Mar 31, 2023
Note 1 - General information:
Honeywell Automation India Limited (the âCompanyâ) is engaged primarily in the business of Automation & Control systems on turnkey basis and otherwise. The Company is a public limited company incorporated and domiciled in India and has its registered office at 56,57 Hadapsar Industrial Estate, Pune - 411013, Maharashtra, India. The Company is listed on the Bombay Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE).
The financial statements are approved for issue by the Companyâs Board of Directors on May 17, 2023.
Note 2 - Significant Accounting Policies:A. Statement of compliance
These financial statements are prepared in accordance with Indian Accounting Standard (Ind AS), under the historical cost convention on the accrual basis except for certain financial instruments which are measured at fair values, the provisions of the Companies Act, 2013 (âthe Actâ) (to the extent notified) and guidelines issued by the Securities and Exchange Board of India (SEBI). The Ind AS are prescribed under Section 133 of the Act of the Companies (Indian Accounting Standards) Rules, 2015 and relevant amendment rules issued there after.
Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.
operating cycle for current and non-current classification :
All assets and liabilities have been classified as current or non-current as per the Companyâs operating cycle, based on the duration of the specified project/contract/product line/service including the defect liability period, wherever applicable and extends up to the realization of receivables (including retention monies) within the agreed credit period normally applicable to this industry.
B. Basis of Preparation and Presentation
The financial statements have been prepared on a historical cost convention and on an accrual basis, except for the following material items that have been measured at fair value as required by relevant Ind AS:
i) Derivative financial instruments
ii) Certain financial assets and financial liabilities measured at fair values (as required by the relevant Ind AS)
iii) Share based payment transactions and
iv) Defined benefit and other long term employee benefits
Historical cost is generally based on the fair value of the consideration given in exchange of goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the assets or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and disclosure purpose in these financial statement is determined on such basis, except for share-based transactions that are within scope of Ind AS 102, leasing transactions that are within the scope of Ind AS 116, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in Ind AS 2 or value in use in Ind AS 36.
For financial reporting purposes, fair value measurements are categorised into Level 1, 2, or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly;
Level 3 inputs are unobservable inputs for the asset or liability.
Amounts in the financial statements are presented in Indian Rupees in lakhs and rounded off as permitted by Schedule III to the Companies Act, 2013. Per share data are presented in Indian Rupees to two decimal places.
c. Property, Plant and Equipment
Property, Plant and Equipment are stated at acquisition cost, net of accumulated depreciation and accumulated impairment losses, if any.
Items of Property, Plant and Equipment that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements. Any expected loss is recognised immediately in the Statement of Profit and Loss.
Losses arising from the retirement of, and gains or losses arising from disposal of Property, Plant and Equipment are recognised in the Statement of Profit and Loss.
Freehold land is not depreciated.
The Company depreciates Property, Plant and Equipment over their estimated useful lives using the straight-line
method. The estimated useful lives of assets are as follows: |
|
class of Assets |
useful Lives |
Buildings |
30 years |
Plant and Machinery |
4 - 10 years |
Computers and Networks |
3 - 5 years |
Vehicles |
4 - 5 years |
Office Equipment |
5 - 6 years |
Furniture and Fixture |
5 - 10 years |
Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.
Assets installed in leased premises are depreciated over lease period or useful life of assets whichever is lower.
The estimated useful life of the Property, Plant and Equipment are reviewed at the end of each financial year, with the effect of any changes in estimate accounted for on a prospective basis.
D. intangible Assets and Amortization
Intangible assets are stated at acquisition cost, net of accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortised on a straight line basis over their estimated useful lives. The amortisation period and the amortisation method are reviewed at each financial year end. If the expected useful life of the asset is significantly different from previous estimates, the amortisation period is changed accordingly.
Losses arising from the retirement of, gain or losses arising from disposal of an intangible asset are recognisec in the Statement of Profit and Loss. The Purchased Software are amortized over a period of 3 years.
The estimated useful life of the intangible assets are reviewed at the end of each financial year, with the effect of any changes in estimate accounted for on a prospective basis.
E. impairment of Property, Plant and Equipment and intangible Assets
Assessment is done at each Balance Sheet date as to whether there is any indication that an asset (property, plant and equipment and intangible) may be impaired.
For the purpose of assessing impairment, the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets, is considered as a cash generating unit. If any such
indication exists, an estimate of the recoverable amount of the asset/cash generating unit is made. Assets whose carrying value exceeds their recoverable amount are written down to the recoverable amount. Recoverable amount is higher of an assetâs or cash generating unitâs net selling price and its value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Assessment is also done at each Balance Sheet date as to whether there is any indication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased.
Inventories comprise of raw material, work in progress, finished goods, stock in trade and are stated at lower of cost and net realisable value. Cost is determined using the technique of standard cost method, which approximates the actual cost using the Moving Weighted Average basis. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.
i) The Company earns revenue primarily from turnkey projects with respect to automation and related control systems, AMC services and other business solutions. Revenue from construction of plants and systems with performance obligations satisfied over time are recognized using input method. Revenue from such contracts is recognized over time because of the continuous transfer of control to the customer. With control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Cost based input method of progress is used because it best depicts the transfer of control to the customer that occurs as costs are incurred. Under the cost based cost s method, the extent of progress towards completion is
measured based on the proportion of costs incurred to date to the total estimated costs at completion of the performance obligation. Cost estimates on significant contracts are reviewed on a periodic basis, or when circumstances change and warrant a modification to a previous estimate. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections. Significant factors that influence these estimates include if the desired site is made available on time, inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization
and anticipated labour agreements. Provisions for anticipated losses on long-term contracts are recorded in full when such losses become evident, to the extent required.
ii) Revenue from contract with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration Company expects to be entitled in exchange for those goods or services. Service sales, principally representing software development are recognized over the contractual period or as services are rendered.
iii) The terms of a contract or the historical business practice can give rise to variable consideration due to, but not limited to, cash-based incentives, rebates, performance awards, or credits. Variable consideration is estimated at the most likely amount receivable from customers. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration
and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available.
iv) A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration excluding any amounts presented as a receivable.
v) A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Company transfers goods
or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract.
H.Foreign Currency Transactions
i) Functional currency
The functional currency of the Company is the Indian rupee. These financial statements are presented in Indian rupees (rounded off to Lakhs).
ii) Initial Recognition
On initial recognition, all foreign currency transactions are recorded by applying to the foreign currency
amount the exchange rate between the functional currency and the foreign currency at the date of the transaction.
iii) Subsequent Recognition
As at the reporting date, 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. All 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.
All monetary assets and liabilities in foreign currency are restated at the end of accounting period.
Exchange differences on restatement of all other monetary items are recognised in the Statement of Profit and Loss.
The Company participates in various employee benefit
plans. Post-employment benefits are classified as either
defined contribution plans or defined benefit plans:
i) Superannuation fund:
Contribution towards superannuation fund for certain employees is made to the Life Insurance Corporation, where the Company has no further obligations.
Such benefits are classified as Defined Contribution Schemes as the Company does not carry any further obligations, apart from the contributions made on a monthly basis.
ii) Provident Fund:
Provident Fund contributions are made to a Trust administered by the Company. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of the period/ year and any shortfall in the fund size maintained by the Trust set up by the Company is additionally provided for.
iii) Gratuity:
The Company provides for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees in accordance with the Payment of Gratuity Act, 1972 (as amended from time to time). The Gratuity Plan provides a lump sum payment to eligible employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employeeâs salary and the tenure of employment. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of each reporting period.
iv) Compensated Absences:
Accumulated compensated absences, which are expected to be availed or encashed within 12 months from the end of the year end are treated as short term employee benefits. The obligation towards the same is measured at the expected cost of accumulating compensated absences as the additional amount expected to be paid as a result of the unused entitlement as at the year end.
v) Termination Benefits:
Termination benefits in the nature of voluntary retirement benefits are recognised in the Statement of Profit and Loss as and when incurred.
Actuarial gain or losses and remeasurements:
Actuarial gains or losses on defined benefit obligations are recognized in other comprehensive income.
Further, the profit or loss does not include an expected return on plan assets. Instead net interest recognized in profit and loss is calculated by applying the discount rate used to measure the defined benefit obligation to the net defined benefit liability or asset. The actual return on the plan assets above or below the discount rate is recognized as part of re-measurement of net defined liability or asset through other comprehensive income.
Remeasurements comprising actuarial gains or losses and return on plan assets (excluding amounts included in net interest on the net defined benefit liability) are not reclassified to profit and loss in subsequent periods.
Certain employees of the Company receive remuneration in the form of equity settled instruments given by the ultimate holding company (Honeywell International Inc.), for rendering services over a defined vesting period. Equity instruments granted are measured by reference to the fair value of the instrument at the date of grant.
The expense is recognized in the statement of profit and loss with a corresponding increase to the share based payment reserve, as a component of equity. The equity instruments generally vest in a graded manner over the vesting period. The fair value determined at the grant date is expensed over the vesting period of the respective tranches of such grants. The stock compensation expense is determined based on the Companyâs estimate of equity instruments that will eventually vest.
Tax expense for the period, comprising current tax and deferred tax, are included in the determination of the net profit or loss for the period.
Current tax:-
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws prevailing in the respective jurisdictions.
Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle the asset and the liability on a net basis.
Deferred tax:-
Deferred tax is recognized using the balance sheet approach. Deferred tax assets and liabilities are recognized for deductible and taxable temporary differences arising between the tax base of assets and liabilities and their carrying amount in financial statements.
Deferred tax asset are recognized to the extent that it is probable that taxable profit will be available against which such deferred tax assets can be realised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred tax liabilities are recognized for all taxable temporary differences.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off assets against liabilities representing current tax and where the deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws.
L. Provisions and Contingencies
Provisions: Provisions are recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and there is a reliable estimate of the amount of the obligation. Provisions are measured at the best estimate of the expenditure required to settle the present obligation at the Balance sheet date and are discounted to its present value as appropriate.
Provisions for onerous contracts are recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. Provisions for onerous contracts are measured at the present value of lower of the expected net cost of fulfilling the contract and the expected cost of terminating the contract.
Contingent Liabilities: Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non occurrence of one or more
uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made, is termed as a contingent liability.
Contingent assets are disclosed where an inflow of economic benefits is probable.
Provisions, contingent liabilities and contingent assets are reviewed at each Balance Sheet date. Where the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under such contract, the present obligation under the contract is recognised and measured as a provision.
At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The assessment is based on:
(1) whether the contract involves the use of a distinct identified asset,
(2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and
(3) whether the Company has the right to direct the use of the asset.
The Company has hired office premises under noncancellable operating lease arrangements at stipulated rentals.
Right-of-use assets represent right to use an underlying asset during the reasonably certain lease term, and lease liabilities represent obligation to make lease payments arising from the lease. The lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
The Company measures the lease liability at the present value of the lease payments that are not paid at the commencement date of the lease. The lease liability is subsequently remeasured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance lease payments.
The right-of-use assets are initially recognized at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or prior to the commencement date of the lease plus any initial direct costs less any lease incentives. They are subsequently measured at cost less accumulated depreciation and impairment losses.
The Company primarily uses incremental borrowing rate, which is based on the information available at the lease commencement date, in determining the present value of the lease payments.
A right-of-use asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (short-term leases) and low value leases. For these short-term and low value leases, the Company recognizes lease payments as operating expense as incurred over the lease term.
The Company has also elected practical expedient available within the standard:
⢠not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component.
⢠using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
N. Financial instruments
Financial assets and financial liabilities are recognised when a company becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit and loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit and loss are recognised immediately in Statement of Profit and Loss.
O. Financial Assets
All purchases or sales of financial assets are recognised and derecognised on a trade date basis including delivery of assets within the time frame established by regulation or convention in the marketplace.
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets
i. Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition) :
a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
b) the contractual terms of the instrument give rise on specified date to cash flows that are solely payments of principal and interest on the principal and interest on the principal amount outstanding.
Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive income (FVTOCI) (except for debt instruments that are designated as at fair value through profit or loss on initial recognition) :
a) the asset is held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets; and
b) the contractual terms of the instrument give rise on specified date to cash flows that are solely payments of principal and interest on the principal and interest on the principal amount outstanding.
Interest income is recognised in profit and loss for FVTOCI debt instruments. For the purposes of recognising foreign exchange gains and losses,
FVTOCI debt instruments are treated as financial assets measured at amortised cost. Thus, the exchange differences on the amortised cost are recognised in profit and loss and other changes in the fair value of FVTOCI financial assets are recognised in other comprehensive income and accumulated under the heading of âReserve for debt instruments through other comprehensive incomeâ. When the investment is disposed of, the cumulative gain or loss previously accumulated in this reserve is reclassified to the Statement of Profit and Loss.
All other financial assets are subsequently measured at fair value.
ii. Effective interest method
The effective interest method is a method of calculating the amortised cost of debt instrument and of allocating interest over the relevant period.
The effective interest rate is the rate that discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income recognised on an effective interest basis for debt instruments other than those financial assets classified as FVTPL. Interest income is recognised in profit and loss and is included in âOther incomeâ.
iii. Financial assets at fair value through profit or loss (FVTPL):
Investments in equity instruments are classified as FVTPL, unless the Company irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for investment in equity instruments which are not held for trading.
Debt instruments that do not meet the amortised cost criteria or FVTOCI criteria are measured at FVTPL. In addition, debt instruments that meet amortised cost criteria or FVTOCI criteria but are designated as at FVTPL are measured at FVTPL.
A financial asset that meets the amortised cost criteria or debt instruments that meet FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduced a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporate any dividend or interest earned on the financial asset and is included in âOther incomeâ. Dividend on financial asset at FVTPL is recognised when the Companyâs right to receive the dividends is established, it is probable that economic benefits associated with dividend will flow to the entity, the dividend does not represent recovery of part of cost of the investment and the amount of dividend can be measured reliably.
iv. Impairment of financial assets
The Company applies the expected credit loss model for recognising impairment loss on financial assets measured at amortised cost, debt instrument at FVTOCI, trade receivables, other contractual right to receive cash or other financial asset, and financial guarantees not designated as at FVTPL.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the company in accordance with the contract and all the cash flows that the company expects to receive, discounted at the original effective interest rate (or credit-Adjusted effective interest rate for purchased or originated credit-impaired financial assets). The Company estimates cash flows by considering all contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) through the expected life of that financial instrument.
The Company measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the company measures the loss allowance for that financial instrument at an amount equal to 12 month expected credit losses. 12 month expected credit losses are portion of the life-time expected credit losses and represent the lifetime cash shortfalls that will result if default occurs within the 12 months after the reporting date and thus, are not cash shortfalls that are predicted over the next 12 months.
If the Company measured loss allowance for a financial instrument at lifetime expected credit loss model in the previous period, but determines at the end of a reporting period that the credit risk has not increased significantly since initial recognition due to improvement in credit quality as compared to the previous period, the company again measures the loss allowance based on 12 month expected credit losses.
When making the assessment of whether there has been a significant increase in credit risk since initial recognition, the Company uses the change in the risk of a default accruing over the expected life of the financial instrument instead of the change in the amount of expected credit losses. To make that assessment, the Company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition.
For trade receivables or any contractual right to receive cash or another financials asset that results from transactions that are within the scope of Ind AS 115, the Company measures the loss allowance at an amount equal to lifetime expected credit losses.
Further, for the purpose of measuring lifetime expected credit loss allowance for trade receivables, the Company has used a practical expedient as permitted under Ind AS 109. This expected credit loss allowance is computed based on a provision matrix based on judgement considering past experience.
The impairment requirements for the recognition and measurement of a loss allowance are equally applied to debt instruments at FVTOCI except that the loss allowance is recognised in other comprehensive income and is not reduced from the carrying amount in the balance sheet.
v. Derecognition of financial assets
The Company derecognises a financial asset when the contractual rights to the cash flow from the asset expired or when it transfer the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred assets the Company recognises its retained interest in the asset and then associated liability for amounts it may have to pay.
On derecognition of a financial asset in its entirety, the difference between the assetâs carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss if such gain or loss would have otherwise been recognised in profit or loss on disposal of that financial assets.
On derecognition of a financial asset other than in its entirety, the Company allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of relative fair values of those part on the date of the transfer. The difference between carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit and loss if such gain or loss would have otherwise been recognised in profit and loss on disposal of that financial asset. A cumulative gain or loss that has been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair value of those parts.
vi. Foreign exchange gains and losses
The fair value of financial assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.
For foreign currency denominated financial assets measured at amortised cost and FVTPL, the exchange differences are recognised in profit and loss.
Changes in the carrying amount of investments in equity instruments at FVTOCI relating to changes in foreign currency rates are recognised in other comprehensive income.
For the purposes of recognising foreign exchange gains and losses, FVTOCI debt instruments are treated as financial assets measured amortised cost. Thus,
the exchange difference on the amortised cost are recognised in profit and loss and other changes in the fair value of FVTOCI financial assets are recognised in other comprehensive income.
vii. Derivative financial instruments and hedge accounting
In the ordinary course of business, the Company uses certain derivative financial instruments to reduce business risks which arise from its exposure to foreign exchange fluctuations. The instruments are confined principally to foreign exchange forward contracts. The instruments are employed as hedges of transactions included in the financial statements or for highly probable forecast transactions/firm contractual commitments.
Derivatives are initially accounted for and measured at fair value from the date the derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period
The Company adopts hedge accounting for forward contracts. At the inception of each hedge, there is a formal, documented designation of the hedging relationship. This documentation includes, inter alia, items such as identification of the hedged item or transaction and the nature of the risk being hedged. At inception each hedge is expected to be highly effective in achieving an offset of changes in fair value or cash flows attributable to the hedged risk. The effectiveness of hedge instruments to reduce the risk associated with the exposure being hedged is assessed and measured at the inception and on an ongoing basis. The ineffective portion of designated hedges is recognised immediately in the statement of profit and loss.
When hedge accounting is applied:
a. for fair value hedges of recognised assets and liabilities, changes in fair value of the hedged assets and liabilities attributable to the risk being hedged, are recognised in the statement of profit and loss and compensate for the effective portion of symmetrical changes in the fair value of the derivatives.
b. for cash flow hedges, the effective portion of the change in the fair value of the derivative is recognised directly in equity and the ineffective portion is taken to the statement of profit and loss.
If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of a nonfinancial asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of a nonfinancial asset or a liability, amounts deferred in equity are recognised in the statement of profit and
loss in the same period in which the hedged item affects the statement of profit and loss.
In cases where hedge accounting is not applied, changes in the fair value of derivatives are recognised in the statement of profit and loss as and when they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the statement of profit and loss for the period.
P. Financial Liabilities and Equity instruments
i. Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of financial liability and equity instrument.
ii. Equity instruments
An equity instrument is any contract that evidences residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue cost.
iii. Financial liabilities
All financial liabilities are subsequently measured at amortised cost using effective interest method of FVTPL.
iii. a) Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is held for trading or designated as at FVTPL.
Financial liability at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit and loss. The net gain or loss recognised in profit and loss incorporates any interest paid on the financial liability and is included in âOther Incomeâ.
b) Financial liabilities subsequently measured at amortised cost
Financial liabilities that are not held for trading and are not designated as at FVTPL are measured at amortised cost at the end of subsequent accounting periods. The carrying amount of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method. Interest expenses that is not capitalised as part of cost of an asset is included in âfinance costâ.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
c) Foreign exchange gains and losses
For financial liabilities that are denominated in a foreign currency and are measured at amortised cost at the end of each reporting period, the foreign exchange gains and losses are determined based on the amortised cost of the instrument and are recognised in other income.
The fair value of financial liabilities denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. For financial liability that are measured at FVTPL, the foreign exchange component forms part of fair value gains or losses and is recognised in the Statement of Profit and Loss.
iv) Derecognition of financial liabilities
The Company derecognises financial liability when, and only when, the Company obligations are discharged, cancelled and have expired. An exchange between with a lender of debt instrument is substantially different term is accounted for as and extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of a term of existing financial liability is accounted for as and extinguishment of the original financial liability and recognition of new financial liability. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit and loss.
Q. New Accounting Standards, Amendments to Existing Standards, Annual improvements, interpretations, etc. applicable to the company effective subsequent to March 31, 2023
Ministry of Corporate Affairs (âMCAâ) notifies new standard or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. On March 31, 2023, MCA amended the Companies (Indian Accounting Standards) Rules, 2015 by issuing the Companies (Indian Accounting Standards) Amendment Rules, 2023, applicable from April 1, 2023, as below:
Ind AS 1 - Presentation of Financial Statements
The amendments require companies to disclose their material accounting policies rather than their significant accounting policies. Accounting policy information, together with other information, is material when it can reasonably be expected to influence decisions of primary users of general purpose financial statements. The Company does not expect this amendment to have any significant impact in its financial statements.
Ind AS 12 - Income Taxes
This amendment has narrowed the scope of the initial recognition exemptions so that it does not apply to transactions that give rise to equal and offsetting temporary differences. The Company is evaluating the impact, if any, in its financial statements.
Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors - This amendment has introduced a definition of âaccounting estimatesâ and included amendments to Ind AS 8 to help entities distinguish changes in accounting policies from changes in accounting estimates. The Company has evaluated the amendment and there is no impact on its financial statements.
Note 3 -critical Judgements, estimations and assumptions in applying Accounting Policies
In the application of the Companyâs accounting policies, which are described in note 2, the directors of the company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
1. The preparation of financial statements involves estimates and assumptions that affect the reported amount of assets, liabilities, disclosure of contingent liabilities at the date of financial statements and the reported amount of revenues and expenses for the reporting period. Specifically, the Company estimates the probability of collection of accounts receivable by analysing historical payment patterns, customer
concentrations, customer credit-worthiness and current economic trends. If the financial condition of a customer deteriorates, additional allowances may be required.
