the aforesaid credit on the ground that the inputs and goods mentioned above neither qualify as capital goods nor inputs as per CENVAT Credit Rules, 2004 for manufacture of the final products viz. Casein and Lactose. The Company has deposited demand of M 77.21 lacs together with interest thereon of M 5.19 lacs under protest. The case is pending in CESTAT and is awaited for regular hearing.

Further during the year 2007-08 to 2009-10 the Company also availed CENVAT credit of M 78.30 lacs on certain steel items & other items as input used in fabrication of storage tanks. The excise authority (Panchkula) issued show cause notice for denial of the said CENVAT credit. The Company fled an appeal before Commissioner and commissioner confirmed a demand of CEVAT Credit amounting to M 78.30 lacs along with a penalty of amount equal to the Cenvat Credit, interest of M 4.57 lacs and M 17.68 lacs of CENVAT Credit wrongly taken and reversed. The Company had fled appeal before CESTAT and hearing on stay application was fixed on 14th October, 2012 which was adjourned to 11th December, 2012 and thereafter on the request of department representative the same was adjourned to 12th February, 2013. On this date, CESTAT ordered to deposit M 15 lacs as redeposit within 12 weeks which was deposited by Company on 15th May, 2013.

Based upon the legal advise obtained by the Company, the management believes that the Company has reasonably good chances of winning the case and hence currently no provision has been recorded.

ii) Custom Duty: During 2011-12, the Company had exported 17.070 MT of Cheese Curd to a customer in Saudi Arabia and out of total 17.070 MT Cheese Curd of 14.218 MT was rejected by customer due to some functionality issues in stretching. The Company re-imported the goods. The Additional Commissioner of Customs (Imports) vide its order dated 7th May, 2012 confiscated the goods and imposed a penalty of M 3.6 lacs and redemption fine of M 7 lacs stating that re-imported goods had violated the prescribed condition under the Food Safety and Standards Act, 2006 (FSA) and hence were liable for confiscation. The Company deposited penalty of M 3.6 lacs and redemption fine of M 7 lacs on and got the goods released. The Company filled an appeal before Commissioner of Customs (Appeals), Mumbai against the order of Additional Commissioner of Customs (Imports) imposing penalty and fne stating that re-import was not against the provisions of FSA Act. The Commissioner of Customs (Appeals), Mumbai upheld the order of Additional Commissioner of Customs (Imports) and rejected the claim of Company vide order dated 27th June, 2013. The Company aggreived by the order of Commissioner of Customs (Appeals), Mumbai has preferred an appeal before CESTAT, Mumbai on 10th October, 2013. The case is pending in CESTAT and is awaited for regular hearing.

(iii) Entry tax: Local Area Development Tax ('LADT') was imposed in the state of Haryana with effect from 1st April, 2000. In 2007-08, the LADT was quashed and declared ultra-vires by the Hon'ble High Court of Punjab and Haryana in its order dated 1st April, 2008. The State Government replaced the LADT with Entry Tax and it was also declared ultra-vires by the Hon'ble High Court of Punjab and Haryana. The State Government fled an appeal in the Hon'ble Supreme Court. The Hon'ble Supreme Court passed an order dated 30th October, 2009, directing all assesses to file all the returns and staying recovery of tax till final order. The final order is still awaited.

(iv) Income tax: During the year ended 31st March, 2012, the Income Tax Department carried out assessment for assessment years 2006-07, 2008-09 and 2009-10 and issued a notice of demand u/s 156 of the Income Tax Act, 1961 for M 6.06 lacs, M 0.40 lacs and M 4.95 lacs respectively. For assessment years 2006-07 and 2008-09 Company has preferred an appeal with Income Tax Appellate Tribunal (ITAT), New Delhi against the order of Commissioner of Income Tax (Appeals). Whereas for assessment year 2009-10 the Company's appeal is pending with Commissioner of Income Tax (CIT), Gurgaon.

