Accounting Policies of Lakhotia Polyesters (India) Ltd. Company

Mar 31, 2014

1. Basis of Preparation -

A) The financial statements of the company have been prepared & presented in accordance with the generally accepted accounting principles in India under the historical cost convention on an accrual basis. The company has prepared these Financial Statements to comply in all material aspects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956.

B) The company had adopted revised schedule VI notified under the Companies Act for preparation & presentation of its Financial Statements for the ended 31st March 2014. This has no impact on recognition & measurement principles followed for preparation of financial statements. The Company has re- classified previous year''s figures in accordance with the requirement as applicable in the current year.

C) The Accounting policies adopted in preparation of Financial Statements are consistent with those followed in previous year.

2. USE OF ESTIMATES -

The preparation of Financial Statements in conformity with Indian GAAP requires the management to make estimates & assumptions that affect the reported amount of assets & liabilities (Contingent liabilities) and the reported amounts of revenues & expenses for the year. The management believes that estimates using preparation of financial statements are prudent & reasonable. All though these estimates are based on management''s best knowledge of current events & actions, uncertainty about these assumptions and estimates could result in the outcome different from the estimate.

Estimates and underlying assumptions are reviewed on an ongoing basis any revision to the accounting estimates is recognized prospectively in the current & future period.

3. TANGIBLE FIXED ASSETS-

Fixed assets are carried at cost less accumulated depreciation and impairment losses, if any. The cost of fixed assets includes interest on borrowings attributable to acquisition of qualifying fixed assets up to the date the asset is ready for its intended use and other incidental expenses incurred up to that date. Exchange differences arising on restatement / settlement of long-term foreign currency borrowings relating to acquisition of depreciable fixed assets are adjusted to the cost of the respective assets and depreciated over the remaining useful life of such assets. Subsequent expenditure relating to fixed assets is capitalized only if such expenditure results in an increase in the future benefits from such asset beyond its previously assessed standard of performance.

4. DEPRECIATION -

Depreciation has been provided on the SLM method as per the rates prescribed in Schedule XIV to the Companies Act, 1956. No depreciation is claimed on the assets as merged / acquired at the year end.

5. IMPAIRMENT OF ASSETS -

The carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal / external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its estimated recoverable amount. The recoverable amount is the greater of the asset''s net selling price and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. Previously recognized impairment loss is further provided or reversed depending on changes in circumstances.

6. BORROWING COST -

Borrowing costs, other than those incurred for acquisition of fixed assets are recognized in the statement of Profit and Loss in the period they occur. Borrowing cost consists of Interest and other costs incurred in connection with the borrowing of the funds.

7. INVESTMENTS -

Investments which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as non-current investments. Non Current investments are stated at cost.

8. INVENTORIES -

Inventories are valued at the lower of cost or the net realizable value after providing for obsolesce and other losses, where considered necessary. Cost includes all charges in bringing the goods to the point of sale, including octroi & LBT and other levies, transit insurance and receiving charges. Inventories at all places are taken as certified by the management.

9. CASH AND CASH EQUIVALENTS -

Cash and Cash equivalents for the purpose of cash flow statement comprise cash in hand, demand deposits with banks and other short term highly liquid investments with an original maturity of three months or less.

10. REVENUE RECOGNITION -

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the company and the revenue can be reliably measured.

SALE OF GOODS -

Revenue is recognized when the significant risks and rewards of the ownership of the goods have been passed to the buyer. Sales are disclosed at net of VAT as applicable and also net of returns.

11. OTHER INCOME -

Interest is recognized on Receipt basis.

12. ACCOUNTING OF CLAIMS-

Claims payable are accounted at the time of the acceptance. Claims raised by the Government Authorities regarding taxes and duties, which are disputed by the company, are accounted based upon the merits of the claim.

13. GOVERNMENT GRANTS AND SUBSIDIES-

Government grants and subsidies are recognized when there is a reasonable assurance that the conditions attached to them will be complied, and grant/subsidy will be received.

Government grants of the nature of promoter''s contribution are credited to the reserves and are treated as a part of the share holder''s fund.

14. INCOME TAXES-

Tax expenses comprise of the current and deferred tax includes any adjustments treated to past periods in current and or deferred tax adjustments that may become necessary due to certain

developments or reviews during the relevant period. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961

Deferred Income Taxes reflect the impact of the current year''s timing difference between the taxable income and accounting income for the year and reversal of the timing differences of the earlier periods.

Deferred tax is measured based upon the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet Date. Deferred Tax Assets are recognized 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 realized.