2. The Company uses the percentage-of-completion method in accounting for its contract revenue. Use of the percentage-of-completion method requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the expected contract estimates at the reporting date.
3. Provision for warranty is considered based on the rolling average warranty expense incurred in the preceding 12 months , the warranty period for which ranges from 12 months to 24 months as per provisions of the contracts.
4. In case of Property, Plant and Equipment and Intangible assets, the charge in respect of periodic depreciation/ amortisation is derived after determining an estimate
of an assetâs expected useful life and the expected residual value at the end of its life. The useful lives and residual values of Companyâs assets are determined
by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology.
5. Ind AS 116 requires lessee to determine the lease term as the non-cancellable period of a lease adjusted with any option to extend or terminate the lease, if the use of such option is reasonably certain. The Company makes an assessment on the expected lease term on a lease-by-lease basis and thereby assesses whether it is reasonably certain that any options to extend or terminate the contract will be exercised. In evaluating the lease term, the Company considers factors such as any significant leasehold improvements undertaken over the lease term, costs relating to the termination of the lease and the importance of the underlying asset to the Companyâs operations taking into account the location of the underlying asset and the availability of suitable alternatives. The lease term in future periods is reassessed to ensure that the lease term reflects the current economic circumstances. After considering current and future economic conditions, the company has concluded that no material changes are required to lease period relating to the existing lease contracts.
Refer note no 2 (M).
Mar 31, 2022
Note 1 - General Information:
Honeywell Automation India Limited (the âCompanyâ) is engaged primarily in the business of Automation & Control systems on turnkey basis and otherwise. The Company is a public limited company incorporated and domiciled in India and has its registered office at 56,57 Hadapsar Industrial Estate, Pune - 411013, Maharashtra, India.The Company is listed on the Bombay Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE).
The financial statements are approved for issue by the Companyâs Board of Directors on May 12, 2022.
Note 2 - Significant Accounting Policies:A. Statement of Compliance
These financial statements are prepared in accordance with Indian Accounting Standard (Ind AS), under the historical cost convention on the accrual basis except for certain financial instruments which are measured at fair values, the provisions of the Companies Act, 2013 (âthe Actâ) (to the extent notified) and guidelines issued by the Securities and Exchange Board of India (SEBI). The Ind AS are prescribed under Section 133 of the Act read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and relevant amendment rules issued there after.
Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.
Operating cycle for current and non-current classification :
All assets and liabilities have been classified as current or non-current as per the Companyâs operating cycle, based on the duration of the specified project/contract/product line/service including the defect liability period, wherever applicable and extends up to the realization of receivables (including retention monies) within the agreed credit period normally applicable to this industry.
B. Basis of Preparation and Presentation
The financial statements have been prepared on a historical cost convention and on an accrual basis, except for the following material items that have been measured at fair value as required by relevant Ind AS:
i) Derivative financial instruments
ii) Certain financial assets and financial liabilities measured at fair values (as required by the relevant Ind AS)
iii) Share based payment transactions and
iv) Defined benefit and other long term employee benefits
Historical cost is generally based on the fair value of the consideration given in exchange of goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the assets or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and disclosure purpose in these financial statement is determined on such basis, except for share-based transactions that are within scope of Ind AS 102, leasing transactions that are within the scope of Ind AS 116, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in Ind AS 2 or value in use in Ind AS 36.
For financial reporting purposes, fair value measurements are categorised into Level 1, 2, or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly;
Level 3 inputs are unobservable inputs for the asset or liability.
Amounts in the financial statements are presented in Indian Rupees in lakhs and rounded off as permitted by Schedule III to the Companies Act, 2013. Per share data are presented in Indian Rupees to two decimal places.
C. Property, Plant and Equipment
Property, Plant and Equipment are stated at acquisition cost, net of accumulated depreciation and accumulated impairment losses, if any.
Items of Property, Plant and Equipment that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements. Any expected loss is recognised immediately in the Statement of Profit and Loss.
Losses arising from the retirement of, and gains or losses arising from disposal of Property, Plant and Equipment are recognised in the Statement of Profit and Loss.
Freehold land is not depreciated.
The Company depreciates Property, Plant and Equipment over their estimated useful lives using the straightline method. The estimated useful lives of assets are as follows:
Class of Assets |
Useful Lives |
Buildings |
30 years |
Plant and Machinery* |
10 years |
Test Equipment* |
4 - 10 years |
Computers and Networks |
3 - 5 years |
Vehicles* |
4 - 5 years |
Office Equipment |
5 - 6 years |
Furniture and Fixture |
5 - 10 years |
* Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.
Assets installed in leased premises are depreciated over lease period or useful life of assets whichever is lower.
The estimated useful life of the Property, Plant and Equipment are reviewed at the end of each financial year, with the effect of any changes in estimate accounted for on a prospective basis.
D. Intangible Assets and Amortization
Intangible assets are stated at acquisition cost, net of accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortised on a straight line basis over their estimated useful lives. The amortisation period and the amortisation method are reviewed at each financial year end. If the expected useful life of the asset is significantly different from previous estimates, the amortisation period is changed accordingly.
Losses arising from the retirement of, gain or losses arising from disposal of an intangible asset are recognised in the Statement of Profit and Loss. The Purchased Software are amortized over a period of 3 years.
The estimated useful life of the intangible assets are reviewed at the end of each financial year, with the effect of any changes in estimate accounted for on a prospective basis.
E. Impairment of Property, Plant and Equipment and Intangible Assets
Assessment is done at each Balance Sheet date as to whether there is any indication that an asset (property, plant and equipment and intangible) may be impaired. For the purpose of assessing impairment, the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets, is considered as a cash generating unit. If any such indication exists, an estimate of the recoverable amount of the asset/cash generating unit is made. Assets whose carrying value exceeds their recoverable amount are written down to the recoverable amount. Recoverable amount is higher of an assetâs or cash generating unitâs net selling price and its value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Assessment is also done at each Balance Sheet date as to whether there is any indication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased.
Inventories comprise of raw material, work in progress, finished goods, stock in trade and are stated at lower of cost and net realisable value. Cost is determined using the technique of standard cost method, which approximates the actual cost using the Moving Weighted Average basis. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.
i) The Company earns revenue primarily from turnkey projects with respect to automation and related control systems, AMC services and other business solutions.
Revenue from construction of plants and systems with performance obligations satisfied over time are recognized using input method. Revenue from such contracts is recognized over time because of the continuous transfer of control to the customer. With control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Cost based input method of progress is used because it best depicts the transfer of control to the customer that occurs as costs are incurred. Under the cost based cost method, the extent of progress towards completion is measured based on the proportion of costs incurred to date to the total estimated costs at completion of the performance obligation. Cost estimates on significant contracts are reviewed on a periodic basis, or when circumstances change and warrant a modification to a previous estimate. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections. Significant factors that influence these estimates include if the desired site is made available on time, inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization and anticipated labour agreements. Provisions for anticipated losses on long-term contracts are recorded in full when such losses become evident, to the extent required.
ii) Revenue from contract with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration Company expects to be entitled in exchange for those goods or services. Service sales, principally representing software development are recognized over the contractual period or as services are rendered.
iii) The terms of a contract or the historical business practice can give rise to variable consideration due to, but not limited to, cash-based incentives, rebates, performance awards, or credits. Variable consideration is estimated at the most likely amount receivable from customers. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available.
iv) A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration excluding any amounts presented as a receivable.
v) A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract.
H. Foreign Currency Transactionsi) Functional currency
The functional currency of the Company is the Indian rupee. These financial statements are presented in Indian rupees (rounded off to Lakhs).
On initial recognition, all foreign currency transactions are recorded by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the transaction.
As at the reporting date, 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. All 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.
All monetary assets and liabilities in foreign currency are restated at the end of accounting period. Exchange differences on restatement of all other monetary items are recognised in the Statement of Profit and Loss.
The Company participates in various employee benefit plans. Post-employment benefits are classified as either defined contribution plans or defined benefit plans:
Contribution towards superannuation fund for certain employees is made to the Life Insurance Corporation, where the Company has no further obligations. Such benefits are classified as Defined Contribution Schemes as the Company does not carry any further obligations, apart from the contributions made on a monthly basis.
Provident Fund contributions are made to a Trust administered by the Company. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of the period/ year and any shortfall in the fund size maintained by the Trust set up by the Company is additionally provided for.
The Company provides for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees in accordance with the Payment of Gratuity Act, 1972 (as amended from time to time). The Gratuity Plan provides a lump sum payment to eligible employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employeeâs salary and the tenure of employment. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of each reporting period.
Accumulated compensated absences, which are expected to be availed or encashed within 12 months from the end of the year end are treated as short term employee benefits. The obligation towards the same is measured at the expected cost of accumulating compensated absences as the additional amount expected to be paid as a result of the unused entitlement as at the year end.
Termination benefits in the nature of voluntary retirement benefits are recognised in the Statement of Profit and Loss as and when incurred.
Actuarial gain or losses and remeasurements:
Actuarial gains or losses on defined benefit obligations are recognized in other comprehensive income. Further, the profit or loss does not include an expected return on plan assets. Instead net interest recognized in profit and loss is calculated by applying the discount rate used to measure the defined benefit obligation to the net defined benefit liability or asset. The actual return on the plan assets above or below the discount rate is recognized as part of re-measurement of net defined liability or asset through other comprehensive income.
Remeasurements comprising actuarial gains or losses and return on plan assets (excluding amounts included in net interest on the net defined benefit liability) are not reclassified to profit and loss in subsequent periods.
Certain employees of the Company receive remuneration in the form of equity settled instruments given by the ultimate holding company (Honeywell International Inc.), for rendering services over a defined vesting period. Equity instruments granted are measured by reference to the fair value of the instrument at the date of grant.
The expense is recognized in the statement of profit and loss with a corresponding increase to the share based payment reserve, as a component of equity. The equity instruments generally vest in a graded manner over the vesting period. The fair value determined at the grant date is expensed over the vesting period of the respective tranches of such grants. The stock compensation expense is determined based on the Companyâs estimate of equity instruments that will eventually vest.
Tax expense for the period, comprising current tax and deferred tax, are included in the determination of the net profit or loss for the period.
Current tax:-
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws prevailing in the respective jurisdictions.
Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle the asset and the liability on a net basis.
Deferred tax:-
Deferred tax is recognized using the balance sheet approach. Deferred tax assets and liabilities are recognized for deductible and taxable temporary differences arising between the tax base of assets and liabilities and their carrying amount in financial statements.
Deferred tax asset are recognized to the extent that it is probable that taxable profit will be available against which such deferred tax assets can be realised.The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred tax liabilities are recognized for all taxable temporary differences.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off assets against liabilities representing current tax and where the deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws.
L. Provisions and Contingencies
Provisions are recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and there is a reliable estimate of the amount of the obligation. Provisions are measured at the best estimate of the expenditure required to settle the present obligation at the Balance sheet date and are discounted to its present value as appropriate.
Provisions for onerous contracts are recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. Provisions for onerous contracts are measured at the present value of lower of the expected net cost of fulfilling the contract and the expected cost of terminating the contract.
Contingent Liabilities: Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made, is termed as a contingent liability.
Contingent assets are disclosed where an inflow of economic benefits is probable.
Provisions, contingent liabilities and contingent assets are reviewed at each Balance Sheet date. Where the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under such contract, the present obligation under the contract is recognised and measured as a provision.
The Company has adopted Ind AS 116 with effect from April 1, 2019 and applied the standard to all lease contracts existing on that date using the modified retrospective method, recognizing the cumulative effect of initially applying this standard as an adjustment to âright-of-use assetâ as on April 1,2019.
At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The assessment is based on:
(1) whether the contract involves the use of a distinct identified asset,
(2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and
(3) whether the Company has the right to direct the use of the asset.
The Company has hired office premises under non-cancelable operating lease arrangements at stipulated rentals.
Right-of-use assets represent right to use an underlying asset during the reasonably certain lease term, and lease liabilities represent obligation to make lease payments arising from the lease. The lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
The Company measures the lease liability at the present value of the lease payments that are not paid at the commencement date of the lease. The lease liability is subsequently remeasured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance lease payments.
The right-of-use assets are initially recognized at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or prior to the commencement date of the lease plus any initial direct costs less any lease incentives. They are subsequently measured at cost less accumulated depreciation and impairment losses.
The Company primarily uses incremental borrowing rate, which is based on the information available at the lease commencement date, in determining the present value of the lease payments.
A right-of-use asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (short-term leases) and low value leases. For these short-term and low value leases, the Company recognizes lease payments as operating expense as incurred over the lease term.
The Company has also elected practical expedient available within the standard:
⢠not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component.
⢠relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review - there were no onerous contracts as at 1 April 2019
⢠excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application, and
⢠using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
Financial assets and financial liabilities are recognised when a company becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit and loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit and loss are recognised immediately in Statement of Profit and Loss.
All purchases or sales of financial assets are recognised and derecognised on a trade date basis including delivery of assets within the time frame established by regulation or convention in the marketplace.
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.
i. Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition) :
a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
b) the contractual terms of the instrument give rise on specified date to cash flows that are solely payments of principal and interest on the principal and interest on the principal amount outstanding.
Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive income (FVTOCI) (except for debt instruments that are designated as at fair value through profit or loss on initial recognition) :
a) the asset is held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets; and
b) the contractual terms of the instrument give rise on specified date to cash flows that are solely payments of principal and interest on the principal and interest on the principal amount outstanding.
Interest income is recognised in profit and loss for FVTOCI debt instruments. For the purposes of recognising foreign exchange gains and losses, FVTOCI debt instruments are treated as financial assets measured at amortised cost. Thus, the exchange differences on the amortised cost are recognised in profit and loss and other changes in the fair value of FVTOCI financial assets are recognised in other comprehensive income and accumulated under the heading of âReserve for debt instruments through other comprehensive incomeâ. When the investment is disposed of, the cumulative gain or loss previously accumulated in this reserve is reclassified to the Statement of Profit and Loss.
All other financial assets are subsequently measured at fair value.
The effective interest method is a method of calculating the amortised cost of debt instrument and of allocating interest over the relevant period. The effective interest rate is the rate that discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income recognised on an effective interest basis for debt instruments other than those financial assets classified as FVTPL. Interest income is recognised in profit and loss and is included in âOther incomeâ.
iii. Financial assets at fair value through profit or loss (FVTPL):
Investments in equity instruments are classified as FVTPL, unless the Company irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for investment in equity instruments which are not held for trading.
Debt instruments that do not meet the amortised cost criteria or FVTOCI criteria are measured at FVTPL. In addition, debt instruments that meet amortised cost criteria or FVTOCI criteria but are designated as at FVTPL are measured at FVTPL.
A financial asset that meets the amortised cost criteria or debt instruments that meet FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduced a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporate any dividend or interest earned on the financial asset and is included in âOther incomeâ. Dividend on financial asset at FVTPL is recognised when the Companyâs right to receive the dividends is established, it is probable that economic benefits associated with dividend will flow to the entity, the dividend does not represent recovery of part of cost of the investment and the amount of dividend can be measured reliably.
iv. Impairment of financial assets
The Company applies the expected credit loss model for recognising impairment loss on financial assets measured at amortised cost, debt instrument at FVTOCI, trade receivables, other contractual right to receive cash or other financial asset, and financial guarantees not designated as at FVTPL.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the company in accordance with the contract and all the cash flows that the company expects to receive, discounted at the original effective interest rate (or credit-Adjusted effective interest rate for purchased or originated credit-impaired financial assets). The Company estimates cash flows by considering all contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) through the expected life of that financial instrument.
The Company measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the company measures the loss allowance for that financial instrument at an amount equal to 12 month expected credit losses. 12 month expected credit losses are portion of the life-time expected credit losses and represent the lifetime cash shortfalls that will result if default occurs within the 12 months after the reporting date and thus, are not cash shortfalls that are predicted over the next 12 months.
If the Company measured loss allowance for a financial instrument at lifetime expected credit loss model in the previous period, but determines at the end of a reporting period that the credit risk has not increased significantly since initial recognition due to improvement in credit quality as compared to the previous period, the company again measures the loss allowance based on 12 month expected credit losses.
When making the assessment of whether there has been a significant increase in credit risk since initial recognition, the Company uses the change in the risk of a default accruing over the expected life of the financial instrument instead of the change in the amount of expected credit losses. To make that assessment, the Company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition.
For trade receivables or any contractual right to receive cash or another financials asset that results from transactions that are within the scope of Ind AS 115, the Company measures the loss allowance at an amount equal to lifetime expected credit losses.
Further, for the purpose of measuring lifetime expected credit loss allowance for trade receivables, the Company has used a practical expedient as permitted under Ind AS 109. This expected credit loss allowance is computed based on a provision matrix based on judgement considering past experience.
The impairment requirements for the recognition and measurement of a loss allowance are equally applied to debt instruments at FVTOCI expect that the loss allowance is recognised in other comprehensive income and is not reduced from the carrying amount in the balance sheet.
v. Derecognition of financial assets
The Company derecognises a financial asset when the contractual rights to the cash flow from the asset expired or when it transfer the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred assets the Company recognises its retained interest in the asset and then associated liability for amounts it may have to pay.
On derecognition of a financial asset in its entirety, the difference between the assetâs carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss if such gain or loss would have otherwise been recognised in profit or loss on disposal of that financial assets.
On derecognition of a financial asset other than in its entirety, the Company allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of relative fair values of those part on the date of the transfer. The difference between carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit and loss if such gain or loss would have otherwise been recognised in profit and loss on disposal of that financial asset. A cumulative gain or loss that has been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair value of those parts.
vi. Foreign exchange gains and losses
The fair value of financial assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.
For foreign currency denominated financial assets measured at amortised cost and FVTPL, the exchange differences are recognised in profit and loss.
Changes in the carrying amount of investments in equity instruments at FVTOCI relating to changes in foreign currency rates are recognised in other comprehensive income.
For the purposes of recognising foreign exchange gains and losses, FVTOCI debt instruments are treated as financial assets measured amortised cost. Thus, the exchange difference on the amortised cost are recognised in profit and loss and other changes in the fair value of FVTOCI financial assets are recognised in other comprehensive income.â
vii. Derivative financial instruments and hedge accounting
In the ordinary course of business, the Company uses certain derivative financial instruments to reduce business risks which arise from its exposure to foreign exchange fluctuations. The instruments are confined principally to foreign exchange forward contracts. The instruments are employed as hedges of transactions included in the financial statements or for highly probable forecast transactions/firm contractual commitments. These derivatives contracts do not generally extend beyond six months.
Derivatives are initially accounted for and measured at fair value from the date the derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period.
The Company adopts hedge accounting for forward contracts. At the inception of each hedge, there is a formal, documented designation of the hedging relationship. This documentation includes, inter alia, items such as identification of the hedged item or transaction and the nature of the risk being hedged. At inception each hedge is expected to be highly effective in achieving an offset of changes in fair value or cash flows attributable to the hedged risk. The effectiveness of hedge instruments to reduce the risk associated with the exposure being hedged is assessed and measured at the inception and on an ongoing basis. The ineffective portion of designated hedges is recognised immediately in the statement of profit and loss.
When hedge accounting is applied:
a. for fair value hedges of recognised assets and liabilities, changes in fair value of the hedged assets and liabilities attributable to the risk being hedged, are recognised in the statement of profit and loss and compensate for the effective portion of symmetrical changes in the fair value of the derivatives.
b. for cash flow hedges, the effective portion of the change in the fair value of the derivative is recognised directly in equity and the ineffective portion is taken to the statement of profit and loss. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of a nonfinancial asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of a non-financial asset or a liability, amounts deferred in equity are recognised in the statement of profit and loss in the same period in which the hedged item affects the statement of profit and loss.
In cases where hedge accounting is not applied, changes in the fair value of derivatives are recognised in the statement of profit and loss as and when they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the statement of profit and loss for the period.
P. Financial Liabilities and Equity Instrumentsi. Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of financial liability and equity instrument.
An equity instrument is any contract that evidences residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue cost.
All financial liabilities are subsequently measured at amoritised cost using effective interest method of FVTPL.
iii. a) Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is held for trading or designated as at FVTPL.
Financial liability at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit and loss. The net gain or loss recognised in profit and loss incorporates any interest paid on the financial liability and is included in âOther Incomeâ.
b) Financial liabilities subsequently measured at amortised cost
âFinancial liabilities that are not held for trading and are not designated as at FVTPL are measured at amortised cost at the end of subsequent accounting periods. The carrying amount of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method. Interest expenses that is not capitalised as part of cost of an asset is included in âfinance costâ.
The effective interest method is a method of calculating the amoritised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition."
c) Foreign exchange gains and losses
âFor financial liabilities that are denominated in a foreign currency and are measured at amortised cost at the end of each reporting period, the foreign exchange gains and losses are determined based on the amortised cost of the instrument and are recognised in other income. The fair value of financial liabilities denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. For financial liability
that are measured at FVTPL, the foreign exchange component forms part of fair value gains or losses and is recognised in the Statement of Profit and Loss.â
iv) Derecognition of financial liabilities
The Company derecognises financial liability when, and only when, the Company obligations are discharged, cancelled and have expired. An exchange between with a lender of debt instrument is substantially different term is accounted for as and extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of a term of existing financial liability is accounted for as and extinguishment of the original financial liability and recognition of new financial liability. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit and loss.