The provisions of 'The Haryana Murrah Buffalo and Other Milch Animal Breed (Presentation and Development of Animal Husbandry and Dairy Development Sector) Act, 2001 ('Act')', requires every milk processing company to pay milk cess not exceeding fifteen paisa per liter on registered capacity of a milk plant under Milk and Milk Product Order, 1992. Accordingly Haryana State Government, vide its notification no. 6388-AH-4-2001/16142 dated 9th September, 2001, imposed a milk-cess of ten paisa per liter on the registered capacity of plants. In 2001, the Company fled a writ petition before the Hon'ble High Court of Punjab and Haryana challenging the imposition of such cess as against the Constitution of India. The Hon'ble High Court of Punjab and Haryana issued a stay order dated 9th July, 2004 on such imposition and directed the Company to continue to pay 1/3rd of the total milk-cess amount to the State Government on registered capacity till the final outcome of the case. Till 2004-05, the Company had provided milk-cess amounting to M 353.75 lacs in the books of account. In 2004, a similar cess was levied in the state of Punjab by the Government of Punjab under the Punjab Dairy Development Board Ordinance, 2000, and was upheld unconstitutional by the Hon'ble Supreme Court. Based upon this order of the Hon'ble Supreme Court, the stay order from the Hon'ble High Court of Punjab and Haryana and as per the legal advice obtained by the Company at that point of time, the Company discontinued the provision of milk-cess in the books of account as it was believed that the chances of cess being levied on the Company for the period after the year 2004-2005 of M 421.88 lacs would be remote and hence no provision against this was considered necessary. On 28th May, 2010 the Hon'ble High Court of Punjab and Haryana dismissed the Company's writ petition and upheld the levy of cess by State Government on milk plants. On 18th August, 2010 the Company fled a review application with the Hon'ble High Court. Subsequently, the Company's review application with Hon'ble High Court of Punjab and Haryana has been dismissed. On 18th October, 2010 the Company also fled a special leave petition before the Hon'ble Supreme Court challenging the impugned judgment. The matter was listed before the Hon'ble Supreme Court on 5th August, 2011. The Hon'ble Supreme Court has issued a notice to the Govt. of Haryana on Special Leave Petition fled by the Company as well as on the application for interim stay. On 20th April, 2012, the Government of Haryana fled its reply and The Hon'ble Supreme Court has ordered the case to be put before the Hon'ble Bench. The Company had also received a notice dated 1st April, 2011 from Semen Bank Officer, Haryana Livestock Development Board, Karnal demanding the payment of M 21,25.75 lacs as arrears of Cess and M 1,28.72 lacs towards interest on the full unpaid amount for the period 1st January, 2011 to 31st March, 2011. However, The Hon'ble Supreme Court in its order dated 7th September, 2012 granted an interim stay on impugned judgment passed by The Hon'ble High Court, subject to petitioners depositing 50% of the cess levied and demanded by the State Government for expediting the hearing in this case. Based on the order of The Hon'ble Supreme Court, the Company has deposited 50% of milk cess liability amounting to M 5,91 lacs till 7th September, 2012 (date of the order) after which there has been no hearing held in the Supreme Court till date."

c) Interest and claims by customers may be payble as and when the outcome of the related matters are finally determined and hence not been included above. Management based on legal advice and historical trends believes that no material liability will devolve on the company in respect of these matters.

d) Particulars of unhedged foreign currency exposure as at the reporting date: Unhedged foreign currency exposure as at year end

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Mar 31, 2010

A) Basis of preparation

The financial statements of Modern Dairies Limited ("the Company") have been prepared to comply with the Accounting Standards referred to in the Companies (Accounting Standards) Rule 2006 issued by the Central Government in exercise of the power conferred under sub-section (I) (a) of Section 642 and the relevant provisions of the Companies Act, 1956 (the Act). The financial statements have been prepared under the historical cost convention on accrual basis. The accounting policies have been consistently applied by the Company unless otherwise stated.

b) Use of Estimates

In preparing Companys financial statements in conformity with accounting principles generally accepted in India, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Any revision to accounting estimates is recognised prospectively in current and future periods.

c) Fixed Assets

Tangible

Fixed assets are stated at cost less accumulated depreciation and impairment losses. Cost comprises the purchase price and any attributable costs of bringing the assets to their working condition for their intended use.

Borrowing costs directly attributable to acquisition or construction of fixed assets, which necessarily take a substantial period of time to get ready for their intended use, are capitalized.

Intangible

Software which is not an integral part of the related hardware is classified as an intangible asset.

d) Depreciation and amortisation

Depreciation on fixed assets is provided on straight-line method as per the useful lives of the assets estimated by the management, which correspond to the rates prescribed under schedule XIV of the Act. Depreciation is calculated on a pro-rata basis from the date of installation till the date the assets are sold or disposed off. Assets costing individuallyRs.5,000 or less are fully depreciated in the year of purchase.

Software is being amortised, using the straight-line method, over a period of five years, being its estimated useful life.

e) Investments

Investments that are readily realizable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long-term investments.

Current investments are carried at lower of cost and fair value determined on an individual investment basis. Long-term investments are carried at cost, however, provision for diminution in value is made to record other than temporary diminution in the value of such investments.

Profit/ loss on sale of investments are computed on first-in-first-out (FIFO) basis.

f) Inventories

Inventories are valued as follows:

Raw materials, Packing Materials, Stores and Spare Parts

Lower of cost and net realizable value. Cost includes purchase price (those subsequently recoverable by the Company from the concerned revenue authorities), freight inwards and other expenditure incurred in bringing such inventories to their present location and condition. Cost is determined on FIFO basis. However, materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost.

Work-in-progress and finished goods

Lower of cost and net realizable value. Cost includes direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Cost is determined on monthly weighted average basis.

By-Products

At net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and to make the sale.

g) Revenue Recognition

Revenue is recognised to the extent that it can be reliably measured and is probable that the economic benefits will flow to the Company.

Sale of Goods

Revenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods are transferred to the customer. It includes excise duty wherever applicable but excludes value added tax/sales tax and is net of sales returns. Excise duty shown as deduction from revenue is the amount that is included in the amount of revenue and not the entire amount of liability that arose during the year.

Interest

Revenue is recognized on a time proportion basis taking into account the amount outstanding and the applicable rate of interest.