The carrying amount of the deferred tax is reviewed at each Balance Sheet date. The company writes down the carrying amount of the deferred tax assets to the extent that it is no longer reasonably certain that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write down is reversed to the extent that it becomes reasonably certain that sufficient future taxable income will be available.

15. PROVISIONS AND CONTINGENT LIABILITIES-

A provision is recognized when the company has a present obligation as a result of the past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation. Provisions are not discounted to their present value and are determined based upon the best estimate required to settle the obligation at the reporting period.

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The company does not recognize a contingent liability but discloses its existence in the financial statements.

16. CONTINGENT LIABILITIES NOT PROVIDED FOR -

The company, promoters, directors and certain group promoted entities are a party to litigation with the customs departments for import of certain materials based upon alleged "misleading information". The matter is pending in Appeal before the Central Excise and Customs Appellate Tribunal, Mumbai and before the High Court, Mumbai. The total demand in the matter raised by the adjudicating authorities is to the tune of Rs. 220.91 Lakhs against company and Rs. 42.00 Lakhs against Shri M.S. Lakhotia, the Managing Director of the company. The amounts as stated are ex interest thereon.

Pursuant to the directions received from the above authorities, the company has deposited a sum of Rs. 24.00 Lakhs as pre deposit for appeal.

On the basis of expert legal advice in the matter the management of the company is of the opinion that the matter will be decided in its favor and hence the company has not provided for the sums as stated above in its books of accounts for the period under this report and the same is treated as "Contingent Liability"

17. EARNINGS PER SHARE-

Basic earning per share is calculated by dividing the net profit or the loss for the year attributable to equity shareholders by the weighted number of equity shares outstanding at the end of the year.

For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted number of equity share outstanding during the year are adjusted for the effect of all dilutive potential equity shares.

18. CURRENT / NON CURRENT-

All assets and liabilities are presented as Current or Non Current as per the company''s normal operating cycle and other criteria set out in the revised Schedule VI of the Companies Act, 1956. Based upon the nature of products and the time between the acquisition of assets for processing and their realization, the company has ascertained its operating cycle as 12 months for the purpose of current/non - current classification of assets and liabilities.

19. SEGMENT REPORTING-

The company is predominantly in the business of "Man Made Yarn" and as such there are no separate reportable segments. The company''s operations are predominantly only in India.

Note: The above provision is exclusive of Service Tax Payable thereon.

22. PRIOR PERIOD ITEMS -

Expenses pertaining to Service tax and Provident Fund (Employers Share) were quantified during the year under Audit. The amount so quantified includes amounts pertaining to earlier financial years as well. The details of which is as under -

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Mar 31, 2013

1. Basis of Preparation -

A) The financial statements of the company have been prepared & presented in accordance with the generally accepted accounting principles in India under the historical cost convention on an accrual basis. The company has prepared these Financial Statements to comply in all material aspects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956.

B) The company had adopted revised schedule VI notified under the Companies Act for preparation & presentation of its Financial Statements for the ended 31st March 2012 This has no impact on recognition & measurement principles followed for preparation of financial statements. The Company has re- classified previous year''s figures in accordance with the requirement as applicable in the current year.

C) The Accounting policies adopted in preparation of Financial Statements are consistent with those followed in previous year.

2. USE OF ESTIMATES -

The preparation of Financial Statements in conformity with Indian GAAP requires the management to make estimates & assumptions that affect the reported amount of assets & liabilities (Contingent liabilities) and the reported amounts of revenues & expenses for the year. The management believes that estimates using preparation of financial statements are prudent & reasonable. All though these estimates are based on management''s best knowledge of current events & actions, uncertainty about these assumptions and estimates could result in the outcome different from the estimate.

Estimates and underlying assumptions are reviewed on an ongoing basis any revision to the accounting estimates is recognized prospectively in the current & future period.

3. TANGIBLE FIXED ASSETS -

Fixed assets are carried at cost less accumulated depreciation and impairment losses, if any. The cost of fixed assets includes interest on borrowings attributable to acquisition of qualifying fixed assets up to the date the asset is ready for its intended use and other incidental expenses incurred up to that date. Exchange differences arising on restatement / settlement of long-term foreign currency borrowings relating to acquisition of depreciable fixed assets are adjusted to the cost of the respective assets and depreciated over the remaining useful life of such assets. Subsequent expenditure relating to fixed assets is capitalized only if such expenditure results in an increase in the future benefits from such asset beyond its previously assessed standard of performance.

4. DEPRECIATION -

Depreciation has been provided on the SLM method as per the rates prescribed in Schedule XIV to the Companies Act, 1956. No depreciation is claimed on the assets as merged / acquired at the year end.