Q. New Accounting Standards, Amendments to Existing Standards, Annual Improvements, Interpretations, etc applicable to the Company effective subsequent to March 31,2021
Ministry of Corporate Affairs (âMCAâ) notifies new standards or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. On March 23, 2022, MCA amended the Companies (Indian Accounting Standards) Amendment Rules, 2022, as below.
Ind AS 16 - Property Plant and equipment -
The amendment clarifies that excess of net sale proceeds of items produced over the cost of testing, if any, shall not be recognised in the profit or loss but deducted from the directly attributable costs considered as part of cost of an item of property, plant, and equipment. The effective date for adoption of this amendment is annual periods beginning on or after April 1, 2022. The Company has evaluated the amendment and there is no impact on its financial statements.
Ind AS 37 - Provisions, Contingent Liabilities and Contingent Assets -
The amendment specifies that the âcost of fulfillingâ a contract comprises the âcosts that relate directly to the contractâ. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract). The effective date for adoption of this amendment is annual periods beginning on or after April 1, 2022, although early adoption is permitted. The Company has evaluated the amendment and the impact is not expected to be material.
Note 3 - Critical Judgements, estimations and assumptions in applying Accounting Policies
âIn the application of the Companyâs accounting policies, which are described in note 2, the directors of the company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.â
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
1. The preparation of financial statements involves estimates and assumptions that affect the reported amount of assets, liabilities, disclosure of contingent liabilities at the date of financial statements and the reported amount of revenues and expenses for the reporting period. Specifically, the Company estimates the probability of collection of accounts receivable by analyzing historical payment patterns, customer concentrations, customer credit-worthiness and current economic trends. If the financial condition of a customer deteriorates, additional allowances may be required.
2. The Company uses the percentage-of-completion method in accounting for its contract revenue. Use of the percentage-of-completion method requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the expected contract estimates at the reporting date.â
3. The stock compensation expense is determined based on the Companyâs estimate of equity instruments that will eventually vest.
4. Provision for warranty is considered based on the rolling average warranty expense incurred in the preceding 12 months , the warranty period for which ranges from 12 months to 24 months as per provisions of the contracts.
5. In case of Property, Plant and Equipment and Intangible assets, the charge in respect of periodic depreciation/ amortisation is derived after determining an estimate of an assetâs expected useful life and the expected residual value at the end of its life. The useful lives and residual values of Companyâs assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology.â
6. Ind AS 116 requires lessee to determine the lease term as the non-cancellable period of a lease adjusted with any option to extend or terminate the lease, if the use of such option is reasonably certain. The Company makes an assessment on the expected lease term on a lease-by-lease basis and thereby assesses whether it is reasonably certain that any options to extend or terminate the contract will be exercised. In evaluating the lease term, the Company considers factors such as any significant leasehold improvements undertaken over the lease term, costs relating to the termination of the lease and the importance of the underlying asset to the Companyâs operations taking into account the location of the underlying asset and the availability of suitable alternatives. The lease term in future periods is reassessed to ensure that the lease term reflects the current economic circumstances. After considering current and future economic conditions, the company has concluded that no material changes are required to lease period relating to the existing lease contracts. Refer note no 2 (M).
Mar 31, 2021
Note 1 - General Information:
Honeywell Automation India Limited (the âCompanyâ) is engaged primarily in the business of Automation & Control systems on turnkey basis and otherwise. The Company is a public limited company incorporated and domiciled in India and has its registered office at 56,57 Hadapsar Industrial Estate, Pune - 411013, Maharashtra, India. The Company is listed on the Bombay Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE). The financial statements are approved for issue by the Companyâs Board of Directors on May 31,2021.
Note 2 - Significant Accounting Policies:A. Statement of Compliance
These financial statements are prepared in accordance with Indian Accounting Standard (Ind AS), under the historical cost convention on the accrual basis except for certain financial instruments which are measured at fair values, the provisions of the Companies Act, 2013 (âthe Actâ) (to the extent notified) and guidelines issued by the Securities and Exchange Board of India (SEBI). The Ind AS are prescribed under Section 133 of the Act read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and relevant amendment rules issued there after.
Operating cycle for current and non-current classification :
All assets and liabilities have been classified as current or non-current as per the Companyâs operating cycle, based on the duration of the specified project/contract/product line/service including the defect liability period, wherever applicable and extends up to the realization of receivables (including retention monies) within the agreed credit period normally applicable to this industry.
B. Basis of Preparation and Presentation
The financial statements have been prepared on a historical cost convention and on an accrual basis, except for the following material items that have been measured at fair value as required by relevant Ind AS:
i) Derivative financial instruments
ii) Certain financial assets and financial liabilities measured at fair values (as required by the relevant Ind AS)
iii) Share based payment transactions and
iv) Defined benefit and other long term employee benefits
Historical cost is generally based on the fair value of the consideration given in exchange of goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the assets or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and disclosure purpose in these financial statement is determined on such basis, except for share-based transactions that are within scope of Ind AS 102, leasing transactions that are within the scope of Ind AS 116, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in Ind AS 2 or value in use in Ind AS 36.
For financial reporting purposes, fair value measurements are categorised into Level 1, 2, or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
Level 1 Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 Inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly;
Level 3 Inputs are unobservable inputs for the asset or liability.
Amounts in the financial statements are presented in Indian Rupees in lakhs and rounded off as permitted by Schedule III to the Companies Act, 2013. Per share data are presented in Indian Rupees to two decimal places.
C. Property, Plant and Equipment
Property, Plant and Equipment are stated at acquisition cost, net of accumulated depreciation and accumulated impairment losses, if any.
Items of Property, Plant and Equipment that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements. Any expected loss is recognised immediately in the Statement of Profit and Loss.
Losses arising from the retirement of, and gains or losses arising from disposal of Property, Plant and Equipment are recognised in the Statement of Profit and Loss.
Freehold land is not depreciated.
The Company depreciates Property, Plant and Equipment over their estimated useful lives using the straight-line method. The estimated useful lives of assets are as follows:
Buildings 30 years
Plant and Machinery* 10 years
Test Equipment* 4 - 10 years
Computers and Networks 3 - 5 years
Vehicles* 4 - 5 years
Office Equipment 5 - 6 years
Furniture and Fixture 5 - 10 years
* Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.
Assets installed in leased premises are depreciated over lease period or useful life of assets whichever is lower.
The estimated useful life of the Property, Plant and Equipment are reviewed at the end of each financial year, with the effect of any changes in estimate accounted for on a prospective basis.
D. Intangible Assets and Amortization
Intangible assets are stated at acquisition cost, net of accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortised on a straight line basis over their estimated useful lives. The amortisation period and the amortisation method are reviewed at each financial year end. If the expected useful life of the asset is significantly different from previous estimates, the amortisation period is changed accordingly. Losses arising from the retirement of, gain or losses arising from disposal of an intangible asset are recognised in the Statement of Profit and Loss. The Purchased Software are amortized over a period of 3 years.
The estimated useful life of the intangible assets are reviewed at the end of each financial year, with the effect of any changes in estimate accounted for on a prospective basis.
E. Impairment of Property, Plant and Equipment and Intangible Assets
Assessment is done at each Balance Sheet date as to whether there is any indication that an asset (property, plant and equipment and intangible) may be impaired. For the purpose of assessing impairment, the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets, is considered as a cash generating unit. If any such indication exists, an estimate of the recoverable amount of the asset/cash generating unit is made. Assets whose carrying value exceeds their recoverable amount are written down to the recoverable amount. Recoverable amount is higher of an assetâs or cash generating unitâs net selling price and its value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Assessment is also done at each Balance Sheet date as to whether there is any indication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased.
Inventories comprise of raw material, work in progress, finished goods, stock in trade and are stated at lower of cost and net realisable value. Cost is determined using the technique of standard cost method, which approximates the actual cost using the Moving Weighted Average basis. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.
i) The Company earns revenue primarily from turnkey projects with respect to automation and related control systems, AMC services and other business solutions.
Revenue from construction of plants and systems with performance obligations satisfied over time are recognized using input method. Revenue from such contracts is recognized over time because of the continuous transfer of control to the customer. With control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Cost based input method of progress is used because it best depicts the transfer of control to the customer that occurs as costs are incurred. Under the cost based cost method, the extent of progress towards completion is measured based on the proportion of costs incurred to date to the total estimated costs at completion of the performance obligation. Cost estimates on significant contracts are reviewed on a periodic basis, or when circumstances change and warrant a modification to a previous estimate. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends
and other economic projections. Significant factors that influence these estimates include if the desired site is made available on time, inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization and anticipated labour agreements. Provisions for anticipated losses on long-term contracts are recorded in full when such losses become evident, to the extent required.
ii) Revenue from contract with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration Company expects to be entitled in exchange for those goods or services. Service sales, principally representing software development are recognized over the contractual period or as services are rendered.
iii) The terms of a contract or the historical business practice can give rise to variable consideration due to, but not limited to, cash-based incentives, rebates, performance awards, or credits. Variable consideration is estimated at the most likely amount receivable from customers. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available.
iv) A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration excluding any amounts presented as a receivable.
v) A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract.
H. Foreign Currency Transactionsi) Functional currency
The functional currency of the Company is the Indian rupee. These financial statements are presented in Indian rupees (rounded off to Lakhs).
On initial recognition, all foreign currency transactions are recorded by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the transaction.
As at the reporting date, 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. All 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.
All monetary assets and liabilities in foreign currency are restated at the end of accounting period. Exchange differences on restatement of all other monetary items are recognised in the Statement of Profit and Loss.
The Company participates in various employee benefit plans. Post-employment benefits are classified as either defined contribution plans or defined benefit plans:
Contribution towards superannuation fund for certain employees is made to the Life Insurance Corporation, where the Company has no further obligations. Such benefits are classified as Defined Contribution Schemes as the Company does not carry any further obligations, apart from the contributions made on a monthly basis.
Provident Fund contributions are made to a Trust administered by the Company. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of the period/ year and any shortfall in the fund size maintained by the Trust set up by the Company is additionally provided for.
The Company provides for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees in accordance with the Payment of Gratuity Act, 1972 (as amended from time to time). The Gratuity Plan provides a lump sum payment to eligible employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employeeâs salary and the tenure of employment. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of each reporting period.
Accumulated compensated absences, which are expected to be availed or encashed within 12 months from the end of the year end are treated as short term employee benefits. The obligation towards the same is measured at the expected cost of accumulating compensated absences as the additional amount expected to be paid as a result of the unused entitlement as at the year end.
Termination benefits in the nature of voluntary retirement benefits are recognised in the Statement of Profit and Loss as and when incurred.
Actuarial gain or losses and remeasurements:
Actuarial gains or losses on defined benefit obligations are recognized in other comprehensive income. Further, the profit or loss does not include an expected return on plan assets. Instead net interest recognized in profit and loss is calculated by applying the discount rate used to measure the defined benefit obligation to the net defined benefit liability or asset. The actual return on the plan assets above or below the discount rate is recognized as part of re-measurement of net defined liability or asset through other comprehensive income.
Remeasurements comprising actuarial gains or losses and return on plan assets (excluding amounts included in net interest on the net defined benefit liability) are not reclassified to profit and loss in subsequent periods.
Certain employees of the Company receive remuneration in the form of equity settled instruments given by the ultimate holding company (Honeywell International Inc.), for rendering services over a defined vesting period. Equity instruments granted are measured by reference to the fair value of the instrument at the date of grant.
The expense is recognized in the statement of profit and loss with a corresponding increase to the share based payment reserve, as a component of equity. The equity instruments generally vest in a graded manner over the vesting period. The fair value determined at the grant date is expensed over the vesting period of the respective tranches of such grants. The stock compensation expense is determined based on the Companyâs estimate of equity instruments that will eventually vest.
Tax expense for the period, comprising current tax and deferred tax, are included in the determination of the net profit or loss for the period.
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws prevailing in the respective jurisdictions. Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle the asset and the liability on a net basis.
Deferred tax:-
Deferred tax is recognized using the balance sheet approach. Deferred tax assets and liabilities are recognized for deductible and taxable temporary differences arising between the tax base of assets and liabilities and their carrying amount in financial statements.
Deferred tax asset are recognized to the extent that it is probable that taxable profit will be available against which such deferred tax assets can be realised.The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred tax liabilities are recognized for all taxable temporary differences.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off assets against liabilities representing current tax and where the deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws.
L. Provisions and Contingencies
Provisions: Provisions are recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and there is a reliable estimate of the amount of the obligation. Provisions are measured at the best estimate of the expenditure required to settle the present obligation at the Balance sheet date and are discounted to its present value as appropriate.
Provisions for onerous contracts are recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. Provisions for onerous contracts are measured at the present value of lower of the expected net cost of fulfilling the contract and the expected cost of terminating the contract.
Contingent Liabilities: Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made, is termed as a contingent liability.
Contingent assets are disclosed where an inflow of economic benefits is probable.
Provisions, contingent liabilities and contingent assets are reviewed at each Balance Sheet date. Where the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under such contract, the present obligation under the contract is recognised and measured as a provision.
The Company has adopted Ind AS 116 with effect from April 1,2019 and applied the standard to all lease contracts existing on that date using the modified retrospective method, recognizing the cumulative effect of initially applying this standard as an adjustment to âright-of-use assetâ as on April 1,2019.
At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The assessment is based on:
(1) whether the contract involves the use of a distinct identified asset,
(2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and
(3) whether the Company has the right to direct the use of the asset.
The Company has hired office premises under non-cancelable operating lease arrangements at stipulated rentals.
Right-of-use assets represent right to use an underlying asset during the reasonably certain lease term, and lease liabilities represent obligation to make lease payments arising from the lease. The lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
The Company measures the lease liability at the present value of the lease payments that are not paid at the commencement date of the lease. The lease liability is subsequently remeasured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised insubstance lease payments.
The right-of-use assets are initially recognized at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or prior to the commencement date of the lease plus any initial direct costs less any lease incentives. They are subsequently measured at cost less accumulated depreciation and impairment losses.
The Company primarily uses incremental borrowing rate, which is based on the information available at the lease commencement date, in determining the present value of the lease payments.
A right-of-use asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (short-term leases) and low value leases. For these short-term and low value leases, the Company recognizes lease payments as operating expense as incurred over the lease term.
The Company has also elected practical expedient available within the standard:
⢠Not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component.
⢠Relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review - there were no onerous contracts as at 1 April 2019
⢠Excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application, and
⢠Using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
Financial assets and financial liabilities are recognised when a company becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit and loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit and loss are recognised immediately in Statement of Profit and Loss.
All purchases or sales of financial assets are recognised and derecognised on a trade date basis including delivery of assets within the time frame established by regulation or convention in the marketplace.
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value , depending on the classification of the financial assets
i. Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition) :
a) The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
b) The contractual terms of the instrument give rise on specified date to cash flows that are solely payments of principal and interest on the principal and interest on the principal amount outstanding.
Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive income (FVTOCI) (except for debt instruments that are designated as at fair value through profit or loss on initial recognition) :
a) The asset is held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets; and
b) The contractual terms of the instrument give rise on specified date to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Interest income is recognised in profit and loss for FVTOCI debt instruments. For the purposes of recognising foreign exchange gains and losses, FVTOCI debt instruments are treated as financial assets measured at amortised cost. Thus, the exchange differences on the amortised cost are recognised in profit and loss and other changes in the fair value of FVTOCI financial assets are recognised in other comprehensive income and accumulated under the heading of âReserve for debt instruments through other comprehensive incomeâ. When the investment is disposed of, the cumulative gain or loss previously accumulated in this reserve is reclassified to the Statement of Profit and Loss.
All other financial assets are subsequently measured at fair value.
The effective interest method is a method of calculating the amortised cost of debt instrument and of allocating interest over the relevant period. The effective interest rate is the rate that discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income recognised on an effective interest basis for debt instruments other than those financial assets classified as FVTPL. Interest income is recognised in profit and loss and is included in âOther incomeâ.
iii. Financial assets at fair value through profit or loss (FVTPL):
Investments in equity instruments are classified as FVTPL, unless the Company irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for investment in equity instruments which are not held for trading.
Debt instruments that do not meet the amortised cost criteria or FVTOCI criteria are measured at FVTPL. In addition, debt instruments that meet amortised cost criteria or FVTOCI criteria but are designated as at FVTPL are measured at FVTPL.
A financial asset that meets the amortised cost criteria or debt instruments that meet FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduced a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporate any dividend or interest earned on the financial asset and is included in âOther incomeâ. Dividend on financial asset at FVTPL is recognised when the Companyâs right to receive the dividends is established, it is probable that economic benefits associated with dividend will flow to the entity, the dividend does not represent recovery of part of cost of the investment and the amount of dividend can be measured reliably.
iv. Impairment of financial assets
The Company applies the expected credit loss model for recognising impairment loss on financial assets measured at amortised cost, debt instrument at FVTOCI, trade receivables, other contractual right to receive cash or other financial asset, and financial guarantees not designated as at FVTPL.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the company in accordance with the contract and all the cash flows that the company expects to receive, discounted at the original effective interest rate (or credit-Adjusted effective interest rate for purchased or originated credit-impaired financial assets). The Company estimates cash flows by considering all contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) through the expected life of that financial instrument.
The Company measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the company measures the loss allowance for that financial instrument at an amount equal to 12 month expected credit losses. 12 month expected credit losses are portion of the life-time expected credit losses and represent the lifetime cash shortfalls that will result if default occurs within the 12 months after the reporting date and thus, are not cash shortfalls that are predicted over the next 12 months.
If the Company measured loss allowance for a financial instrument at lifetime expected credit loss model in the previous period, but determines at the end of a reporting period that the credit risk has not increased significantly since initial recognition due to improvement in credit quality as compared to the previous period, the company again measures the loss allowance based on 12 month expected credit losses.
When making the assessment of whether there has been a significant increase in credit risk since initial recognition, the Company uses the change in the risk of a default accruing over the expected life of the financial instrument instead of the change in the amount of expected credit losses. To make that assessment, the Company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition.
For trade receivables or any contractual right to receive cash or another financials asset that results from transactions that are within the scope of Ind AS 115, the Company measures the loss allowance at an amount equal to lifetime expected credit losses.
Further, for the purpose of measuring lifetime expected credit loss allowance for trade receivables, the Company has used a practical expedient as permitted under Ind AS 109. This expected credit loss allowance is computed based on a provision matrix based on judgement considering past experience.
The impairment requirements for the recognition and measurement of a loss allowance are equally applied to debt instruments at FVTOCI expect that the loss allowance is recognised in other comprehensive income and is not reduced from the carrying amount in the balance sheet.
v. Derecognition of financial assets
The Company derecognises a financial asset when the contractual rights to the cash flow from the asset expired or when it transfer the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred assets the Company recognises its retained interest in the asset and then associated liability for amounts it may have to pay.
On derecognition of a financial asset in its entirety, the difference between the assetâs carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss if such gain or loss would have otherwise been recognised in profit or loss on disposal of that financial assets.
On derecognition of a financial asset other than in its entirety, the Company allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of relative fair values of those part on the date of the transfer. The difference between carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit and loss if such gain or loss would have otherwise been recognised in profit and loss on disposal of that financial asset. A cumulative gain or loss that has been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair value of those parts.
vi. Foreign exchange gains and losses
The fair value of financial assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.
For foreign currency denominated financial assets measured at amortised cost and FVTPL, the exchange differences are recognised in profit and loss.
Changes in the carrying amount of investments in equity instruments at FVTOCI relating to changes in foreign currency rates are recognised in other comprehensive income.
For the purposes of recognising foreign exchange gains and losses, FVTOCI debt instruments are treated as financial assets measured amortised cost. Thus, the exchange difference on the amortised cost are recognised in profit and loss and other changes in the fair value of FVTOCI financial assets are recognised in other comprehensive income.
vii. Derivative financial instruments and hedge accounting
In the ordinary course of business, the Company uses certain derivative financial instruments to reduce business risks which arise from its exposure to foreign exchange fluctuations. The instruments are confined principally to foreign exchange forward contracts. The instruments are employed as hedges of transactions included in the financial statements or for highly probable forecast transactions/firm contractual commitments. These derivatives contracts do not generally extend beyond six months.â
Derivatives are initially accounted for and measured at fair value from the date the derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period
The Company adopts hedge accounting for forward contracts. At the inception of each hedge, there is a formal, documented designation of the hedging relationship. This documentation includes, inter alia, items such as identification of the hedged item or transaction and the nature of the risk being hedged. At inception each hedge is expected to be highly effective in achieving an offset of changes in fair value or cash flows attributable to the hedged risk. The effectiveness of hedge instruments to reduce the risk associated with the exposure being hedged is assessed and measured at the inception and on an ongoing basis. The ineffective portion of designated hedges is recognised immediately in the statement of profit and loss.
When hedge accounting is applied:
a. for fair value hedges of recognised assets and liabilities, changes in fair value of the hedged assets and liabilities attributable to the risk being hedged, are recognised in the statement of profit and loss and compensate for the effective portion of symmetrical changes in the fair value of the derivatives.
b. for cash flow hedges, the effective portion of the change in the fair value of the derivative is recognised directly in equity and the ineffective portion is taken to the statement of profit and loss. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of a non-financial asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of a non-financial asset or a liability, amounts deferred in equity are recognised in the statement of profit and loss in the same period in which the hedged item affects the statement of profit and loss.
In cases where hedge accounting is not applied, changes in the fair value of derivatives are recognised in the statement of profit and loss as and when they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the statement of profit and loss for the period.
