Accounting Policies of Nuchem Ltd. Company

Mar 31, 2010

(i) The Term Loans marked "*" are secured by an equitable mortgage, created or to be created, on immovable properties at Faridabad and Tohana. These loans have also been charged by way of hypothecation of all movable assets, both present and future, of Faridabad and Tohana Units save & except book debts, stock & stores specifically charged to Companys Bankers. The charges created or to be created shall rank paripassu inter-se.

(ii) The Working Capital facilities mentioned at A(a)(i) & (ii) respectively are secured by hypothecation of stocks & book debts.

(iii) The working capital facilities mentioned at A(a)(i) & (ii) respectively are further secured by way of second charge created or to be created over the fixed assets of the company both present & future.

(iv) The Term Loan mentioned at A (a) (iii) is secured by way of first pari passu charge on block / fixed assets of the company.

(v) The loans from Banks are also guaranteed by Sh. Romesh Chandra Barar, one of the promoters and other Working Directors in their personal capacity.

(vi) Other loans from banks are secured against specific assets financed through such loans.

1) FIXED ASSETS

a) Fixed Assets are accounted for on historical cost of acquisition or construction and are stated net of depreciation except revaluing them from time to time on the basis of professional valuers certificates

b) Cost includes borrowing cost, if any, attributable to qualifying asset up to the time of start of production/use.

2) DEPRECIATION

Depreciation is provided on the rates prescribed in Schedule XIV of Companies Act, 1956 on following basis: :

a) Machineries of Formaldehyde and Research & Development Divisions on SLM basis.

b) All other Plant & Machinery acquired upto 31.12.1983 on WDV basis & acquired on or after 1.1.1984 on SLM basis.

c) Other assets of Divisions, other than MDF & Environment Management (Projects & Services) Divisions which are on SLM basis, are on WDV basis.

d) Assets valuing upto Rs.5000/- are depreciated @ 100% in the year of purchase irrespective of period of use.

3) INVESTMENTS

Long term investments are valued at cost. Any diminution in value, other than temporary, is duly accounted for. Current investments are valued at lower of cost or market price/fair values.

4) INVENTORIES

Stores & spares, loose tools, raw materials, raw material in transit, finished goods, work-in-process and trading goods are valued at " Cost or net realisable value, whichever is lower." Finished goods inventories at the year end include excise duty payable at the time of removal of goods from factory premises. Cost of trading goods in Environment Management (Projects & Services) Division also includes design & drawing costs.

5) FOREIGN-EXCHANGE TRANSACTIONS

a) Export Sales are accounted for at the exchange rate prevailing at the time of Sale. Exchange differences arising at the time of negotiation of documents and / or actual realisation are recognised in profit & loss account.

b) Outstanding foreign currency denominated current assets and current liabilities are converted at the exchange rates prevailing at the year end and exchange differences are recognised in profit & loss account.

6) REVENUE RECOGNITION

a) Revenue is recognised on accrual basis. Income from interest on call money arrears, investment in National Plan and Defence Certificates, is accounted for on receipt basis, in view of uncertainty involved in determining the quantum of accruals.

b) On construction contracts in Environment Management (Projects & Services) Division under progress where profits or losses can be reasonably ascertained, these are accounted for on percentage of completion method on the basis of work completed upto the close of year, considering overall profits or losses upto the stage of completion.

c) Government grants are recognised in Profit & Loss statement over the periods to match with related costs.

7) SALES & INTER - DIVISION TRANSFERS

a) Sales are accounted for at the time of despatch of goods to the customers and in case of construction contracts in Environment Management (Projects & Services) Division on the basis of running/final bills on percentage of completion method. Export sales are recognised at the time of issue of bill of lading.

b) Gross sales are inclusive of excise duty recovered from customers and net of returns & rebates. Sales net of excise duty is also disclosed separately.

c) Inter division transfer of goods as independent marketable products produced by separate divisions for captive consumption, is done at approximate costs and reasonable margins thereon. The same is shown as a contra item to reflect the true working of the respective Divisions in the Profit & Loss Account. Any unrealised profit on unsold stocks is eliminated while valuing the inventories. This has no impact on the profits of the Company. Inter-divisional transfer/captive consumption to Fixed

Assets is done at cost. It is also netted off from gross sales and respective expenditure accounts in the statement of Profit & Loss.

8) CAPITAL SUBSIDY

Capital Subsidy relating to:

a) Depreciable fixed assets is accounted for as deferred income & shown under current liabilities. Proportionate amount of such deferred income based on specified life of the asset is withdrawn yearly from deferred income account & credited to profit & loss account to match with related costs.

b) Non Depreciable fixed assets is accounted for as Capital Reserve under Reserves & Surplus.

9) RETIREMENT BENEFITS

Contributions to Provident Fund are made to Government Administered Provident Fund towards which the company has no further obligation beyond monthly contributions. The company also provides for retirement benefits in the form of gratuity. For gratuity, the company has taken a policy from LIC of India effective from 1st April 2007 under its Group Gratuity Cash Accumulation Scheme and is making provisions on the basis of valuation as per the scheme done by LIC in accordance with revised Accounting Standard AS-15 issued by The Institute of Chartered Accountants of India. Other short term benefits are expensed in the year in which services are rendered by the employees.

10) TAXES ON INCOME

Provision for current Income tax is made considering various allowances and benefits available to the company under the Income Tax law. Fringe Benefits Tax (F6T) is provided for and paid in accordance with the provisions contained in Income Tax Law.

In pursuance of Accounting Standard AS-22 Accounting for Taxes on Income notified pursuant to the Companies (Accounting Standards) Rules, 2006 deferred tax is recognised on timing differences arising between book income and taxable income to the extent such timing differences are capable of reversal in one or more subsequent periods. Deferred tax assets on account of unabsorbed losses and depreciation are recognised only to the extent that there is a virtual certainty of sufficient future taxable income available to realise such assets

11) MISCELLANEOUS EXPENDITURE

a) Debenture raising expenses are written off over the life of the Debentures.

b) Capital raising expenses are written off in 5 equal yearly instalments.

12) INTANGIBLE ASSETS

Intangible Assets are recognised on the basis of recognition criteria as set out in Accounting Standard AS-26 ."Intangible Assets" notified pursuant to the Companies (Accounting Standards) Rules, 2006.

13) IMPAIRMENT OF ASSETS

Specified aAssets are reviewed for impairment wherever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount for which the assets carrying amount exceeds its recoverable amount being higher of assets net selling price and its value in use. Value in use is based on the present value of the estimated future cash- flows relating to the assets. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash-flows (i.e. Cash Generating Unit).

Previously recognized impairment losses, relating to assets other than goodwill, are reversed where recoverable amount increases because of favourable changes in the estimates used to determine the recoverable amount since the last impairment was recognised. A reversal of an assets impairment loss is limited to its carrying amount that would have been determined (Net of depreciation or amortization) had no impairment loss been recognised in prior years.

14) CONTINGENT LIABILITIES, CONTINGENT ASSETS & PROVISIONS

Provisions are recognised for present obligations of uncertain timing or amount arising as a result of past event where a reliable estimate can be made and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Where it is not probable that an outflow of resources embodying economic benefits will be required or the amount can not be estimated reliably, the obligation is disclosed as a contingent liability, unless the possibility of outflow of resources embodying economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain events are also disclosed as contingent liabilities unless the possibility of outflow of resources embodying economic benefits is remote.