5. IMPAIRMENT OF ASSETS -

The carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal / external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its estimated recoverable amount. The recoverable amount is the greater of the asset''s net selling price and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. Previously recognized impairment loss is further provided or reversed depending on changes in circumstances.

6. BORROWING COST -

Borrowing costs, other than those incurred for acquisition of fixed assets are recognized in the statement of Profit and Loss in the period they occur. Borrowing cost consists of Interest and other costs incurred in connection with the borrowing of the funds.

7. INVESTMENTS -

Investments which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as non-current investments. Non-Current investments are stated at cost.

8. INVENTORIES -

Inventories are valued at the lower of cost or the net realizable value after providing for obsolesce and other losses, where considered necessary. Cost includes all charges in bringing the goods to the point of sale, including control and other levies, transit insurance and receiving charges. Inventories at all places are taken as certified by the management.

9. CASH AND CASH EQUIVALENTS -

Cash and Cash equivalents for the purpose of cash flow statement comprise cash in hand, demand deposits with banks and other short term highly liquid investments with an original maturity of three months or less.

10. REVENUE RECOGNITION -

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the company and the revenue can be reliably measured.

Revenue is recognized when the significant risks and rewards of the ownership of the goods have been passed to the buyer. Sales are disclosed at net of VAT as applicable and also net of returns.

11. OTHER INCOME -

Insurance claims receipts are recognized on receipt basis.

12. ACCOUNTING OF CLAIMS-

Claims payable are accounted at the time of the acceptance. Claims raised by the Government Authorities regarding taxes and duties, which are disputed by the company, are accounted based upon the merits of the claim.

13. GOVERNMENT GRANTS AND SUBSIDIES-

Government grants and subsidies are recognized when there is a reasonable assurance that the conditions attached to them will be complied, and grant/subsidy will be received.

Government grants of the nature of promoter''s contribution are credited to the reserves and are treated as a part of the shareholder''s fund.

14. INCOME TAXES-

Tax expenses comprise of the current and deferred tax includes any adjustments treated to past periods in current and or deferred tax adjustments that may become necessary due to certain developments or reviews during the relevant period. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961

Deferred Income Taxes reflect the impact of the current year''s timing difference between the taxable income and accounting income for the year and reversal of the timing differences of the earlier periods.

Deferred tax is measured based upon the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet Date. Deferred Tax Assets are recognized 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 realized.

The carrying amount of the deferred tax is reviewed at each Balance Sheet date. The company writes down the carrying amount of the deferred tax assets to the extent that it is no longer reasonably certain that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write down is reversed to the extent that it becomes reasonably certain that sufficient future taxable income will be available.

15. PROVISIONS AND CONTINGENT LIABILITIES-

A provision is recognized when the company has a present obligation as a result of the past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation. Provisions are not discounted to their present value and are determined based upon the best estimate required to settle the obligation at the reporting period.

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The company does not recognize a contingent liability but discloses its existence in the financial statements.

16. CONTINGENT LIABILITIES NOT PROVIDED FOR -

The company, promoters, directors and certain group promoted entities are a party to litigation with the customs departments for import of certain materials based upon alleged "misleading information". The matter is pending in Appeal before the Central Excise and Customs Appellate Tribunal, Mumbai and before the High Court, Mumbai. The total demand in the matter raised by the adjudicating authorities is to the tune of Rs. 220.91 Lakhs against company and Rs. 42.00 Lakhs against Shri M.S. Lakhotia, the Managing Director of the company. The amounts as stated are ex interest thereon.

Pursuant to the directions received from the above authorities, the company has deposited a sum of Rs. 24.00 Lakhs as pre deposit for appeal.

On the basis of expert legal advice in the matter the management of the company is of the opinion that the matter will be decided in its favour and hence the company has not provided for the sums as stated above in its books of accounts for the period under this report and the same is treated as "Contingent Liability"

17. EARNINGS PER SHARE-

Basic earning per share is calculated by dividing the net profit or the loss for the year attributable to equity shareholders by the weighted number of equity shares outstanding at the end of the year.

For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted number of equity share outstanding during the year are adjusted for the effect of all dilutive potential equity shares.

18. CURRENT / NON CURRENT-

All assets and liabilities are presented as Current or Non-Current as per the company''s normal operating cycle and other criteria set out in the revised Schedule VI of the Companies Act, 1956. Based upon the nature of products and the time between the acquisition of assets for processing and their realization, the company has ascertained its operating cycle as 12 months for the purpose of current/non - current classification of assets and liabilities.

19. SEGMENT REPORTING-

The company is predominantly in the business of "Man Made Yarn" and as such there are no separate reportable segments. The company''s operations are predominantly only in India.