P. Financial Liabilities and Equity Instrumentsi. Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of financial liability and equity instrument.
An equity instrument is any contract that evidences residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue cost.
All financial liabilities are subsequently measured at amoritised cost using effective interest method of FVTPL.
iii. a) Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is held for trading or designated as at FVTPL.
Financial liability at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit and loss. The net gain or loss recognised in profit and loss incorporates any interest paid on the financial liability and is included in âOther Incomeâ.
b) Financial liabilities subsequently measured at amortised cost
Financial liabilities that are not held for trading and are not designated as at FVTPL are measured at amortised cost at the end of subsequent accounting periods. The carrying amount of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method. Interest expenses that is not capitalised as part of cost of an asset is included in âfinance costâ.
The effective interest method is a method of calculating the amoritised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
c) Foreign exchange gains and losses
For financial liabilities that are denominated in a foreign currency and are measured at amortised cost at the end of each reporting period, the foreign exchange gains and losses are determined based on the amortised cost of the instrument and are recognised in other income. The fair value of financial liabilities denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. For financial liability that are measured at FVTPL, the foreign exchange component forms part of fair value gains or losses and is recognised in the Statement of Profit and Loss.
iv) Derecognition of financial liabilities
The Company derecognises financial liability when, and only when, the Company obligations are discharged, cancelled and have expired. An exchange between with a lender of debt instrument is substantially different term is accounted for as and extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of a term of existing financial liability is accounted for as and extinguishment of the original financial liability and recognition of new financial liability. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit and loss.
Q. Estimation of uncertainties relating to the global health pandemic from COVID-19 (COVID-19):
The Company has evaluated and factored in the possible impact that may result from the pandemic relating to COVID-19 on the carrying value of itâs assets and liabilities at March 31, 2021. Based on current indicators of future economic conditions, the Company expects to recover the carrying amount of these assets. The impact on the financial statements for the year ended March 31,2021 because of events and developments beyond the date of approval of these financial statements may differ from that estimated as at the date of approval of these financial statements and will be recognized prospectively.
The global markets continue to experience significant volatility due to the COVID-19 pandemic. The economic and business environment emanating from the disruption of this pandemic is still evolving and the Company is proactively managing its businesses as developments and events unfold. The duration and severity of this pandemic cannot be reasonably estimated. The extent of the impact on the Companyâs business operations, cash flows, assets and liabilities will depend on numerous evolving factors that currently cannot be reasonably assessed, including: the duration, scope and severity of the pandemic; Governmental, business and individual decisions and actions; the impact of the pandemic on economic activity; and the extent to which the Company or employees, customers, suppliers, service providers or other business partners may be prevented from conducting normal business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by Governmental authorities.
The Company has business presence in diversified industries and a robust portfolio of customers and suppliers which greatly helps in such situations. However, the impact on future revenue could come from inability of customers to continue their businesses due to financial resource constraints, prolonged lock-down situation; customers postponing their discretionary spend due to change in priorities; customers expecting a change in billing and delivery patterns and extended credit terms.
The Company has considered all events and circumstances up-to the date of approval of these financial statements, and believes that the carrying value of assets and liabilities as reflected in the financial statements at March 31, 2021 is appropriate. The impact and assessment related to specific items of the financial statements is stated under the respective notes to financial statements.
R. New Accounting Standards, Amendments to Existing Standards, Annual Improvements, Interpretations, etc applicable to the Company effective subsequent to March 31,2021
On March 24, 2021, the Ministry of Corporate Affairs (âââMCAââ) through a notification, amended Schedule III of the Companies Act, 2013. The amendments revise Division I, II and III of Schedule III and are applicable from April 1, 2021. Key amendments relating to Division II which relate to companies whose financial statements are required to comply with Companies (Indian Accounting Standards) Rules 2015 are:
Balance Sheet:
a) Lease liabilities should be separately disclosed under the head âfinancial liabilitiesâ, duly distinguished as current or non-current.
b) Certain additional disclosures in the statement of changes in equity such as changes in equity share capital due to prior period errors and restated balances at the beginning of the current reporting period.
c) Specified format for disclosure of shareholding of promoters.
d) Specified format for ageing schedule of trade receivables, trade payables, capital work-in-progress and intangible asset under development.
e) If a company has not used funds for the specific purpose for which it was borrowed from banks and financial institutions, then disclosure of details of where it has been used.
f) Specific disclosure under âadditional regulatory requirementâ such as compliance with approved schemes of arrangements, compliance with number of layers of companies, title deeds of immovable property not held in name of company, loans and advances to promoters, directors, key managerial personnel (KMP) and related parties, details of benami property held etc.
a) Additional disclosures relating to Corporate Social Responsibility (CSR), undisclosed income and crypto or virtual currency specified under the head âadditional informationâ in the notes forming part of consolidated financial statements.
The amendments are extensive and the Company will evaluate the same to give effect to them as required by law.
In the application of the Companyâs accounting policies, which are described in note 2, the directors of the company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
1. The preparation of financial statements involves estimates and assumptions that affect the reported amount of assets, liabilities, disclosure of contingent liabilities at the date of financial statements and the reported amount of revenues and expenses for the reporting period. Specifically, the Company estimates the probability of collection of accounts receivable by analyzing historical payment patterns, customer concentrations, customer creditworthiness and current economic trends. If the financial condition of a customer deteriorates, additional allowances may be required.
2. The Company uses the percentage-of-completion method in accounting for its contract revenue. Use of the percentage-of-completion method requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the expected contract estimates at the reporting date.
3. The stock compensation expense is determined based on the Companyâs estimate of equity instruments that will eventually vest.
4. Provision for warranty is considered based on the rolling average warranty expense incurred in the preceding 12 months , the warranty period for which ranges from 12 months to 24 months as per provisions of the contracts.
5. In case of Property, Plant and Equipment and Intangible assets, the charge in respect of periodic depreciation/ amortisation is derived after determining an estimate of an assetâs expected useful life and the expected residual value at the end of its life. The useful lives and residual values of Companyâs assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology.
6. Ind AS 116 requires lessee to determine the lease term as the non-cancellable period of a lease adjusted with any option to extend or terminate the lease, if the use of such option is reasonably certain. The Company makes an assessment on the expected lease term on a lease-by-lease basis and thereby assesses whether it is reasonably certain that any options to extend or terminate the contract will be exercised. In evaluating the lease term, the Company considers factors such as any significant leasehold improvements undertaken over the lease term, costs relating to the termination of the lease and the importance of the underlying asset to the Companyâs operations taking into account the location of the underlying asset and the availability of suitable alternatives. The lease term in future periods is reassessed to ensure that the lease term reflects the current economic circumstances. After considering current and future economic conditions, the company has concluded that no material changes are required to lease period relating to the existing lease contracts. Refer note no 2 (M).
Mar 31, 2019
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
A. Statement of Compliance
These financial statements have been prepared in accordance with the Indian Accounting Standards (Ind AS) prescribed under Section 133 of the Act with the Companies (Indian Accounting Standards) Rules, 2015, as amended, and other accounting principles generally accepted in India.
All assets and liabilities have been classified as current or non-current as per the Companyâs normal operating cycle. Based on the nature of products 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 12 months for the purpose of current - non current classification of assets and liabilities.
B. Basis of Preparation and Presentation
The financial statements have been prepared on a historical cost convention and on an accrual basis, except for the following material items that have been measured at fair value as required by relevant Ind AS:
i) Derivative financial instruments
ii) Certain financial assets and financial liabilities measured at fair values (as required by the relevant Ind AS)
iii) Share based payment transactions and
iv) Defined benefit and other long term employee benefits
Historical cost is generally based on the fair value of the consideration given in exchange of goods and services
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the assets or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and disclosure purpose in these financial statement is determined on such basis, except for share-based transactions that are within scope of Ind AS 102, leasing transactions that are within the scope of Ind AS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in Ind AS 2 or value in use in Ind AS 36.
For financial reporting purposes, fair value measurements are categorised into Level 1, 2, or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly;
Level 3 inputs are unobservable inputs for the asset or liability.
C. Property, Plant and Equipment
Property, Plant and Equipment are stated at acquisition cost, net of accumulated depreciation and accumulated impairment losses, if any.
Items of Property, Plant and Equipment that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements. Any expected loss is recognised immediately in the Statement of Profit and Loss.
Losses arising from the retirement of, and gains or losses arising from disposal of Property, Plant and Equipment are recognised in the Statement of Profit and Loss.
Freehold land is not depreciated.
* Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.
Assets installed in leased premises are depreciated over lease period or useful life of assets whichever is lower.
The estimated useful life of the Property, Plant and Equipment are reviewed at the end of each financial year, with the effect of any changes in estimate accounted for on a prospective basis.
D. Intangible Assets and Amortization
âIntangible assets are stated at acquisition cost, net of accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortised on a straight line basis over their estimated useful lives. The amortisation period and the amortisation method are reviewed at each financial year end. If the expected useful life of the asset is significantly different from previous estimates, the amortisation period is changed accordingly. Losses arising from the retirement of, gain or losses arising from disposal of an intangible asset are recognised in the Statement of Profit and Loss. The Purchased Software are amortized over a period of 3 years.â
The estimated useful life of the intangible assets are reviewed at the end of each financial year, with the effect of any changes in estimate accounted for on a prospective basis.
E. Impairment of Property, Plant and Equipment and Intangible Assets
Assessment is done at each Balance Sheet date as to whether there is any indication that an asset (property, plant and equipment and intangible) may be impaired. For the purpose of assessing impairment, the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets, is considered as a cash generating unit. If any such indication exists, an estimate of the recoverable amount of the asset/cash generating unit is made. Assets whose carrying value exceeds their recoverable amount are written down to the recoverable amount. Recoverable amount is higher of an assetâs or cash generating unitâs net selling price and its value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Assessment is also done at each Balance Sheet date as to whether there is any indication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased.
F. Inventories
Inventories comprise of raw material, work in progress, finished goods, stock in trade and are stated at lower of cost and net realisable value. Cost is determined using the technique of standard cost method, which approximates the actual cost using the Moving Weighted Average basis. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.
G. Revenue Recognition
i) The Company earns revenue primarily from turnkey projects with respect to automation and related control systems, AMC services and other business solutions.
On March 28, 2018, the Ministry of Corporate Affairs (MCA) has notified Indian Accounting Standard (Ind AS) 115 - Revenue from contracts with customers. Ind AS 115 replaces Ind AS 18 Revenue. The Company has adopted Ind AS 115 with effect from April 1, 2018 by using cumulative catch-up transition method applied to contracts that were not completed as on April 1, 2018. In accordance with the cumulative catch-up transition method, the comparatives have not been retrospectively adjusted. Revenue from construction of plants and systems with performance obligations satisfied over time are recognized using input method. Revenue from such contracts is recognized over time because of the continuous transfer of control to the customer. With control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Cost based input method of progress is used because it best depicts the transfer of control to the customer that occurs as costs are incurred. Under the cost based cost method, the extent of progress towards completion is measured based on the proportion of costs incurred to date to the total estimated costs at completion of the performance obligation. Cost estimates on significant contracts are reviewed on a periodic basis, or when circumstances change and warrant a modification to a previous estimate. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections. Significant factors that influence these estimates include if the desired site is made available on time, inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization and anticipated labour agreements. Provisions for anticipated losses on long-term contracts are recorded in full when such losses become evident, to the extent required.
ii) Revenue from contract with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration Company expects to be entitled in exchange for those goods or services. Service sales, principally representing software development are recognized over the contractual period or as services are rendered.
iii) The terms of a contract or the historical business practice can give rise to variable consideration due to, but not limited to, cash-based incentives, rebates, performance awards, or credits. Variable consideration is estimated at the most likely amount receivable from customers. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available.
iv) A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration excluding any amounts presented as a receivable.
v) A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract.
H. Foreign Currency Transactions
i) Functional currency
The functional currency of the Company is the Indian rupee. These financial statements are presented in Indian rupees (rounded off to Lakhs).
ii) Initial Recognition
On initial recognition, all foreign currency transactions are recorded by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the transaction.
iii) Subsequent Recognition
As at the reporting date, 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. All 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.
All monetary assets and liabilities in foreign currency are restated at the end of accounting period. Exchange differences on restatement of all other monetary items are recognised in the Statement of Profit and Loss.
I. Employee Benefits
The Company participates in various employee benefit plans. Post-employment benefits are classified as either defined contribution plans or defined benefit plans:
i) Superannuation fund:
Contribution towards superannuation fund for certain employees is made to the Life Insurance Corporation, where the Company has no further obligations. Such benefits are classified as Defined Contribution Schemes as the Company does not carry any further obligations, apart from the contributions made on a monthly basis.
ii) Provident Fund:
Provident Fund contributions are made to a Trust administered by the Company. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of the period/ year and any shortfall in the fund size maintained by the Trust set up by the Company is additionally provided for.
iii) Gratuity:
The Company provides for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees in accordance with the Payment of Gratuity Act, 1972 (as amended from time to time). The Gratuity Plan provides a lump sum payment to eligible employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employeeâs salary and the tenure of employment. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of each reporting period.
iv) Compensated Absences:
Accumulated compensated absences, which are expected to be availed or encashed within 12 months from the end of the year end are treated as short term employee benefits. The obligation towards the same is measured at the expected cost of accumulating compensated absences as the additional amount expected to be paid as a result of the unused entitlement as at the year end.
v) Termination Benefits:
Termination benefits in the nature of voluntary retirement benefits are recognised in the Statement of Profit and Loss as and when incurred.
Actuarial gain or losses and remeasurements:
Actuarial gains or losses on defined benefit obligations are recognized in other comprehensive income. Further, the profit or loss does not include an expected return on plan assets. Instead net interest recognized in profit and loss is calculated by applying the discount rate used to measure the defined benefit obligation to the net defined benefit liability or asset. The actual return on the plan assets above or below the discount rate is recognized as part of re-measurement of net defined liability or asset through other comprehensive income.
Remeasurements comprising actuarial gains or losses and return on plan assets (excluding amounts included in net interest on the net defined benefit liability) are not reclassified to profit and loss in subsequent periods.
J. Share Based Payments
Certain employees of the Company receive remuneration in the form of equity settled instruments given by the ultimate holding company (Honeywell International Inc.), for rendering services over a defined vesting period. Equity instruments granted are measured by reference to the fair value of the instrument at the date of grant.
The expense is recognized in the statement of profit and loss with a corresponding increase to the share based payment reserve, as a component of equity. The equity instruments generally vest in a graded manner over the vesting period. The fair value determined at the grant date is expensed over the vesting period of the respective tranches of such grants. The stock compensation expense is determined based on the Companyâs estimate of equity instruments that will eventually vest.
K. Income Tax
Tax expense for the period, comprising current tax and deferred tax, are included in the determination of the net profit or loss for the period.
Current tax:
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws prevailing in the respective jurisdictions.
Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle the asset and the liability on a net basis.
Deferred tax:
Deferred tax is recognized using the balance sheet approach. Deferred tax assets and liabilities are recognized for deductible and taxable temporary differences arising between the tax base of assets and liabilities and their carrying amount in financial statements.
Deferred tax asset are recognized to the extent that it is probable that taxable profit will be available against which such deferred tax assets can be realised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred tax liabilities are recognized for all taxable temporary differences.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off assets against liabilities representing current tax and where the deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws.
L. Provisions and Contingencies
Provisions: Provisions are recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and there is a reliable estimate of the amount of the obligation. Provisions are measured at the best estimate of the expenditure required to settle the present obligation at the Balance sheet date and are discounted to its present value as appropriate.
Provisions for onerous contracts are recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. Provisions for onerous contracts are measured at the present value of lower of the expected net cost of fulfilling the contract and the expected cost of terminating the contract.
Contingent Liabilities: Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made, is termed as a contingent liability.
M. Leases
At the inception of a lease, the lease arrangement is classified as either a finance lease or an operating lease, based on the substance of the lease arrangement.
As a lessee:
Leases under which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. When acquired, such assets are capitalized at fair value or present value of the minimum lease payments at the inception of the lease, whichever is lower. Lease payments under operating leases are recognised as an expense on a straight line basis in the statement of profit and loss over the lease term except where the lease payments are structured to increase in line with expected general inflation.
N. Financial Instruments
Financial assets and financial liabilities are recognised when a company becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit and loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit and loss are recognised immediately in Statement of Profit and Loss.
O. Financial Assets
All purchases or sales of financial assets are recognised and derecognised on a trade date basis including delivery of assets within the time frame established by regulation or convention in the marketplace.
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value , depending on the classification of the financial assets
i. Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition) :
a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
b) the contractual terms of the instrument give rise on specified date to cash flows that are solely payments of principal and interest on the principal and interest on the principal amount outstanding.
Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive income (FVTOCI) (except for debt instruments that are designated as at fair value through profit or loss on initial recognition) :
a) the asset is held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets; and
b) the contractual terms of the instrument give rise on specified date to cash flows that are solely payments of principal and interest on the principal and interest on the principal amount outstanding.
Interest income is recognised in profit and loss for FVTOCI debt instruments. For the purposes of recognising foreign exchange gains and losses, FVTOCI debt instruments are treated as financial assets measured at amortised cost. Thus, the exchange differences on the amortised cost are recognised in profit and loss and other changes in the fair value of FVTOCI financial assets are recognised in other comprehensive income and accumulated under the heading of âReserve for debt instruments through other comprehensive incomeâ.
When the investment is disposed of, the cumulative gain or loss previously accumulated in this reserve is reclassified to the Statement of Profit and Loss.
All other financial assets are subsequently measured at fair value.
ii. Effective interest method
The effective interest method is a method of calculating the amortised cost of debt instrument and of allocating interest over the relevant period. The effective interest rate is the rate that discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income recognised on an effective interest basis for debt instruments other than those financial assets classified as FVTPL. Interest income is recognised in profit and loss and is included in âOther incomeâ.
iii. Financial assets at fair value through profit or loss (FVTPL):
Investments in equity instruments are classified as FVTPL, unless the Company irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for investment in equity instruments which are not held for trading.
Debt instruments that do not meet the amortised cost criteria or FVTOCI criteria are measured at FVTPL. In addition, debt instruments that meet amortised cost criteria or FVTOCI criteria but are designated as at FVTPL are measured at FVTPL.
A financial asset that meets the amortised cost criteria or debt instruments that meet FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduced a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporate any dividend or interest earned on the financial asset and is included in âOther incomeâ. Dividend on financial asset at FVTPL is recognised when the Companyâs right to receive the dividends is established, it is probable that economic benefits associated with dividend will flow to the entity, the dividend does not represent recovery of part of cost of the investment and the amount of dividend can be measured reliably.
iv. Impairment of financial assets
The Company applies the expected credit loss model for recognising impairment loss on financial assets measured at amortised cost, debt instrument at FVTOCI, trade receivables, other contractual right to receive cash or other financial asset, and financial guarantees not designated as at FVTPL.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the company in accordance with the contract and all the cash flows that the company expects to receive, discounted at the original effective interest rate (or credit-Adjusted effective interest rate for purchased or originated credit-impaired financial assets). The Company estimates cash flows by considering all contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) through the expected life of that financial instrument.
The Company measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the company measures the loss allowance for that financial instrument at an amount equal to 12 month expected credit losses. 12 month expected credit losses are portion of the life-time expected credit losses and represent the lifetime cash shortfalls that will result if default occurs within the 12 months after the reporting date and thus, are not cash shortfalls that are predicted over the next 12 months.
If the Company measured loss allowance for a financial instrument at lifetime expected credit loss model in the previous period, but determines at the end of a reporting period that the credit risk has not increased significantly since initial recognition due to improvement in credit quality as compared to the previous period, the company again measures the loss allowance based on 12 month expected credit losses.
When making the assessment of whether there has been a significant increase in credit risk since initial recognition, the Company uses the change in the risk of a default accruing over the expected life of the financial instrument instead of the change in the amount of expected credit losses. To make that assessment, the Company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition.
For trade receivables or any contractual right to receive cash or another financials asset that results from transactions that are within the scope of Ind AS 115, the Company measures the loss allowance at an amount equal to lifetime expected credit losses.
Further, for the purpose of measuring lifetime expected credit loss allowance for trade receivables, the Company has used a practical expedient as permitted under Ind AS 109. This expected credit loss allowance is computed based on a provision matrix based on judgement considering past experience.
The impairment requirements for the recognition and measurement of a loss allowance are equally applied to debt instruments at FVTOCI expect that the loss allowance is recognised in other comprehensive income and is not reduced from the carrying amount in the balance sheet.
v. Derecognition of financial assets
The Company derecognises a financial asset when the contractual rights to the cash flow from the asset expired or when it transfer the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred assets the Company recognises its retained interest in the asset and then associated liability for amounts it may have to pay.
On derecognition of a financial asset in its entirety, the difference between the assetâs carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss if such gain or loss would have otherwise been recognised in profit or loss on disposal of that financial assets.
On derecognition of a financial asset other than in its entirety, the Company allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of relative fair values of those part on the date of the transfer. The difference between carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit and loss if such gain or loss would have otherwise been recognised in profit and loss on disposal of that financial asset. A cumulative gain or loss that has been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair value of those parts.
vi. Foreign exchange gains and losses
The fair value of financial assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.
For foreign currency denominated financial assets measured at amortised cost and FVTPL, the exchange differences are recognised in profit and loss.
Changes in the carrying amount of investments in equity instruments at FVTOCI relating to changes in foreign currency rates are recognised in other comprehensive income.