Dividends

Dividend is recognised if the right to dividend is established by the balance sheet date.

Export benefit/incentives

Export benefit entitlements under the Duty Entitlement Pass Book Scheme are recognised in the profit and loss

account when the right to receive credit as per the terms of the scheme is established in respect of the exports made.

h) Foreign Exchange Transactions

Initial Recognition

Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount, the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

Conversion

Foreign currency monetary items are reported using the closing rate. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction; and non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.

Exchange Differences

Exchange differences arising on the settlement of monetary items or on restatement of the Companys monetary items at rates different from those at which they were initially recorded during the year, or reported in previous financial statements, are recognized as income or as expenses in the year in which they arise except exchange differences arising in respect of liabilities for acquisition of fixed assets acquired from outside India before accounting period commencing on or after December 7, 2006, where such exchange differences have been adjusted in the cost of respective fixed assets.

Forward Exchange Contracts not intended for trading or speculation purposes.

Forward contracts are entered into to hedge the foreign currency risk of the underlying outstanding at the balance sheet date. The premium or discount on such contracts is amortized as income or expense over the life of the contract. Any profit or loss arising on the cancellation or renewal of forward contracts is recognized as an income or expense for the period. The exchange difference on such a forward exchange contract is calculated as the difference between

(i) the foreign currency amount of the contract translated at the exchange rate at the Balance Sheet date, or the settlement date where the transaction is settled during the reporting period, and

(ii) the same foreign currency amount translated at the later of the date of inception of the forward exchange contract and the last reporting date. Such exchange differences are recognized in the Profit and Loss Account in the reporting period in which the exchange rates change.

i) Employee benefits

Contributions to Provident Fund

The Company makes contributions to statutory provident fund in accordance with Employees Provident Fund and Miscellaneous Provisions Act, 1952. Provident Fund is a defined contribution scheme and the contributions are charged to the Profit and Loss account of the year when the contributions to the respective funds are due. There are no other obligations other than the contribution payable to the fund.

Gratuity

Gratuity liability are defined benefit obligations made at the end of each financial year and are provided for on the basis of an actuarial valuation on projected unit credit method made at the end of each financial year.

Actuarial gains/losses are immediately taken to profit and loss account and are not deferred.

Compensated absences

The employees of the Company are entitled to compensated absences which are non-accumulating in nature. Expense on non-accumulating compensated absences is recognised in the period in which the absences occur.

j) Taxes on Income

Tax expense comprises current and deferred tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act,1961. Deferred income tax reflect the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlieryears.

Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In situations where the Company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that they can be realised against future taxable profits.

At each balance sheet date, the Company re-assesses unrecognised deferred tax assets. It recognises unrecognised deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realised.

The carrying amount of deferred tax assets are reviewed at each balance sheet date. The Company writes- down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realised. Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.

Minimum Alternate Tax (MAT) credit is recognised as an asset only when and to the extent there is convincing evidence that the company will pay normal income tax during the specified period. In the year in which the MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in Guidance Note issued by the Institute of Chartered Accountants of India (ICAI), the said asset is created by way of a credit to the Profit and Loss account and shown as MAT Credit Entitlement. The Company reviews the same at each balance sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the effect that Company will pay normal income-tax during the specified period.

k) Contingent liabilities and provisions

The Company makes a provision when there is a present obligation as a result of a past event where the outflow of economic resources is probable and a reliable estimate of the amount of the obligation can be made.

Adisclosure is made for a contingent liability when there is a:

(i) possible obligation, the existence of which will be confirmed by the occurrence/non-occurrence of one or more uncertain events, not fully with in the control of the Company;

(ii) present obligation, where it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation;

(iii) present obligation, where a reliable estimate cannot be made.

I) Earnings per share

Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders (after deducting preference dividends and attributable taxes) by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they were entitled to participate in dividends relative to a fully paid equity share during the reporting period. The weighted average numbers of equity shares outstanding during the period are adjusted for events of bonus issue and share split.

For the purpose of calculating diluted earnings 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 are adjusted for the effects of all dilutive potential equity shares.

m) Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the profit and loss account. If at the balance sheet date there is an indication that if a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost.

n) Government grants and subsidies

Grants and subsidies from the government are recognized when there is reasonable assurance that the grant/subsidy will be received and all attaching conditions will be complied with.

Government grants related to revenue are recognised on systematic basis in the profit and loss account over the periods necessary to match them with the related costs which they are intended to compensate. Where the grant or subsidy relates to an asset, its value is deducted in arriving at the carrying amount of the related asset.

Government grants of the nature of promoters contribution are credited to capital reserve and treated as a part of shareholdersfunds.

o) Derivative Instruments

As per ICAI announcement, accounting for derivative contracts, otherthan those covered under AS-11, are marked to market on a portfolio basis, and the net loss after considering the offsetting effect on the underlying hedge item is charged to the income statement. Net gains are ignored.

p) Cash flow statements

Cash flows are reported using indirect method, whereby profit before tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, financing and investing activities of the Company are segregated.

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term investments with an original maturity of three months or less.