For the purposes of recognising foreign exchange gains and losses, FVTOCI debt instruments are treated as financial assets measured amortised cost. Thus, the exchange difference on the amortised cost are recognised in profit and loss and other changes in the fair value of FVTOCI financial assets are recognised in other comprehensive income.
vii. Derivative financial instruments and hedge accounting
In the ordinary course of business, the Company uses certain derivative financial instruments to reduce business risks which arise from its exposure to foreign exchange fluctuations. The instruments are confined principally to foreign exchange forward contracts. The instruments are employed as hedges of transactions included in the financial statements or for highly probable forecast transactions/firm contractual commitments. These derivatives contracts do not generally extend beyond six months.
Derivatives are initially accounted for and measured at fair value from the date the derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period
The Company adopts hedge accounting for forward contracts. At the inception of each hedge, there is a formal, documented designation of the hedging relationship. This documentation includes, inter alia, items such as identification of the hedged item or transaction and the nature of the risk being hedged. At inception each hedge is expected to be highly effective in achieving an offset of changes in fair value or cash flows attributable to the hedged risk. The effectiveness of hedge instruments to reduce the risk associated with the exposure being hedged is assessed and measured at the inception and on an ongoing basis. The ineffective portion of designated hedges is recognised immediately in the statement of profit and loss.
When hedge accounting is applied:
a. for fair value hedges of recognised assets and liabilities, changes in fair value of the hedged assets and liabilities attributable to the risk being hedged, are recognised in the statement of profit and loss and compensate for the effective portion of symmetrical changes in the fair value of the derivatives.
b. for cash flow hedges, the effective portion of the change in the fair value of the derivative is recognised directly in equity and the ineffective portion is taken to the statement of profit and loss. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of a nonfinancial asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of a non-financial asset or a liability, amounts deferred in equity are recognised in the statement of profit and loss in the same period in which the hedged item affects the statement of profit and loss.
In cases where hedge accounting is not applied, changes in the fair value of derivatives are recognised in the statement of profit and loss as and when they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the statement of profit and loss for the period.
P. Financial Liabilities and Equity Instruments
i. Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of financial liability and equity instrument.
ii. Equity instruments
An equity instrument is any contract that evidences residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue cost.
iii. Financial liabilities
All financial liabilities are subsequently measured at amoritised cost using effective interest method of FVTPL.
iii. a) Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is held for trading or designated as at FVTPL.
Financial liability at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit and loss. The net gain or loss recognised in profit and loss incorporates any interest paid on the financial liability and is included in âOther Incomeâ.
b) Financial liabilities subsequently measured at amortised cost
Financial liabilities that are not held for trading and are not designated as at FVTPL are measured at amortised cost at the end of subsequent accounting periods. The carrying amount of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method. Interest expenses that is not capitalised as part of cost of an asset is included in âfinance costâ. The effective interest method is a method of calculating the amoritised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
c) Foreign exchange gains and losses
For financial liabilities that are denominated in a foreign currency and are measured at amortised cost at the end of each reporting period, the foreign exchange gains and losses are determined based on the amortised cost of the instrument and are recognised in other income. The fair value of financial liabilities denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. For financial liability that are measured at FVTPL, the foreign exchange component forms part of fair value gains or losses and is recognised in the Statement of Profit and Loss.
iv) Derecognition of financial liabilities
The Company derecognises financial liability when, and only when, the Company obligations are discharged, cancelled and have expired. An exchange between with a lender of debt instrument is substantially different term is accounted for as and extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of a term of existing financial liability is accounted for as and extinguishment of the original financial liability and recognition of new financial liability. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit and loss.
Q. New Accounting Standards, Amendments to Existing Standards, Annual Improvements and Interpretations applicable to the Company effective subsequent to March 31, 2019 Ind AS 116 Leases:
Ministry of Corporate Affairs (MCA) notified Ind AS 116 Leases on March 30, 2019. The effective date for adoption of IND AS 116 is financial period beginning on or after April 1, 2019. Ind AS 116 replaces Ind AS 17 from its effective date. The core principle of the new standard is that lessee should recognize a âright-of-use assetâ and a corresponding âlease liabilityâ for its leasing arrangements on their balance sheets. Lessees will use single accounting model for all leases, with limited exceptions. Optional exemption is available in respect of short-term leases and low-value assets.
The standard permits two possible methods of transition:
- Retrospective approach - Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8- Accounting Policies, Changes in Accounting Estimates and Errors.
- Retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application. The effective date for adoption of Ind AS 116 is financial periods beginning on or after April 1, 2019.
The Company will adopt the standard on April 1, 2019 by recognizing the cumulative effect of initially applying this standard as an adjustment to the opening balance of retained earnings at the date of application. Accordingly, comparatives for the year ending or ended March 31, 2019 will not be retrospectively adjusted.
Ind AS 12 Income taxes (amendments relating to income tax consequences of dividend and uncertainty over income tax treatments):
The amendment relating to income tax consequences of dividend clarify that an entity shall recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events. It is relevant to note that the amendment does not amend situations where the entity pays a tax on dividend which is effectively a portion of dividends paid to taxation authorities on behalf of shareholders. Such amount paid or payable to taxation authorities continues to be charged to equity as part of dividend, in accordance with Ind AS 12. The amendment to Appendix C of Ind AS 12 specifies that the amendment is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under Ind AS 12. It outlines the following: (1) the entity has to use judgement, to determine whether each tax treatment should be considered separately or whether some can be considered together. The decision should be based on the approach which provides better predictions of the resolution of the uncertainty (2) the entity is to assume that the taxation authority will have full knowledge of all relevant information while examining any amount (3) entity has to consider the probability of the relevant taxation authority accepting the tax treatment and the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates would depend upon the probability. The Company is in process of evaluating the effect of this on the financial statements.
Ind AS 19 Plan Amendment, Curtailment or Settlement:
The amendments clarify that if a plan amendment, curtailment or settlement occurs, it is mandatory that the current service cost and the net interest for the period after the re-measurement are determined using the assumptions used for the re-measurement. In addition, amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. The Company is in process of evaluating the effect of this on the financial statements.
NOTE 2 - CRITICAL JUDGEMENTS, ESTIMATIONS AND ASSUMPTIONS IN APPLYING ACCOUNTING POLICIES
In the application of the Companyâs accounting policies, which are described in note 2, the directors of the company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
1. The preparation of financial statements involves estimates and assumptions that affect the reported amount of assets, liabilities, disclosure of contingent liabilities at the date of financial statements and the reported amount of revenues and expenses for the reporting period. Specifically, the Company estimates the probability of collection of accounts receivable by analyzing historical payment patterns, customer concentrations, customer credit-worthiness and current economic trends. If the financial condition of a customer deteriorates, additional allowances may be required.
2. The Company uses the percentage-of-completion method in accounting for its contract revenue. Use of the percentage-of-completion method requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the expected contract estimates at the reporting date.
3. The stock compensation expense is determined based on the Companyâs estimate of equity instruments that will eventually vest.
4. Provision for warranty is considered based on the rolling average warranty expense incurred in the preceding 12 months, the warranty period for which ranges from 12 months to 24 months as per provisions of the contracts.
5. In case of Property, Plant and Equipment and Intangible assets, the charge in respect of periodic depreciation/ amortisation is derived after determining an estimate of an assetâs expected useful life and the expected residual value at the end of its life. The useful lives and residual values of Companyâs assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology.
Mar 31, 2018
NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - GENERAL INFORMATION:
Honeywell Automation India Limited (the âCompanyâ) is engaged primarily in the business of Automation & Control systems on turnkey basis and otherwise. The Company is a public limited company and is listed on the Bombay Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE).
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: A. Statement of Compliance
These financial statements have been prepared in accordance with the Indian Accounting Standards (Ind AS) prescribed under Section 133 of the Act with the Companies (Indian Accounting Standards) Rules, 2015, as amended, and other accounting principles generally accepted in India.
All assets and liabilities have been classified as current or non-current as per the Companyâs normal operating cycle. Based on the nature of products and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current - noncurrent classification of assets and liabilities.
B. Basis of Preparation and Presentation
The financial statements have been prepared on a historical cost convention and on an accrual basis, except for the following material items that have been measured at fair value as required by relevant Ind AS:
i) Derivative financial instruments
ii) Certain financial assets and financial liabilities measured at fair values (as required by the relevant Ind AS)
iii) Share based payment transactions and
iv) Defined benefit and other long term employee benefits
Historical cost is generally based on the fair value of the consideration given in exchange of goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the company takes into account the characteristics of the assets or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and disclosure purpose in these financial statement is determined on such basis, except for share-based transactions that are within scope of Ind AS 102, leasing transactions that are within the scope of Ind AS 17, and measurements that have some similarities to fair value but are not fair value, such as net realizable value in Ind AS 2 or value in use in Ind AS 36.
For financial reporting purposes, fair value measurements are categorized into Level 1, 2, or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly;
Level 3 inputs are unobservable inputs for the asset or liability.
Tangible assets are stated at acquisition cost, net of accumulated depreciation and accumulated impairment losses, if any.
Items of Property, plant and equipment that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realizable value and are shown separately in the financial statements. Any expected loss is recognized immediately in the Statement of Profit and Loss.
Losses arising from the retirement of, and gains or losses arising from disposal of Property, plant and equipment are recognized in the Statement of Profit and Loss.
Freehold land is not depreciated.
* Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.
Assets installed in leased premises are depreciated over lease period or useful life of assets whichever is lower.
The estimated useful life of the Property, plant and equipment are reviewed at the end of each financial year, with the effect of any changes in estimate accounted for on a prospective basis.
D. Intangible Assets and Amortization
Intangible assets are stated at acquisition cost, net of accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortized on a straight line basis over their estimated useful lives. The amortization period and the amortization method are reviewed at each financial year end. If the expected useful life of the asset is significantly different from previous estimates, the amortization period is changed accordingly.
Losses arising from the retirement of, gain or losses arising from disposal of an intangible asset are recognized in the Statement of Profit and Loss. The Purchased Software are amortized over a period of 3 years.
The estimated useful life of the other intangible assets are reviewed at the end of each financial year, with the effect of any changes in estimate accounted for on a prospective basis.
E. Impairment of Tangible and Intangible Assets other than Goodwill
Assessment is done at each Balance Sheet date as to whether there is any indication that an asset (tangible and intangible) may be impaired. For the purpose of assessing impairment, the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets, is considered as a cash generating unit. If any such indication exists, an estimate of the recoverable amount of the asset/cash generating unit is made. Assets whose carrying value exceeds their recoverable amount are written down to the recoverable amount. Recoverable amount is higher of an assetâs or cash generating unitâs net selling price and its value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Assessment is also done at each Balance Sheet date as to whether there is any indication that an impairment loss recognized for an asset in prior accounting periods may no longer exist or may have decreased.
F. Inventories
Inventories are stated at lower of cost and net realizable value. Cost is determined using the technique of standard cost method, which approximates the actual cost using the Moving Weighted Average basis. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.
G. Revenue Recognition
i) Revenue in respect of projects for construction of plants and systems is recognized on the basis of percentage of completion method in accordance with Ind AS 11 - Construction Contracts. Percentage of completion is determined by the proportion that "contract costs" incurred for work done till date bears to the estimated total contract costs (Input method). Difference between costs incurred plus recognized profits / less recognized losses and the amount of invoiced sale is disclosed as contracts in progress. Determination of revenues under the percentage of completion method necessarily involves making estimates by the Company, some of which are of a technical nature, concerning where relevant, the percentage of completion, costs to completion, the expected revenue from the contract and the foreseeable losses to completion. Contractual claims are recognized on raising of the claim. Income from non-contractual claims is recognized only on acceptance of the claim by the customer.
âUnbilled revenuesâ represent cost and earnings in excess of billings as at the end of the reporting period.
âUnearned revenuesâ represent billing in excess of revenue recognized. Advance payments received from customers for which no services are rendered are presented as âAdvance from customersâ.
ii) Revenue from sales of products and services are recognized when all the revenue recognition criteria as per Ind AS 18 are met.
iii) Revenue from short term software development services includes revenue from time and material and fixed price contracts. Revenues from time and material contracts are recognized as related services are performed. With reference to fixed price contracts, revenue is recognized in accordance with proportionate completion method.
H. Foreign Currency Transactions
i) Functional currency
The functional currency of the company is the Indian rupee. These financial statements are presented in Indian rupees (rounded off to Lakhs).
ii) Initial Recognition
On initial recognition, all foreign currency transactions are recorded by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the transaction.
iii) Subsequent Recognition
As at the reporting date, 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. All 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.
All monetary assets and liabilities in foreign currency are restated at the end of accounting period.
Exchange differences on restatement of all other monetary items are recognized in the Statement of Profit and Loss.
I. Employee Benefits
The Company participates in various employee benefit plans. Post-employment benefits are classified as either defined contribution plans or defined benefit plans:
i) Superannuation fund:
Contribution towards superannuation fund for certain employees is made to the Life Insurance Corporation, where the Company has no further obligations. Such benefits are classified as Defined Contribution Schemes as the Company does not carry any further obligations, apart from the contributions made on a monthly basis.
ii) Provident Fund:
Provident Fund contributions are made to a Trust administered by the Company. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of the year and any shortfall in the fund size maintained by the Trust set up by the Company is additionally provided for.
iii) Gratuity:
The Company provides for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees in accordance with the Payment of Gratuity Act, 1972. The Gratuity Plan provides a lump sum payment to eligible employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employeeâs salary and the tenure of employment. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of each financial reporting period.
iv) Compensated Absences:
Accumulated compensated absences, which are expected to be availed or encashed within 12 months from the end of the year end are treated as short term employee benefits. The obligation towards the same is measured at the expected cost of accumulating compensated absences as the additional amount expected to be paid as a result of the unused entitlement as at the year end.
v) Termination Benefits:
Termination benefits in the nature of voluntary retirement benefits are recognized in the Statement of Profit and Loss as and when incurred.
Actuarial gain or losses and remeasurements:
Actuarial gains or losses on defined benefit obligations are recognized in other comprehensive income. Further, the profit or loss does not include an expected return on plan assets. Instead net interest recognized in profit or loss is calculated by applying the discount rate used to measure the defined benefit obligation to the net defined benefit liability or asset. The actual return on the plan assets above or below the discount rate is recognized as part of re-measurement of net defined liability or asset through other comprehensive income.
Remeasurements comprising actuarial gains or losses and return on plan assets (excluding amounts included in net interest on the net defined benefit liability) are not reclassified to profit or loss in subsequent periods.
J. Share Based Payments
Certain employees of the Company receive remuneration in the form of equity settled instruments given by the ultimate holding company (Honeywell International Inc.), for rendering services over a defined vesting period. Equity instruments granted are measured by reference to the fair value of the instrument at the date of grant.
The expense is recognized in the statement of profit and loss with a corresponding increase to the share based payment reserve, as a component of equity. The equity instruments generally vest in a graded manner over the vesting period. The fair value determined at the grant date is expensed over the vesting period of the respective tranches of such grants. The stock compensation expense is determined based on the Companyâs estimate of equity instruments that will eventually vest.
K. Income Tax
Tax expense for the period, comprising current tax and deferred tax, are included in the determination of the net profit or loss for the period.
Current tax:-
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws prevailing in the respective jurisdictions.
Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle the asset and the liability on a net basis.
Deferred tax:-
Deferred tax is recognized using the balance sheet approach. Deferred tax assets and liabilities are recognized for deductible and taxable temporary differences arising between the tax base of assets and liabilities and their carrying amount in financial statements.
Deferred tax asset are recognized to the extent that it is probable that taxable profit will be available against which such deferred tax assets can be realized. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred tax liabilities are recognized for all taxable temporary differences.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off assets against liabilities representing current tax and where the deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws.
L. Provisions and Contingencies
Provisions: Provisions are recognized when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and there is a reliable estimate of the amount of the obligation. Provisions are measured at the best estimate of the expenditure required to settle the present obligation at the Balance sheet date and are discounted to its present value as appropriate.
Provisions for onerous contracts are recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. Provisions for onerous contracts are measured at the present value of lower of the expected net cost of fulfilling the contract and the expected cost of terminating the contract.
Contingent Liabilities: Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made, is termed as a contingent liability.
M. Leases
At the inception of a lease, the lease arrangement is classified as either a finance lease or an operating lease, based on the substance of the lease arrangement.
As a lessee:
Leases under which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. When acquired, such assets are capitalized at fair value or present value of the minimum lease payments at the inception of the lease, whichever is lower.
Lease payments under operating leases are recognized as an expense on a straight line basis in the statement of profit and loss over the lease term except where the lease payments are structured to increase in line with expected general inflation.
N. Financial Instruments
Financial assets and financial liabilities are recognized when a company becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.
O. Financial Assets
All purchases or sales of financial assets are recognized and derecognized on a trade date basis including delivery of assets within the time frame established by regulation or convention in the marketplace.
All recognized financial assets are subsequently measured in their entirety at either amortized cost or fair value, depending on the classification of the financial assets
i. Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortized cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition) :
a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
b) the contractual terms of the instrument give rise on specified date to cash flows that are solely payments of principal and interest on the principal and interest on the principal amount outstanding.
Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive income (FVTOCI) (except for debt instruments that are designated as at fair value through profit or loss on initial recognition) :
a) the asset is held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets; and
b) the contractual terms of the instrument give rise on specified date to cash flows that are solely payments of principal and interest on the principal and interest on the principal amount outstanding.
Interest income is recognized in profit or loss for FVTOCI debt instruments. For the purposes of recognizing foreign exchange gains and losses, FVTOCI debt instruments are treated as financial assets measured at amortized cost. Thus, the exchange differences on the amortized cost are recognized in profit or loss and other changes in the fair value of FVTOCI financial assets are recognized in other comprehensive income and accumulated under the heading of ''Reserve for debt instruments through other comprehensive income''. When the investment is disposed of, the cumulative gain or loss previously accumulated in this reserve is reclassified to profit or loss.
All other financial assets are subsequently measured at fair value.
ii. Effective interest method
The effective interest method is a method of calculating the amortized cost of debt instrument and of allocating interest over the relevant period. The effective interest rate is the rate that discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income recognized on an effective interest basis for debt instruments other than those financial assets classified as FVTPL. Interest income is recognized in profit and loss and is included in "Other income" .
iii. Financial assets at fair value through profit or loss (FVTPL):
Investments in equity instruments are classified as FVTPL, unless the Company irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for investment in equity instruments which are not held for trading.
Debt instruments that do not meet the amortized cost criteria or FVTOCI criteria are measured at FVTPL. In addition, debt instruments that meet amortized cost criteria or FVTOCI criteria but are designated as at FVTPL are measured at FVTPL.
A financial asset that meets the amortized cost criteria or debt instruments that meet FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduced a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporate any dividend or interest earned on the financial asset and is included in ''Other income''. Dividend on financial asset at FVTPL is recognized when the Company''s right to receive the dividends is established, it is probable that economic benefits associated with dividend will flow to the entity, the dividend does not represent recovery of part of cost of the investment and the amount of dividend can be measured reliably.
iv. Impairment of financial assets
The company applies the expected credit loss model for recognising impairment loss on financial assets measured at amortized cost, debt instrument at FVTOCI, trade receivables, other contractual right to receive cash or other financial asset, and financial guarantees not designated as at FVTPL.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the company in accordance with the contract and all the cash flows that the company expects to receive, discounted at the original effective interest rate (or credit-Adjusted effective interest rate for purchased or originated credit-impaired financial assets). The company estimates cash flows by considering all contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) through the expected life of that financial instrument.
The company measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the company measures the loss allowance for that financial instrument at an amount equal to 12 month expected credit losses. 12 month expected credit losses are portion of the life-time expected credit losses and represent the lifetime cash shortfalls that will result if default occurs within the 12 months after the reporting date and thus, are not cash shortfalls that are predicted over the next 12 months.
If the company measured loss allowance for a financial instrument at lifetime expected credit loss model in the previous period, but determines at the end of a reporting period that the credit risk has not increased significantly since initial recognition due to improvement in credit quality as compared to the previous period, the company again measures the loss allowance based on 12 month expected credit losses.
When making the assessment of whether there has been a significant increase in credit risk since initial recognition, the company uses the change in the risk of a default accruing over the expected life of the financial instrument instead of the change in the amount of expected credit losses. To make that assessment, the Company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition.
For trade receivables or any contractual right to receive cash or another financials asset that results from transactions that are within the scope of Ind AS 11 and Ind AS 18, the company measures the loss allowance at an amount equal to lifetime expected credit losses.
Further, for the purpose of measuring lifetime expected credit loss allowance for trade receivables, the company has used a practical expedient as permitted under Ind AS 109. This expected credit loss allowance is computed based on a provision matrix based on judgement considering past experience.
The impairment requirements for the recognition and measurement of a loss allowance are equally applied to debt instruments at FVTOCI expect that the loss allowance is recognized in other comprehensive income and is not reduced from the carrying amount in the balance sheet.
v. Derecognition of financial assets
The Company derecognises a financial asset when the contractual rights to the cash flow from the asset expired or when it transfer the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred assets the Company recognizes its retained interest in the asset and then associated liability for amounts it may have to pay.
On derecognition of a financial asset in its entirety, the difference between the asset''s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss if such gain or loss would have otherwise been recognized in profit or loss on disposal of that financial assets.
On derecognition of a financial asset other than in its entirety, the Company allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of relative fair values of those part on the date of the transfer. The difference between carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss if such gain or loss would have otherwise been recognized in profit or loss on disposal of that financial asset. A cumulative gain or loss that has been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair value of those parts.
vi. Foreign exchange gains and losses
The fair value of financial assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.
For foreign currency denominated financial assets measured at amortized cost and FVTPL, the exchange differences are recognized in profit or loss.
Changes in the carrying amount of investments in equity instruments at FVTOCI relating to changes in foreign currency rates are recognized in other comprehensive income.
For the purposes of recognizing foreign exchange gains and losses, FVTOCI debt instruments are treated as financial assets measured amortized cost. Thus, the exchange difference on the amortized cost are recognized in profit or loss and other changes in the fair value of FVTOCI financial assets are recognized in other comprehensive income.
Vii. Derivative financial instruments and hedge accounting
In the ordinary course of business, the Company uses certain derivative financial instruments to reduce business risks which arise from its exposure to foreign exchange fluctuations. The instruments are confined principally to foreign exchange forward contracts. The instruments are employed as hedges of transactions included in the financial statements or for highly probable forecast transactions/firm contractual commitments. These derivatives contracts do not generally extend beyond six months.
Derivatives are initially accounted for and measured at fair value from the date the derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period
The Company adopts hedge accounting for forward and interest rate contracts wherever possible. At the inception of each hedge, there is a formal, documented designation of the hedging relationship. This documentation includes, inter alia, items such as identification of the hedged item or transaction and the nature of the risk being hedged. At inception each hedge is expected to be highly effective in achieving an offset of changes in fair value or cash flows attributable to the hedged risk. The effectiveness of hedge instruments to reduce the risk associated with the exposure being hedged is assessed and measured at the inception and on an ongoing basis. The ineffective portion of designated hedges is recognized immediately in the statement of profit and loss.
When hedge accounting is applied:
a. for fair value hedges of recognized assets and liabilities, changes in fair value of the hedged assets and liabilities attributable to the risk being hedged, are recognized in the statement of profit and loss and compensate for the effective portion of symmetrical changes in the fair value of the derivatives.
b. for cash flow hedges, the effective portion of the change in the fair value of the derivative is recognized directly in equity and the ineffective portion is taken to the statement of profit and loss. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of a nonfinancial asset or liability, then, at the time the asset or liability is recognized, the associated gains or losses on the derivative that had previously been recognized in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of a non-financial asset or a liability, amounts deferred in equity are recognized in the statement of profit and loss in the same period in which the hedged item affects the statement of profit and loss.
In cases where hedge accounting is not applied, changes in the fair value of derivatives are recognized in the statement of profit and loss as and when they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognized in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to the statement of profit and loss for the period.
Financial Liabilities and Equity Instruments
i. Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of financial liability and equity instrument.
ii. Equity instruments
An equity instrument is any contract that evidences residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue cost.
iii. Financial liabilities
All financial liabilities are subsequently measured at amoritised cost using effective interest method of FVTPL.
a) Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is held for trading or designated as at FVTPL.
Financial liability at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability and is included in ''Other Income''.
b) Financial liabilities subsequently measured at amortized cost
Financial liabilities that are not held for trading and are not designated as at FVTPL are measured at amortized cost at the end of subsequent accounting periods. The carrying amount of financial liabilities that are subsequently measured at amortized cost are determined based on the effective interest method. Interest expenses that is not capitalised as part of cost of an asset is included in ''finance cost''.
The effective interest method is a method of calculating the amoritised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
c) Foreign exchange gains and losses
For financial liabilities that are denominated in a foreign currency and are measured at amortized cost at the end of each reporting period, the foreign exchange gains and losses are determined based on the amortized cost of the instrument and are recognized in other income.
The fair value of financial liabilities denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. For financial liability that are measured at FVTPL, the foreign exchange component forms part of fair value gains or losses and is recognized in profit or loss.
iv) Derecognition of financial liabilities
The Company derecognises financial liability when, and only when, the Company obligations are discharged, cancelled and have expired. An exchange between with a lender of debt instrument is substantially different term is accounted for as and extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of a term of existing financial liability is accounted for as and extinguishment of the original financial liability and recognition of new financial liability. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.
Recent Accounting Pronouncements
Appendix B to Ind AS 21, Foreign currency transactions and advance consideration: On March 28, 2018, Ministry of Corporate Affairs ("MCA") has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency.
Ind AS 115- Revenue from Contract with Customers: On March 28, 2018, Ministry of Corporate Affairs ("MCA") has notified the Ind AS 115, Revenue from Contract with Customers. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Further the new standard requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entityâs contracts with customers.
The standard permits two possible methods of transition:
- Retrospective approach - Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8- Accounting Policies, Changes in Accounting Estimates and Errors.
- Retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application (Cumulative catch - up approach). The effective date for adoption of Ind AS 115 is financial periods beginning on or after April 1, 2018.
The Company will adopt the standard on April 1, 2018 by using the cumulative catch-up transition method and accordingly comparatives for the year ending or ended March 31, 2018 will not be retrospectively adjusted.
Mar 31, 2017
NOTE 1 -GENERAL INFORMATION:
Honeywell Automation India Limited (the âCompanyâ) is engaged primarily in the business of Automation & Control systems on turnkey basis and otherwise. The Company is a public limited company and is listed on the Bombay Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE).
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: A. Statement of Compliance
These financial statements have been prepared in accordance with Indian Accounting Standards (âInd ASâ) notified under the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016 as applicable.
Upto the year ended March 31, 2016, the Company prepared its financial statements in accordance with the requirements of previous GAAP, which includes Standards notified under the Companies (Accounting Standards) Rules, 2006. These are the companyâs first Ind AS financial statements. The date of transition to Ind AS is April 1st, 2015. Refer Note 4 for the details of first-time adoption exemptions availed by the Company.
All assets and liabilities have been classified as current or non-current as per the Companyâs normal operating cycle. Based on the nature of products and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current - noncurrent classification of assets and liabilities.
B. Basis of Preparation and Presentation
The financial statements have been prepared on a historical cost convention and on an accrual basis, except for the following material items that have been measured at fair value as required by relevant Ind AS:
i) Derivative financial instruments
ii) Certain financial assets and financial liabilities measured at fair values (as required by the relevant Ind AS)
iii) Share based payment transactions and
iv) Defined benefit and other long term employee benefits
Historical cost is generally based on the fair value of the consideration given in exchange of goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the company takes into account the characteristics of the assets or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and disclosure purpose in these financial statement is determined on such basis, except for share-based transactions that are within scope of Ind AS 102, leasing transactions that are within the scope of Ind AS 17, and measurements that have some similarities to fair value but are not fair value, such as net realizable value in Ind AS 2 or value in use in Ind AS 36.
For financial reporting purposes, fair value measurements are categorized into Level 1, 2, or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly;
Level 3 inputs are unobservable inputs for the asset or liability.
C. Property, Plant and Equipment
Tangible assets are stated at acquisition cost, net of accumulated depreciation and accumulated impairment losses, if any.
Subsequent expenditures related to an item of fixed asset are added to its book value only if they increase the future benefits from the existing asset beyond its previously assessed standard of performance.
Items of Property, plant and equipment that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realizable value and are shown separately in the financial statements. Any expected loss is recognized immediately in the Statement of Profit and Loss.
Losses arising from the retirement of, and gains or losses arising from disposal of Property, plant and equipment which are carried at cost are recognized in the Statement of Profit and Loss.
Freehold land is not depreciated.
Depreciation is provided on a pro-rata basis on the straight-line method over the estimated useful lives of the assets or the rates prescribed under Schedule II of the Companies Act, 2013, whichever is higher, as follows:
Assets installed in leased premises are depreciated over lease period or useful life of assets whichever is lower.
For transition to Ind AS, the company has elected to continue with the carrying value of all of its property, plant and equipment recognized as of April 01, 2015 measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.
D. Intangible Assets and Amortization
Intangible assets are stated at acquisition cost, net of accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortized on a straight line basis over their estimated useful lives. The amortization period and the amortization method are reviewed at each financial year end. If the expected useful life of the asset is significantly different from previous estimates, the amortization period is changed accordingly.
Gains or losses arising from the retirement or disposal of an intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of the asset and recognized as income or expense in the Statement of Profit and Loss. The Purchased Software are amortized over a period of 3 years.
For transition to Ind AS, the company has elected to continue with the carrying value of all of its intangible assets recognized as of April 01, 2015 measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.
E. Impairment of Tangible and Intangible Assets other than Goodwill
Assessment is done at each Balance Sheet date as to whether there is any indication that an asset (tangible and intangible) may be impaired. For the purpose of assessing impairment, the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets, is considered as a cash generating unit. If any such indication exists, an estimate of the recoverable amount of the asset/cash generating unit is made. Assets whose carrying value exceeds their recoverable amount are written down to the recoverable amount. Recoverable amount is higher of an assetâs or cash generating unitâs net selling price and its value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Assessment is also done at each Balance Sheet date as to whether there is any indication that an impairment loss recognized for an asset in prior accounting periods may no longer exist or may have decreased.
F. Inventories
Inventories are stated at lower of cost and net realizable value. Cost is determined using the technique of standard cost method, which approximates the actual cost using the Moving Weighted Average basis. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.
G. Revenue Recognition
i) Revenue in respect of projects for construction of plants and systems is recognized on the basis of percentage of completion method in accordance with Ind AS 11 - Construction Contracts. Percentage of completion is determined by the proportion that âcontract costsâ incurred for work done till date bears to the estimated total contract costs (Input method). Difference between costs incurred plus recognized profits/less recognized losses and the amount of invoiced sale is disclosed as contracts in progress. Determination of revenues under the percentage of completion method necessarily involves making estimates by the Company, some of which are of a technical nature, concerning where relevant, the percentage of completion, costs to completion, the expected revenue from the contract and the foreseeable losses to completion. Contractual claims are recognized on raising of the claim. Income from non-contractual claims is recognized only on acceptance of the claim by the customer.
âUnbilled revenuesâ represent cost and earnings in excess of billings as at the end of the reporting period.
âUnearned revenuesâ represent billing in excess of revenue recognized. Advance payments received from customers for which no services are rendered are presented as âAdvance from customersâ.
ii) Revenue from sales of products and services are recognized when all the revenue recognition criteria as per Ind AS 18 are met.
iii) Revenue from short term software development services includes revenue from time and material and fixed price contracts. Revenues from time and material contracts are recognized as related services are performed. With reference to fixed price contracts, revenue is recognized in accordance with proportionate completion method.
H. Foreign Currency Transactions
i) Functional currency
The functional currency of the company is the Indian rupee. These financial statements are presented in Indian rupees (rounded off to Lakhs).
ii) Initial Recognition
On initial recognition, all foreign currency transactions are recorded by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the transaction.
iii) Subsequent Recognition
As at the reporting date, 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. All 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.
All monetary assets and liabilities in foreign currency are restated at the end of accounting period.
Exchange differences on restatement of all other monetary items are recognized in the Statement of Profit and Loss.
I. Employee Benefits
The Company participates in various employee benefit plans. Post-employment benefits are classified as either defined contribution plans or defined benefit plans:
i) Superannuation fund:
Contribution towards superannuation fund for certain employees is made to the Life Insurance Corporation, where the Company has no further obligations. Such benefits are classified as Defined Contribution Schemes as the Company does not carry any further obligations, apart from the contributions made on a monthly basis.
ii) Provident Fund:
Provident Fund contributions are made to a Trust administered by the Company. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of the year and any shortfall in the fund size maintained by the Trust set up by the Company is additionally provided for.
iii) Gratuity:
The Company provides for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees in accordance with the Payment of Gratuity Act, 1972. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employeeâs salary and the tenure of employment. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of each financial reporting period.
iv) Compensated Absences:
Accumulated compensated absences, which are expected to be availed or encased within 12 months from the end of the year end are treated as short term employee benefits. The obligation towards the same is measured at the expected cost of accumulating compensated absences as the additional amount expected to be paid as a result of the unused entitlement as at the year end.
v) Termination Benefits:
Termination benefits in the nature of voluntary retirement benefits are recognized in the Statement of Profit and Loss as and when incurred.
Actuarial gain or losses and remeasurements:
Actuarial gains or losses on defined benefit obligations are recognized in other comprehensive income. Further, the profit or loss does not include an expected return on plan assets. Instead net interest recognized in profit or loss is calculated by applying the discount rate used to measure the defined benefit obligation to the net defined benefit liability or asset. The actual return on the plan assets above or below the discount rate is recognized as part of remeasurement of net defined liability or asset through other comprehensive income.
Remeasurements comprising actuarial gains or losses and return on plan assets (excluding amounts included in net interest on the net defined benefit liability) are not reclassified to profit or loss in subsequent periods.
J. Share Based Payments
Certain employees of the Company receive remuneration in the form of equity settled instruments given by the ultimate holding company (Honeywell International Inc.), for rendering services over a defined vesting period. Equity instruments granted are measured by reference to the fair value of the instrument at the date of grant.
The expense is recognized in the statement of profit and loss with a corresponding increase to the share based payment reserve, as a component of equity. The equity instruments generally vest in a graded manner over the vesting period. The fair value determined at the grant date is expensed over the vesting period of the respective tranches of such grants. The stock compensation expense is determined based on the Companyâs estimate of equity instruments that will eventually vest.
K. Income Tax
Tax expense for the period, comprising current tax and deferred tax, are included in the determination of the net profit or loss for the period.
Current tax:-
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws prevailing in the respective jurisdictions.
Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle the asset and the liability on a net basis.
Deferred tax:-
Deferred tax is recognized using the balance sheet approach. Deferred tax assets and liabilities are recognized for deductible and taxable temporary differences arising between the tax base of assets and liabilities and their carrying amount in financial statements.
Deferred tax asset are recognized to the extent that it is probable that taxable profit will be available against which such deferred tax assets can be realized. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred tax liabilities are recognized for all taxable temporary differences.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off assets against liabilities representing current tax and where the deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws.
L. Provisions and Contingencies
Provisions: Provisions are recognized when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and there is a reliable estimate of the amount of the obligation. Provisions are measured at the best estimate of the expenditure required to settle the present obligation at the Balance sheet date and are discounted to its present value as appropriate.
Provisions for onerous contracts are recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. Provisions for onerous contracts are measured at the present value of lower of the expected net cost of fulfilling the contract and the expected cost of terminating the contract.
Contingent Liabilities: Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made, is termed as a contingent liability.
M. Leases
As a lessee:
Leases under which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. When acquired, such assets are capitalized at fair value or present value of the minimum lease payments at the inception of the lease, whichever is lower.
Lease payments under operating leases are recognized as an expense on a straight line basis in the statement of profit and loss over the lease term except where the lease payments are structured to increase in line with expected general inflation.
N. Financial Instruments
Financial assets and financial liabilities are recognized when a company becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.
O. Financial Assets
All purchases or sales of financial assets are recognized and derecognized on a trade date basis including delivery of assets within the time frame established by regulation or convention in the marketplace.
All recognized financial assets are subsequently measured in their entirety at either amortized cost or fair value, depending on the classification of the financial assets
i) Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortized cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition) :
a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
b) the contractual terms of the instrument give rise on specified date to cash flows that are solely payments of principal and interest on the amount outstanding.
Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive income (FVTOCI) (except for debt instruments that are designated as at fair value through profit or loss on initial recognition) :
a) the asset is held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets; and
b) the contractual terms of the instrument give rise on specified date to cash flows that are solely payments of principal and interest on the principal and interest on the amount outstanding.
Interest income is recognized in profit or loss for FVTOCI debt instruments. For the purposes of recognizing foreign exchange gains and losses, FVTOCI debt instruments are treated as financial assets measured at amortized cost. Thus, the exchange differences on the amortized cost are recognized in profit or loss and other changes in the fair value of FVTOCI financial assets are recognized in other comprehensive income and accumulated under the heading of âReserve for debt instruments through other comprehensive incomeâ. When the investment is disposed of, the cumulative gain or loss previously accumulated in this reserve is reclassified to profit or loss.
All other financial assets are subsequently measured at fair value.
ii) Effective interest method
The effective interest method is a method of calculating the amortized cost of debt instrument and of allocating interest over the relevant period. The effective interest rate is the rate that discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income recognized on an effective interest basis for debt instruments other than those financial assets classified as FVTPL. Interest income is recognized in profit and loss and is included in âOther incomeâ.
iii) Financial assets at fair value through profit or loss (FVTPL):
Investments in equity instruments are classified as FVTPL, unless the Company irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for investment in equity instruments which are not held for trading.
Debt instruments that do not meet the amortized cost criteria or FVTOCI criteria are measured at FVTPL. In
addition, debt instruments that meet amortized cost criteria or FVTOCI criteria but are designated as at FVTPL are measured at FVTPL.
A financial asset that meets the amortized cost criteria or debt instruments that meet FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduced a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporate any dividend or interest earned on the financial asset and is included in âOther incomeâ. Dividend on financial asset at FVTPL is recognized when the Companyâs right to receive the dividends is established, it is probable that economic benefits associated with dividend will flow to the entity, the dividend does not represent recovery of part of cost of the investment and the amount of dividend can be measured reliably.
iv. Impairment of financial assets
The company applies the expected credit loss model for recognizing impairment loss on financial assets measured at amortized cost, debt instrument at FVTOCI, trade receivables, other contractual right to receive cash or other financial asset, and financial guarantees not designated as at FVTPL.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the company in accordance with the contract and all the cash flows that the company expects to receive, discounted at the original effective interest rate (or credit-Adjusted effective interest rate for purchased or originated credit-impaired financial assets). The company estimates cash flows by considering all contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) through the expected life of that financial instrument.
The company measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the company measures the loss allowance for that financial instrument at an amount equal to 12 month expected credit losses. 12 month expected credit losses are portion of the life-time expected credit losses and represent the lifetime cash shortfalls that will result if default occurs within the 12 months after the reporting date and thus, are not cash shortfalls that are predicted over the next 12 months.
If the company measured loss allowance for a financial instrument at lifetime expected credit loss model in the previous period, but determines at the end of a reporting period that the credit risk has not increased significantly since initial recognition due to improvement in credit quality as compared to the previous period, the company again measures the loss allowance based on 12 month expected credit losses.
When making the assessment of whether there has been a significant increase in credit risk since initial recognition, the company uses the change in the risk of a default accruing over the expected life of the financial instrument instead of the change in the amount of expected credit losses. To make that assessment, the Company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition.
For trade receivables or any contractual right to receive cash or another financials asset that results from transactions that are within the scope of Ind AS 11 and Ind AS 18, the company measures the loss allowance at an amount equal to lifetime expected credit losses.
Further, for the purpose of measuring lifetime expected credit loss allowance for trade receivables, the company has used a practical expedient as permitted under Ind AS 109. This expected credit loss allowance is computed based on a provision matrix based on judgment considering past experience.
The impairment requirements for the recognition and measurement of a loss allowance are equally applied to debt instruments at FVTOCI expect that the loss allowance is recognized in other comprehensive income and is not reduced from the carrying amount in the balance sheet.
v. Derecognition of financial assets
The Company derecognizes a financial asset when the contractual rights to the cash flow from the asset expired or when it transfer the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred assets the Company recognizes its retained interest in the asset and then associated liability for amounts it may have to pay.
On derecognition of a financial asset in its entirety, the difference between the assetâs carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss if such gain or loss would have otherwise been recognized in profit or loss on disposal of that financial assets.
On derecognition of a financial asset other than in its entirety, the Company allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of relative fair values of those part on the date of the transfer. The difference between carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss if such gain or loss would have otherwise been recognized in profit or loss on disposal of that financial asset. A cumulative gain or loss that has been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair value of those parts.
vi. Foreign exchange gains and losses
The fair value of financial assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.
For foreign currency denominated financial assets measured at mortised cost and FVTPL, the exchange differences are recognized in profit or loss.
Changes in the carrying amount of investments in equity instruments at FVTOCI relating to changes in foreign currency rates are recognized in other comprehensive income.
For the purposes of recognizing foreign exchange gains and losses, FVTOCI debt instruments are treated as financial assets measured mortised cost. Thus, the exchange difference on the mortised cost are recognized in profit or loss and other changes in the fair value of FVTOCI financial assets are recognized in other comprehensive income.
P. Financial Liabilities and Equity Instruments
i) Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of financial liability and equity instrument.
ii) Equity instruments
An equity instrument is any contract that evidences residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue cost.
iii) Financial liabilities
All financial liabilities are subsequently measured at amortized cost using effective interest method of FVTPL.
a) Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is held for trading or designated as at FVTPL.
Financial liability at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability and is included in âOther Incomeâ.
b) Financial liabilities subsequently measured at mortised cost
Financial liabilities that are not held for trading and are not designated as at FVTPL are measured at mortised cost at the end of subsequent accounting periods. The carrying amount of financial liabilities that are subsequently measured at mortised cost are determined based on the effective interest method. Interest expenses that is not capitalized as part of cost of an asset is included in âfinance costâ. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
c) Foreign exchange gains and losses
For financial liabilities that are denominated in a foreign currency and are measured at mortised cost at the end of each reporting period, the foreign exchange gains and losses are determined based on the mortised cost of the instrument and are recognized in other income.
The fair value of financial liabilities denominated in foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. For financial liability that are measured at FVTPL, the foreign exchange component forms part of fair value gains or losses and is recognized in profit or loss.
iv) Derecognition of financial liabilities
The Company derecognizes financial liability when, and only when, the Company obligations are discharged, cancelled and have expired. An exchange between with a lender of debt instrument is substantially different term is accounted for as and extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of a term of existing financial liability is accounted for as and extinguishment of the original financial liability and recognition of new financial liability. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.
Mar 31, 2015
A. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
These financial statements have been prepared in accordance with the
generally accepted accounting principles in India under the historical
cost convention on accrual basis, except for certain tangible assets
which are being carried at revalued amounts. Pursuant to circular
15/2013 dated 13.09.2013 read with circular 08/2014 dated 04.04.2014,
till the Standards of Accounting or any addendum thereto are prescribed
by Central Government in consultation and recommendation of the
National Financial Reporting Authority, the existing Accounting
Standards notified under the Companies Act, 1956 shall continue to
apply. Consequently, these financial statements have been prepared to
comply in all material aspects with the accounting standards notified
under Section 211(3C) [Companies (Accounting Standards) Rules, 2006, as
amended] and other relevant provisions of the Companies Act, 1956.
All assets and liabilities have been classified as current or
non-current as per the Company''s normal operating cycle and other
criteria set out in the Schedule VI to the Companies Act, 1956. Based
on the nature of products 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 12
months for the purpose of current - non current classification of
assets and liabilities.
C. TANGIBLE ASSETS AND DEPRECIATION
Tangible assets are stated at acquisition cost, net of accumulated
depreciation and accumulated impairment losses, if any.
Subsequent expenditures related to an item of fixed asset are added to
its book value only if they increase the future benefits from the
existing asset beyond its previously assessed standard of performance.
Items of fixed assets that have been retired from active use and are
held for disposal are stated at the lower of their net book value and
net realisable value and are shown separately in the financial
statements. Any expected loss is recognised immediately in the
Statement of Profit and Loss.
Losses arising from the retirement of, and gains or losses arising from
disposal of fixed assets which are carried at cost are recognised in
the Statement of Profit and Loss.
Depreciation is provided on a pro-rata basis on the straight-line
method over the estimated useful lives of the assets or the rates
prescribed under Schedule XIV of the Companies Act, 1956, whichever is
higher, as follows:
Assets installed in leased premises are depreciated over 4 years
representing average life of the lease for such premises.
D. INTANGIBLE ASSETS AND AMORTIZATION
Intangible assets are stated at acquisition cost, net of accumulated
amortization and accumulated impairment losses, if any. Intangible
assets are amortised on a straight line basis over their estimated
useful lives. A rebuttable presumption that the useful life of an
intangible asset will not exceed ten years from the date when the asset
is available for use is considered by the management. The amortisation
period and the amortisation method are reviewed at least at each
financial year end. If the expected useful life of the asset is
significantly different from previous estimates, the amortisation
period is changed accordingly.
Gains or losses arising from the retirement or disposal of an
intangible asset are determined as the difference between the net
disposal proceeds and the carrying amount of the asset and recognised
as income or expense in the Statement of Profit and Loss. The
amortisation rates used are:
a) Product distribution rights - HSPL are amortized over a period of 10
years.
b) Software purchased over a period of 3 years.
E. BORROWING COSTS
General and specific borrowing costs directly attributable to the
acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready
for their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale. All other borrowing costs are recognised in
Statement of Profit and Loss in the period in which they are incurred.
F. IMPAIRMENT
Assessment is done at each Balance Sheet date as to whether there is
any indication that an asset (tangible and intangible) may be impaired.
For the purpose of assessing impairment, the smallest identifiable
group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows from other assets or groups
of assets, is considered as a cash generating unit. If any such
indication exists, an estimate of the recoverable amount of the
asset/cash generating unit is made. Assets whose carrying value exceeds
their recoverable amount are written down to the recoverable amount.
Recoverable amount is higher of an asset''s or cash generating unit''s
net selling price and its value in use. Value in use is the present
value of estimated future cash flows expected to arise from the
continuing use of an asset and from its disposal at the end of its
useful life. Assessment is also done at each Balance Sheet date as to
whether there is any indication that an impairment loss recognised for
an asset in prior accounting periods may no longer exist or may have
decreased.
G. INVESTMENTS
Investments that are readily realisable and are intended to be held for
not more than one year from the date on which such investments are
made, are classified as current investments. Current investments are
carried at cost or fair value, whichever is lower.
H. INVENTORIES
Inventories are stated at lower of cost and net realisable value. Cost
is determined using the technique of standard cost method, which
approximates the actual cost using the Moving Weighted Average basis.
The cost of finished goods and work in progress comprises design costs,
raw materials, direct labour, other direct costs and related production
overheads. Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and
the estimated costs necessary to make the sale.
I. REVENUE RECOGNITION
i) Revenue in respect of projects for construction of plants and
systems, execution of which is spread over different
accounting periods, is recognized on the basis of percentage of
completion method in accordance with Accounting Standard 7 -
Construction contracts. Percentage of completion is determined by the
proportion that contract costs incurred for work done till date bears
to the estimated total contract costs. Difference between costs
incurred plus recognized profits/less recognized losses and the amount
of invoiced sale is disclosed as contracts in progress. Determination
of revenues under the percentage of completion method necessarily
involves making estimates by the Company, some of which are of a
technical nature, concerning where relevant,
the percentage of completion, costs to completion, the expected revenue
from the contract and the foreseeable losses to completion. Contractual
claims are recognized on raising of the claim. Income from
non-contractual claims is recognized only on acceptance of the claim by
the customer.
ii) Revenue from sales of products and services are recognized when
significant risks and rewards of ownership of products are passed on to
the customer or when the service is provided.
iii) Revenue from short term software development services includes
revenue from time and material and fixed price contracts. Revenue from
time and material contracts are recognized as related services are
performed. With reference to fixed price contracts, revenue is
recognized in accordance with proportionate completion method.
J. OTHER INCOME
Interest: Interest income is recognised on a time proportion basis
taking into account the amount outstanding and the rate applicable.
Dividend: Dividend income is recognised when the right to receive the
dividend is established.
K. FOREIGN CURRENCY TRANSACTIONS
Initial Recognition
On initial recognition, all foreign currency transactions are recorded
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
Subsequent Recognition
As at the reporting date, 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. All 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.
All monetary assets and liabilities in foreign currency are restated at
the end of accounting period.
Exchange differences on restatement of all other monetary items are
recognised in the Statement of Profit and Loss. Forward Exchange
Contracts
The premium or discount arising at the inception of forward exchange
contracts entered into to hedge an existing asset/liability, is
amortized as expense or income over the life of the contract. Exchange
differences on such a contract are recognised in the Statement of
Profit and Loss in the reporting period in which the exchange rates
change. Any profit or loss arising on cancellation or renewal of such a
forward exchange contract are recognised as income or as expense for
the period.
Forward exchange contracts outstanding as at the year end on account of
firm commitment/highly probable forecast transactions are marked to
market and the losses, if any, are recognised in the Statement of
Profit and Loss and gains are ignored in accordance with the
Announcement of Institute of Chartered Accountants of India on
''Accounting for Derivatives'' issued in March 2008.
L. EMPLOYEE BENEFITS
Superannuation fund: Contribution towards superannuation fund for
certain employees is made to the Life Insurance Corporation, where the
Company has no further obligations. Such benefits are classified as
Defined Contribution Schemes as the Company does not carry any further
obligations, apart from the contributions made on a monthly basis.
Provident Fund: Provident Fund contributions are made to a Trust
administered by the Company. The Company''s liability is actuarially
determined (using the Projected Unit Credit method) at the end of the
year and any shortfall in the fund size maintained by the Trust set up
by the Company is additionally provided for. Actuarial losses/gains are
recognised in the Statement of Profit and Loss in the year in which
they arise.
Gratuity: The Company provides for gratuity, a defined benefit plan
(the "Gratuity Plan") covering eligible employees in accordance
with the Payment of Gratuity Act, 1972. The Gratuity Plan provides a
lump sum payment to vested
employees at retirement, death, incapacitation or termination of
employment, of an amount based on the respective employee''s salary and
the tenure of employment. The Company''s liability is actuarially
determined (using the Projected Unit Credit method) at the end of each
year. Actuarial losses/gains are recognised in the Statement of Profit
and Loss in the year in which they arise.
Compensated Absences: Accumulated compensated absences, which are
expected to be availed or encashed within 12 months from the end of the
year end are treated as short term employee benefits. The obligation
towards the same is measured at the expected cost of accumulating
compensated absences as the additional amount expected to be paid as a
result of the unused entitlement as at the year end.
Accumulated compensated absences, which are expected to be availed or
encashed beyond 12 months from the end of the year end are treated as
other long term employee benefits. The Company''s liability is
actuarially determined (using the Projected Unit Credit method) at the
end of each year. Actuarial losses/gains are recognised in the
Statement of Profit and Loss in the year in which they arise.
Termination Benefits: Termination benefits in the nature of voluntary
retirement benefits are recognised in the Statement of Profit and Loss
as and when incurred.
M. TAXATION
Tax expense for the period, comprising current tax and deferred tax,
are included in the determination of the net profit or loss for the
period. Current tax is measured at the amount expected to be paid to
the tax authorities in accordance with the taxation laws prevailing in
the respective jurisdictions.
Deferred tax is recognised for all the timing differences, subject to
the consideration of prudence in respect of deferred tax assets.
Deferred tax assets are recognised and carried forward only to the
extent that there is a reasonable certainty that sufficient future
taxable income will be available against which such deferred tax assets
can be realised. Deferred tax assets and liabilities are measured
using the tax rates and tax laws that have been enacted or
substantively enacted by the Balance Sheet date. At each Balance Sheet
date, the group reassesses unrecognised deferred tax assets, if any.
Current tax assets and current tax liabilities are offset when there is
a legally enforceable right to set off the recognised amounts and there
is an intention to settle the asset and the liability on a net basis.
Deferred tax assets and deferred tax liabilities are offset when there
is a legally enforceable right to set off assets against liabilities
representing current tax and where the deferred tax assets and the
deferred tax liabilities relate to taxes on income levied by the same
governing taxation laws.
N. PROVISIONS AND CONTINGENCIES
Provisions: Provisions are recognised when there is a present
obligation as a result of a past event, it is probable that an outflow
of resources embodying economic benefits will be required to settle the
obligation and there is a reliable estimate of the amount of the
obligation. Provisions are measured at the best estimate of the
expenditure required to settle the present obligation at the Balance
sheet date and are not discounted to its present value.
Contingent Liabilities: Contingent liabilities are disclosed when there
is a possible obligation arising from past events, the existence of
which will be confirmed only by the occurrence or non occurrence of one
or more uncertain future events not wholly within the control of the
company or a present obligation that arises from past events where it
is either not probable that an outflow of resources will be required to
settle or a reliable estimate of the amount cannot be made, is termed
as a contingent liability.
O. LEASES
As a lessee: Payments made under operating leases are charged to the
Statement of Profit and Loss on a straight-line basis over the period
of the lease.
Dec 31, 2012
A. GENERAL INFORMATION:
Honeywell Automation India Limited (the ''Company'') is engaged primarily
in business of Process Control and Management Systems field on turnkey
basis and otherwise. The Company is a public limited company and is
listed on the Stock Exchange, Mumbai (BSE) and the National Stock
Exchange (NSE).
B. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
These financial statements have been prepared in accordance with the
generally accepted accounting principles in India under the historical
cost convention on accrual basis. These financial statements have been
prepared to comply in all material aspects with the accounting
standards notified under Section 211(3C) [Companies (Accounting
Standards) Rules, 2006, as amended] and the other relevant provisions
of the Companies Act, 1956.
All assets and liabilities have been classified as current or
non-current as per the Company''s normal operating cycle and other
criteria set out in the Schedule VI to the Companies Act, 1956. Based
on the nature of products 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 12
months for the purpose of current - non current classification of
assets and liabilities.
C. TANGIBLE ASSETS
Tangible Assets are stated at acquisition cost, net of accumulated
depreciation and accumulated impairment losses, if any.
Subsequent expenditures related to an item of fixed asset are added to
its book value only if they increase the future benefits from the
existing asset beyond its previously assessed standard of performance.
Items of fixed assets that have been retired from active use and are
held for disposal are stated at the lower of their net book value and
net realisable value and are shown separately in the financial
statements. Any expected loss is recognised immediately in the
Statement of Profit and Loss.
Losses arising from the retirement of, and gains or losses arising from
disposal of fixed assets which are carried at cost are recognised in
the Statement of Profit and Loss.
Depreciation is provided on a pro-rata basis on the straight-line
method over the estimated useful lives of the assets or the rates
prescribed under Schedule XIV of the Companies Act, 1956, whichever is
higher, as follows:
Assets installed in leased premises are depreciated over 4 years
representing average life of the lease for such premises.
D. INTANGIBLE ASSETS AND AMORTIZATION
Intangible Assets are stated at acquisition cost, net of accumulated
amortization and accumulated impairment losses, if any. Intangible
assets are amortised on a straight line basis over their estimated
useful lives. A rebuttable presumption that the useful life of an
intangible asset will not exceed ten years from the date when the asset
is available for use is considered by the management. The amortisation
period and the amortisation method are reviewed at least at each
financial year end. If the expected useful life of the asset is
significantly different from previous estimates, the amortisation
period is changed accordingly.
Gains or losses arising from the retirement or disposal of an
intangible asset are determined as the difference between the net
disposal proceeds and the carrying amount of the asset and recognised
as income or expense in the Statement of Profit and Loss. The
amortisation rates used are:
a) Product distribution rights - HSPL are amortized over a period of 10
years.
b) Software purchased over a period of 3 years.
E. BORROWING COSTS
General and specific borrowing costs directly attributable to the
acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready
for their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale. All other borrowing costs are recognised in
Statement of Profit and Loss in the period in which they are incurred.
F. IMPAIRMENT
Assessment is done at each Balance Sheet date as to whether there is
any indication that an asset (tangible and intangible) may be impaired.
For the purpose of assessing impairment, the smallest identifiable
group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows from other assets or groups
of assets, is considered as a cash generating unit. If any such
indication exists, an estimate of the recoverable amount of the
asset/cash generating unit is made. Assets whose carrying value exceeds
their recoverable amount are written down to the recoverable amount.
Recoverable amount is higher of an asset''s or cash generating unit''s
net selling price and its value in use. Value in use is the present
value of estimated future cash flows expected to arise from the
continuing use of an asset and from its disposal at the end of its
useful life. Assessment is also done at each Balance Sheet date as to
whether there is any indication that an impairment loss recognised for
an asset in prior accounting periods may no longer exist or may have
decreased.
G. INVENTORIES
Inventories are stated at lower of cost and net realisable value. Cost
is determined using the standard costing technique, which approximates
the actual cost. The cost of finished goods and work in progress
comprises design costs, raw materials, direct labour, other direct
costs and related production overheads. Net realisable value is the
estimated selling price in the ordinary course of business, less the
estimated costs of completion and the estimated costs necessary to make
the sale.
H. REVENUE RECOGNITION
i) Revenue in respect of projects for construction of plants and
systems, execution of which is spread over different accounting
periods, is recognized on the basis of percentage of completion method
in accordance with Accounting Standard 7 - Accounting for construction
contracts.
ii) Percentage of completion is determined by the proportion that
contract costs incurred for work done till date bears to the estimated
total contract costs.
iii) Difference between costs incurred plus recognized profits/ less
recognized losses and the amount of invoiced sale is disclosed as
contracts in progress.
iv) Determination of revenues under the percentage of completion method
necessarily involves making estimates by the Company, some of which are
of a technical nature, concerning where relevant, the percentage of
completion, costs to completion, the expected revenue from the contract
and the foreseeable losses to completion.
v) Contractual claims are recognized on raising of the claim. However,
consequential liability to excise duty, if any, is provided for and
corresponding revenue is accounted for only on settlement of the claim.
Income from non- contractual claims is recognized only on acceptance of
the claim by the customer. vi) Revenue from sales of products and
services are recognized when significant risks and rewards of ownership
of products are passed on to the customer or when the service is
provided.
vii) Revenue from short term software development services includes
revenue from time and material and fixed price contracts. Revenue from
time and material contracts are recognized as related services are
performed. With reference to fixed price contracts revenue is
recognized in accordance with proportionate completion method.
I. OTHER INCOME
Interest: Interest income is recognised on a time proportion basis
taking into account the amount outstanding and the rate applicable.
J. FOREIGN CURRENCY TRANSACTIONS
Initial Recognition: On initial recognition, all foreign currency
transactions are recorded by applying to the foreign currency amount
the exchange rate between the reporting currency and the foreign
currency at the date of the transaction.
Subsequent Recognition: As at the reporting date, 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. All 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.
All monetary assets and liabilities in foreign currency are restated at
the end of accounting period.
Exchange differences on restatement of all other monetary items are
recognised in the Statement of Profit and Loss.
Forward Exchange Contracts : The premium or discount arising at the
inception of forward exchange contracts entered into to hedge an
existing asset/liability, is amortized as expense or income over the
life of the contract. Exchange differences on such a contract are
recognised in the Statement of Profit and Loss in the reporting period
in which the exchange rates change. Any profit or loss arising on
cancellation or renewal of such a forward exchange contract are
recognised as income or as expense for the period.
Forward exchange contracts outstanding as at the year end on account of
firm commitment / highly probable forecast transactions are marked to
market and the losses, if any, are recognised in the Statement of
Profit and Loss and gains are ignored in accordance with the
Announcement of Institute of Chartered Accountants of India on
''Accounting for Derivatives'' issued in March 2008.
K. EMPLOYEE BENEFITS
Superannuation fund: Contribution towards superannuation fund for
certain employees is made to the Life Insurance Corporation, where the
Company has no further obligations. Such benefits are classified as
Defined Contribution Schemes as the Company does not carry any further
obligations, apart from the contributions made on a monthly basis.
Provident Fund: Provident Fund contributions are made to a Trust
administered by the Company. The Company''s liability is actuarially
determined (using the Projected Unit Credit method) at the end of the
year and any shortfall in the fund size maintained by the Trust set up
by the Company is additionally provided for. Actuarial losses/gains are
recognised in the Statement of Profit and Loss in the year in which
they arise.
Gratuity: The Company provides for gratuity, a defined benefit plan
(the "Gratuity Plan") covering eligible employees in accordance with
the Payment of Gratuity Act, 1972. The Gratuity Plan provides a lump
sum payment to vested employees at retirement, death, incapacitation or
termination of employment, of an amount based on the respective
employee''s salary and the tenure of employment. The Company''s liability
is actuarially determined (using the Projected Unit Credit method) at
the end of each year. Actuarial losses/ gains are recognised in the
Statement of Profit and Loss in the year in which they arise.
Compensated Absences: Accumulated compensated absences, which are
expected to be availed or encashed within 12 months from the end of the
year end are treated as short term employee benefits. The obligation
towards the same is measured at the expected cost of accumulating
compensated absences as the additional amount expected to be paid as a
result of the unused entitlement as at the year end.
Accumulated compensated absences, which are expected to be availed or
encashed beyond 12 months from the end of the year end are treated as
other long term employee benefits. The Company''s liability is
actuarially determined (using the Projected Unit Credit method) at the
end of each year. Actuarial losses/ gains are recognised in the
Statement of Profit and Loss in the year in which they arise.
Termination Benefits: Termination benefits in the nature of voluntary
retirement benefits are recognised in the Statement of Profit and Loss
as and when incurred.
L. TAXATION
Tax expense for the period, comprising current tax and deferred tax,
are included in the determination of the net profit or loss for the
period. Current tax is measured at the amount expected to be paid to
the tax authorities in accordance with the taxation laws prevailing in
the respective jurisdictions.
Deferred tax is recognised for all the timing differences, subject to
the consideration of prudence in respect of deferred tax assets.
Deferred tax assets are recognised and carried forward only to the
extent that there is a reasonable certainty that sufficient future
taxable income will be available against which such deferred tax assets
can be realised. Deferred tax assets and liabilities are measured
using the tax rates and tax laws that have been enacted or
substantively enacted by the Balance Sheet date. At each Balance Sheet
date, the group reassesses unrecognised deferred tax assets, if any.
Current tax assets and current tax liabilities are offset when there is
a legally enforceable right to set off the recognised amounts and there
is an intention to settle the asset and the liability on a net basis.
Deferred tax assets and deferred tax liabilities are offset when there
is a legally enforceable right to set off assets against liabilities
representing current tax and where the deferred tax assets and the
deferred tax liabilities relate to taxes on income levied by the same
governing taxation laws.
Minimum Alternative Tax 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. Such asset is reviewed
at each Balance Sheet date and the carrying amount of the MAT credit
asset is written down to the extent there is no longer a convincing
evidence to the effect that the Company will pay normal income tax
during the specified period.
M. PROVISIONS AND CONTINGENCIES
Provisions: Provisions are recognised when there is a present
obligation as a result of a past event, it is probable that an outflow
of resources embodying economic benefits will be required to settle the
obligation and there is a reliable estimate of the amount of the
obligation. Provisions are measured at the best estimate of the
expenditure required to settle the present obligation at the Balance
sheet date and are not discounted to its present value.
Contingent Liabilities: Contingent liabilities are disclosed when there
is a possible obligation arising from past events, the existence of
which will be confirmed only by the occurrence or non occurrence of one
or more uncertain future events not wholly within the control of the
company or a present obligation that arises from past events where it
is either not probable that an outflow of resources will be required to
settle or a reliable estimate of the amount cannot be made, is termed
as a contingent liability.
N. LEASES
As a lessee:Payments made under operating leases are charged to the
Statement of Profit and Loss on a straight-line basis over the period
of the lease.
O. CASH AND CASH EQUIVALENTS
In the cash flow statement, cash and cash equivalents includes cash in
hand, demand deposits with banks, other short-term highly liquid
investments with original maturities of three months or less.
P. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net profit or
loss for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period.
Dec 31, 2011
A) Basis of Accounting :
The financial statements are prepared under historical cost convention
as a going concern on accrual basis and to comply in all material
aspects with all the applicable Accounting principles in India, the
applicable Accounting Standards notified under Section 211 (3C) and
other relevant provisions of the Companies Act, 1956.
b) Revenue Recognition :
i) Revenue in respect of projects for construction of plants and
systems, execution of which is spread over different accounting
periods, is recognized on the basis of percentage of completion method
in accordance with Accounting Standard 7 - Accounting for construction
contracts.
ii) Percentage of completion is determined by the proportion that
contract costs incurred for work done till balance sheet date bears to
the estimated total contract costs.
iii) Difference between costs incurred plus recognized profits/ less
recognized losses and the amount of invoiced sale is disclosed as
contracts in progress.
iv) Determination of revenues under the percentage of completion method
necessarily involves making estimates by the Company, some of which are
of a technical nature, concerning where relevant, the percentage of
completion, costs to completion, the expected revenue from the contract
and the foreseeable losses to completion.
v) Contractual claims are recognized on raising of the claim. However,
consequential liability to excise duty, if any, is provided for and
corresponding revenue is accounted for only on settlement of the claim.
Income from non-contractual claims is recognized only on acceptance of
the claim by the customer.
vi) Revenue from sales of products and services are recognized when
significant risks and rewards of ownership of products are passed on to
the customer or when the service is provided.
vii) Revenue from short term software development services includes
revenue from time and material and fixed price contracts. Revenue from
time and material contracts are recognized as related services are
performed. With reference to fixed price contracts revenue is
recognized in accordance with proportionate completion method.
c) Inventories :
Raw material, spares and components are valued at standard cost, which
approximate actual cost and after providing for cost of obsolescence
and other anticipated losses, wherever considered necessary.
Work in Progress and finished goods are valued at lower of standard
cost and net realizable value, and include material cost and cost of
conversion.
d) Foreign Currency Transactions :
i) Realized gains and losses on foreign currency transactions are
recognized in the Profit and Loss Account.
ii) Monetary assets and monetary liabilities denominated in foreign
currency at the year-end are translated at the year- end exchange
rates, and the resulting exchange difference is recognized in the
Profit and Loss Account.
iii) Forward Contracts in foreign currencies :
The Company uses foreign exchange forward contracts to hedge its
exposure to movements in foreign exchange rates. The use of these
foreign exchange forward contracts reduces the risk or cost to the
Company and the Company does not use the foreign exchange forward
contracts for trading or speculation purposes.
Premium or discount arising at the inception of a forward exchange
contract assigned to foreign currency assets/ liabilities is amortized
as expense or income over the life of the contract. Exchange
differences on such contracts are recognized in the statement of profit
and loss in the reporting period in which the exchange rates change.
Any profit or loss arising on cancellation or renewal of such a forward
exchange contract is recognized as income or expense for the period. In
the case of other forward contracts, only net loss, if any, arising on
the mark-to-market valuation of the contracts at the year-end is
recognized in the Profit and Loss Account.
e) Fixed Assets :
Fixed Assets are stated at cost of acquisition less accumulated
depreciation and impairment losses, if any. Cost of fixed assets
comprises purchase price, duties, levies and any directly attributable
costs of bringing the assets to their working conditions for the
intended use, less Cenvat / VAT. Advances paid towards acquisition of
fixed assets outstanding at the Balance Sheet date and the cost of
fixed assets not ready for their intended use are disclosed under
Capital Work in Progress.
The following assets are depreciated / amortized on a straight line
method over the period of their estimated useful lives:
- Product distribution rights - HSPL are amortized over a period of 10
years and the amount so amortized is included in , depreciation.
- Total Asset Management (TAM) assets are depreciated over the life of
the respective contracts, or 7 years, whichever is earlier.
Assets installed in leased premises are depreciated over 4 years
representing average life of the lease for such premises. Assets
costing Rs. 5 thousand or less are depreciated fully in the year of
purchase.
Where the useful life of an asset is ascertained to be lower than was
previously determined, the carrying value of the asset is depreciated
over the revised residual life of the asset.
g) Impairment of Assets :
The Management periodically assesses, using external and internal
resources, whether there is an indication that an asset may be
impaired. If an asset is impaired, the Company recognizes an impairment
loss as the excess of the carrying amount of the asset over the
recoverable amount.
h) Provisions and Contingent Liabilities:
Provisions are recognized when the Company has a present obligation as
a result of past event, it is probable that an outflow of resources
will be required to settle the obligation, and a reliable estimate of
the amount of the obligation can be made. Provisions are determined
based on best estimate required to settle the obligation at the Balance
Sheet date. Provisions are reviewed at each Balance Sheet date and
adjusted to reflect current best estimates. A disclosure for a
contingent liability is made where there is a possible obligation that
may, but probably will not, require an outflow of resources.
i) Employee Retirement Benefits :
i) Post-Employment Employee Benefits
a) Defined Contribution Plans:
i) Superannuation:
The Company has Defined Contribution Plans for Post employment benefits
in the form of Superannuation Fund for all employees which are
administered by Life Insurance Corporation (LIC) of India .
Superannuation Fund is classified as a defined contribution plans as
the Company has no further obligation beyond making the contributions.
The Company's contributions to Defined Contribution plans are charged
to the Profit and Loss Account as and when incurred.
b) Defined Benefit Plans:
Funded Plan: The Company has defined benefit plan for Post-employment
benefit in the form of Gratuity and Provident fund for all employees
which are administered through Life Insurance Corporation (LIC) of
India / Company managed Trust.
Liability for above defined benefit plan is provided on the basis of
valuation, as at the Balance Sheet date, carried out by an independent
actuary. The actuarial method used for measuring the liability is the
Projected Unit Credit method. In case of Provident Fund for all
employees, the Company has an obligation to make good the shortfall, if
any, between the return from the investments of the trust and the
notified interest rate. The Company's contribution and such shortfall
are charged to Profit and Loss Account as and when incurred.
ii) Other Long-term Employee Benefit
Liability for compensated absences is provided on the basis of
valuation, as at the Balance Sheet date, carried out by an independent
actuary.
iii) Termination benefits are recognized as an expense as and when
incurred.
iv) The Actuarial gains and losses arising during the year are
recognized in the Profit and Loss Account of the year without resorting
to any amortisation.
j) Lease Accounting :
i) Assets acquired under financial lease agreements are capitalized at
the inception of lease, at lower of the fair value and present value of
minimum lease payments, and a liability is created for an equivalent
amount. Lease rentals are allocated between the liability and the
interest cost, so as to obtain a uniform periodic rate of interest on
the outstanding liability for each period.
ii) Leases where the lessor effectively retains substantially all the
risks and benefits of ownership of the leased assets are classified as
operating leases. Operating lease payments in respect of assets
acquired on operating lease are recognized as an expense in the Profit
and Loss Account on a straight line basis over the lease term.
k) Taxation :
Current Tax
Provision for the current income tax is made in the accounts on the
basis of estimated tax liability as per the applicable provisions of
the Income Tax Act, 1961.
Deferred Tax
Deferred tax is recognized, 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 arising
from the timing differences are recognized to the extent there is
reasonable certainty that sufficient future taxable income will be
available against which such deferred tax assets can be realized.
Deferred tax assets are not recognized on unabsorbed depreciation and
carry forward of losses unless there is virtual certainty that
sufficient future taxable income will be available against which such
deferred tax assets can be realized.
Dec 31, 2010
A) Basis of Accounting :
The financial statements are prepared under historical cost convention
as a going concern on accrual basis and to comply in all material
aspects with all the applicable Accounting principles in India, the
applicable Accounting Standards notified under Section 211 (3C) and
other relevant provisions of the Companies Act, 1956.
b) Revenue Recognition :
i) Revenue in respect of projects for construction of plants and
systems, execution of which is spread over different accounting
periods, is recognized on the basis of percentage of completion method
in accordance with Accounting Standard 7 - Accounting for construction
contracts.
ii) Percentage of completion is determined by the proportion that
contract costs incurred for work done till date bears to the estimated
total contract costs.
iii) Difference between costs incurred plus recognized profits/ less
recognized losses and the amount of invoiced sale is disclosed as
contracts in progress.
iv) Determination of revenues under the percentage of completion method
necessarily involves making estimates by the Company, some of which are
of a technical nature, concerning where relevant, the percentage of
completion, costs to completion, the expected revenue from the contract
and the foreseeable losses to completion.
v) Contractual claims are recognized on raising of the claim. However,
consequential liability to excise duty, if any, is provided for and
corresponding revenue is accounted for only on settlement of the claim.
Income from non-contractual claims is recognized only on acceptance of
the claim by the customer.
vi) Revenue from sales of products and services are recognized when
significant risks and rewards of ownership of products are passed on to
the customer or when the service is provided.
vii) Revenue from short term software development services includes
revenue from time and material and fixed price contracts. Revenue from
time and material contracts are recognized as related services are
performed. With reference to fixed price contracts revenue is
recognized in accordance with proportionate completion method.
c) Inventories :
Raw material, spares and components are valued at standard cost, which
approximate actual cost and after providing for cost of obsolescence
and other anticipated losses, wherever considered necessary.
Work-in-Progress and finished goods are valued at lower of standard
cost and net realizable value, and include material cost and cost of
conversion.
d) Foreign Currency Transactions :
i) Realised gains and losses on foreign currency transactions are
recognized in the Profit and Loss Account.
ii) Monetary assets and monetary liabilities denominated in foreign
currency at the year-end are translated at the year-end exchange rates,
and the resulting exchange difference is recognized in the Profit and
Loss Account.
iii) Forward Contracts in foreign currencies :
The Company uses foreign exchange forward contracts to hedge its
exposure to movements in foreign exchange rates. The use of these
foreign exchange forward contracts reduces the risk or cost to the
Company and the Company does not use the foreign exchange forward
contracts for trading or speculation purposes.
Premium or discount arising at the inception of a forward exchange
contract assigned to foreign currency assets/ liabilities is amortised
as expense or income over the life of the contract. Exchange
differences on such contracts are recognized in the statement of profit
and loss in the reporting period in which the exchange rates change.
Any profit or loss arising on cancellation or renewal of such a forward
exchange contract is recognized as income or expense for the period. In
the case of other forward contracts, only net loss, if any, arising on
the mark-to-market valuation of the contracts at the year- end is
recognized in the Profit and Loss account.
e) Fixed Assets :
Fixed Assets are stated at cost of acquisition less accumulated
depreciation and impairment losses, if any. Cost of fixed assets
comprises purchase price, duties, levies and any directly attributable
costs of bringing the assets to their working conditions for the
intended use, less Cenvat / VAT. Advances paid towards acquisition of
fixed assets outstanding at the Balance Sheet date and the cost of
fixed assets not ready for their intended use are disclosed under
Capital Work in Progress.
f) Depreciation / Amortisation :
Depreciation on fixed assets is computed on straight-line method over
their useful lives at rates which are higher than the rates prescribed
under Schedule XIV of the Companies Act, 1956. The estimated useful
lives for various fixed assets are as follows
Class of Asset Useful Life
Buildings 30 years
Plant & Machinery 10 years
Demo Equipment 4 years
Computers 3 years
Office Equipment 5-6 years
Furniture and Fixtures 5-10 years
Vehicles 4-5 years
Intangible Assets (Software) 3 years
The following assets are depreciated/ amortised on a straight line
method over the period of their estimated useful lives:
- Product distribution rights - HSPL are amortised over a period of 10
years and the amount so amortised is included in depreciation.
- Total Asset Management (TAM) assets are depreciated over the life of
the respective contracts, or 7 years, whichever is earlier.
- Software purchased for facilitating order execution is depreciated
over a period of 3 years.
Assets installed in leased premises are depreciated over 4 years
representing average life of the lease for such premises.
Assets costing Rs. 5 thousand or less are depreciated fully in the year
of purchase.
Where the useful life of an asset is ascertained to be lower than was
previously determined, the carrying value of the asset is depreciated
over the revised residual life of the asset.
g) Impairment of Assets :
The Management periodically assesses, using external and internal
resources, whether there is an indication that an asset may be
impaired. If an asset is impaired, the Company recognizes an impairment
loss as the excess of the carrying amount of the asset over the
recoverable amount.
h) Provisions and Contingent Liabilities:
Provisions are recognized when the Company has a present obligation as
a result of past event, it is probable that an outflow of resources
will be required to settle the obligation, and a reliable estimate of
the amount of the obligation can be made. Provisions are determined
based on best estimate required to settle the obligation at the Balance
Sheet date. Provisions are reviewed at each Balance Sheet date and
adjusted to reflect current best estimates. A disclosure for a
contingent liability is made where there is a possible obligation that
may, but probably will not, require an outflow of resources.
i) Employee Retirement Benefits :
i) Post-Employment Employee Benefits
a) Defined Contribution Plans:
i) Superannuation:
The Company has Defined Contribution Plans for Post employment benefits
in the form of Superannuation Fund for all employees which are
administered by Life Insurance Corporation (LIC) of India .
Superannuation Fund is classified as a defined contribution plans as
the Company has no further obligation beyond making the contributions.
The Companys contributions to Defined Contribution plans are charged
to the Profit and Loss Account as and when incurred.
ii) Provident Fund:
The Company has a post-employment benefit plan in the form of provident
fund for all the employees which are administered through a trust
administered by the trustees. Liability for this plan is charged based
on contributions. Further, the Company has an obligation to make good
the shortfall, if any, between the return from the investments of the
trust and the notified interest rate.
b) Defined Benefit Plans:
Funded Plan: The Company has defined benefit plan for Post-employment
benefit in the form of Gratuity for Management employees which is
administered through Life Insurance Corporation (LIC) of India.
Liability for above defined benefit plan is provided on the basis of
valuation, as at the Balance Sheet date, carried out by an independent
actuary. The actuarial method used for measuring the liability is the
Projected Unit Credit method.
ii) Other Long-term Employee Benefit
Liability for compensated absences is provided on the basis of
valuation, as at the Balance Sheet date, carried out by an independent
actuary.
iii) Termination benefits are recognized as an expense as and when
incurred.
iv) The Actuarial gains and losses arising during the year are
recognized in the Profit and Loss Account of the year without resorting
to any amortisation.
j) Lease Accounting :
i) Assets acquired under financial lease agreements are capitalized at
the inception of lease, at lower of the fair value and present value of
minimum lease payments, and a liability is created for an equivalent
amount. Lease rentals are allocated between the liability and the
interest cost, so as to obtain a uniform periodic rate of interest on
the outstanding liability for each period.
ii) Leases where the lessor effectively retains substantially all the
risks and benefits of ownership of the leased assets are classified as
operating leases. Operating lease payments in respect of assets
acquired on operating lease are recognized as an expense in the Profit
and Loss Account.
k) Taxation :
Current Tax
Provision for the current income tax is made in the accounts on the
basis of estimated tax liability as per the applicable provisions of
the Income Tax Act, 1961.
Deferred Tax
Deferred tax is recognized, 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 arising
from the timing differences are recognised to the extent there is
reasonable certainty that sufficient future taxable income will be
available against which such deferred tax assets can be realised.
Deferred tax assets are not recognized on unabsorbed depreciation and
carry forward of losses unless there is virtual certainty that
sufficient future taxable income will be available against which such
deferred tax assets can be realized.
Dec 31, 2009
A) Basis of Accounting :
The financial statements are prepared under historical cost convention
as a going concern on accrual basis and to comply in all material
aspects with all the applicable Accounting principles in India, the
applicable Accounting Standards notified under Section 211 (3C) and
other relevant provisions of the Companies Act, 1956.
b) Revenue Recognition :
i) Revenue in respect of projects for construction of plants and
systems, execution of which is spread over different accounting
periods, is recognized on the basis of percentage of completion method
in accordance with Accounting Standard 7 - Accounting for Construction
Contracts.
ii) Percentage of completion is determined by the proportion that
contract costs incurred for work done till date bears to the estimated
total contract costs.
iii) Difference between costs incurred plus recognized profits / less
recognized losses and the amount of invoiced sale is disclosed as
contracts in progress.
iv) Determination of revenues under the percentage of completion method
necessarily involves making estimates by the Company, some of which are
of a technical nature, concerning where relevant, the percentage of
completion, costs to completion, the expected revenue from the contract
and the foreseeable losses to completion.
v) Contractual claims are recognized on raising of the claim. However,
consequential liability to excise duty, if any, is provided for and
corresponding revenue is accounted for only on settlement of the claim.
Income from non-contractual claims is recognized only on acceptance of
the claim by the customer.
vi) Revenue from sales of products and services are recognized when
significant risks and rewards of ownership of products are passed on to
the customer or when the service is provided.
vii) Revenue from short term engineering services includes revenue from
time and material and fixed price contracts. Revenue from time and
material contracts are recognized as related services are performed.
With reference to fixed price contracts revenue is recognized in
accordance with the proportionate completion method.
c) Inventory Valuation :
Raw material spares and components are valued at standard cost,
adjusted for price variances and after providing for cost of
obsolescence and other anticipated losses, wherever considered
necessary.
WorkinProgress and finished goods are valued at lower of standard cost
and net realisable value, and include material cost and cost of
conversion.
d) Foreign Currency Transactions :
i) Realised gains and losses on foreign currency transactions are
recognized in the Profit and Loss Account.
ii) Monetary current assets and monetary liabilities denominated in
foreign currency at the year-end are translated at the year-end
exchange rates, and the resulting exchange difference is recognized in
the Profit and Loss Account.
iii) Forward contracts in foreign currencies:-
The Company uses foreign exchange forward contracts and options to
hedge its exposure to movements in foreign exchange rates. The use of
these foreign exchange forward contracts and options reduces the risk
or cost to the Company and the Company does not use the foreign
exchange forward contracts or options for trading or speculation
purposes, Premium or discount arising at the inception of a forward
exchange contract assigned to foreign currency assets / liabilities is
amortised as expense or income over the life of the contract. Exchange
differences on such contracts are recognized in the statement of profit
and loss in the reporting period in which the exchange rates change.
Any profit or loss arising on cancellation or renewal of such a forward
exchange contract is recognized as income or expense for the period. In
the case of other forward contracts, only net loss, if any, arising on
the mark-to-market valuation of the contracts at the year- end is
recognized in the Profit and Loss account.
e) Fixed Assets :
Fixed Assets are stated at cost of acquisition less accumulated
depreciation and impairment losses, if any. Cost of fixed assets
comprises purchase price, duties, levies and any directly attributable
costs of bringing the assets to their working conditions for the
intended use, less Cenvat / VAT credit. Advances paid towards
acquisition of fixed assets outstanding at the Balance Sheet date and
the cost of fixed assets not ready for their intended use are disclosed
under Capital Work in Progress.
g) Impairment of Assets :
The Management periodically assesses, using external and internal
sources, whether there is an indication that an asset may be impaired.
If an asset is impaired, the Company recognizes an impairment loss as
the excess of the carrying amount of the asset over the recoverable
amount.
h) Provisions and Contingent Liabilities:
Provisions are recognized when the Company has a present obligation as
a result of past event, it is probable that an outflow of resources
will be required to settle the obligation, and a reliable estimate of
the amount of the obligation can be made. Provisions are determined
based on best estimate required to settle the obligation at the Balance
Sheet date. Provisions are reviewed at each Balance Sheet date and
adjusted to reflect current best estimates. A disclosure for a
contingent liability is made where there is a possible obligation that
may, but probably will not, require an outflow of resources.
i) Employee Retirement Benefits :
i) Post-Employment Employee Benefits
a) Defined Contribution Plans:
The Company has Defined Contribution Plans for Post employment benefits
in the form of Superannuation Fund and Provident Fund for all employees
which are administered by Life Insurance Corporation (LIC) of India and
Regional Provident Fund Commissioner respectively. Superannuation Fund
and Provident Fund are classified as a defined contribution plans as
the Company has no further obligation beyond making the contributions.
The Companys contributions to Defined Contribution plans are charged
to the Profit and Loss Account as and when incurred.
b) Defined Benefit Plans:
Funded Plan: The Company has defined benefit plan for Post-employment
benefit in the form of Gratuity for Management employees which are
administered through Life Insurance Corporation (LIC) of India.
Liability for the above defined benefit plan is provided on the basis
of valuation, as at the Balance Sheet date, carried out by an
independent actuary. The actuarial method used for measuring the
liability is the Projected Unit Credit method.
ii) Other Long-term Employee Benefit
Liability for compensated absences is provided on the basis of
valuation, as at the Balance Sheet date, carried out by an independent
actuary.
iii) Termination benefits are recognized as an expense as and when
incurred.
iv) The Actuarial gains and losses arising during the year are
recognized in the Profit and Loss Account of the year without resorting
to any amortisation.
j) Lease Accounting :
i) Assets acquired under financial lease agreements are capitalised at
the inception of lease, at lower of the fair value and present value of
minimum lease payments, and a liability is created for an equivalent
amount. Lease rentals are allocated between the liability and the
interest cost, so as to obtain a periodic rate of interest on the
outstanding liability for each period.
ii) Leases where the lessor effectively retains substantially all the
risks and benefits of ownership of the leased assets are classified as
operating leases. Operating lease payments in respect of assets
acquired on operating lease are recognized as an expense in the Profit
and Loss Account.
k) Taxation :
Current Tax
Provision for the current income tax is made in the accounts on the
basis of estimated tax liability as per the applicable provisions of
the Income Tax Act, 1961.
Deferred Tax
Deferred tax is recognized, 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 not
recognized on unabsorbed depreciation and carry forward of losses
unless there is virtual certainty that sufficient future taxable income
will be available against which such defered tax assets can be
realized.