Mar 31, 2023
1. Company Overview
Linde India Limited is a public company having Corporate Identity Number L40200WB1935PLC008184. It is incorporated under the Companies Act, 1956 and its shares are listed on the National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Limited (BSE). The Company is primarily engaged in manufacture of industrial and medical gases and construction of cryogenic and non-cryogenic air separation plants.
The functional and presentation currency of the Company is Indian Rupee ("Rs.").
The financial statement for the year ended 31 March 2023 were approved by the Board of directors and authorized for issue on 23 May 2023.
2. Significant accounting policies
The significant accounting policies applied by the Company in the preparation of its financial statements are listed below. Such accounting policies have been applied consistently to all the periods presented in these financial statements, unless otherwise indicated.
The financial statements have been prepared in accordance with the Indian Accounting Standards (referred to as "Ind AS") prescribed under section 133 of the companies Act, 2013 read with Companies (Indian Accounting Standards) Rules, as amended from time to time.
b) Basis of preparation of financial statements
These financial statements have been prepared and presented under the historical cost convention with the following exceptions:-
¦ certain financial assets and liabilities
¦ defined benefit plans - plan assets measured at fair value
¦ share-based payments.
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.
c) Use of estimates and critical accounting judgements
The preparation of the financial statements in conformity with Ind AS requires management to make estimates, judgements and assumptions. These estimates, judgements and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as at the date of the financial statements and reported amounts of revenues and expenses during the period. Accounting estimates could change from period to period. Actual results could differ from these estimates.
The estimates and the underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods affected.
Application of accounting policies that require critical accounting estimates involving complex and subjective judgements and the use of assumptions in these financial statements have been disclosed in note 4.
d) Current - Non-current classification
All assets and liabilities are classified into current and non-current assets and liabilities.
An asset is classified as current when it satisfies any of the following criteria:
a) it is expected to be realised in, or is intended for sale or consumption in the company''s normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is expected to be realised within 12 months after the reporting date; or
d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.
Current assets include the current portion of non-current financial assets.
All other assets are classified as non-current.
A liability is classified as current when it satisfies any of the following criteria:
a) it is expected to be settled in the company''s normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is due to be settled within 12 months after the reporting date; or
d) the company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
Current liabilities include current portion of non-current financial liabilities.
All other liabilities are classified as non-current.
All assets and liabilities have been classified as current or noncurrent as per the Company''s normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013.
Based on the nature of manufacturing activity 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 for the purpose of current - noncurrent classification of assets and liabilities:
¦ as 12 months for the gases and related products of the Company
¦ as 24 months for the Project Engineering Division of the Company which are engaged in the manufacture and construction of cryogenic and non-cryogenic air separation plants.
e) Revenue recognition
A. Sale of Products
The Company recognises revenue from contracts with customers when it satisfies a performance obligation by transferring control of promised good to a customer. Performance obligation in respect of sale of product is satisfied at a point in time which usually occurs upon receipt of goods by the customer. At that point, the customer has full discretion over the channel and price to sell the products, and there are no unfulfilled obligations that could affect the customer''s acceptance of the product.
The revenue is recognised to the extent of transaction price allocated to the performance obligation satisfied.
Transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring good to a customer excluding amounts collected on behalf of a third party. Variable consideration is estimated using the expected value method or most likely amount as appropriate in a given circumstance. Payment terms agreed with a customer are as per business practice and there is no financing component involved in the transaction price.
B. Sale of Services
In respect of sale of services, performance obligation is satisfied over time when the entity renders services to customers. Revenue from services rendered is recognised as the services are rendered and is booked based on agreement / arrangements with the concerned parties.
Transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring service to a customer excluding amounts collected on behalf of a third party. Variable consideration is estimated using the expected value method or most likely amount as appropriate in a given circumstance. Payment terms agreed with a customer are as per business practice and there is no financing component involved in the transaction price. Payment terms agreed with a customer are as per business practice and there is no financing component involved in the transaction price.
C. Revenue from Construction
Revenue from construction/project related activity is recognised as follows:
The Company generally has fixed price contracts in respect of which contract revenue is recognised over time to the extent of performance obligation satisfied and control is transferred to the customer. Contract revenue is recognised at allocable transaction price which represents the cost of work performed on the contract plus proportionate margin, using the percentage of completion method. Percentage of completion is the proportion of cost of work performed to-date, to the total estimated contract costs.
When Contract revenue recognized till date exceed progress billing, the excess is shown as unbilled revenue. For contracts where progress billings exceed the contract revenue till date, the excess is shown as advance from customer. Amounts received before the related work is performed are included as a liability as advance from customer.
Payment terms agreed with a customer are as per business practice and there is no financing component involved in the transaction price.
Impairment loss (termed as provision for foreseeable losses in the financial statements) is recognized in profit or loss to the extent the carrying amount of the contract asset exceeds the remaining amount of consideration that the Company expects to receive towards remaining performance obligations (after deducting the costs that relate directly to fulfill such remaining performance obligations).
Interest income is recognised on a time proportion basis taking into account the amount outstanding and the interest rate applicable.
Income from dividend is recognised when right to receive payment is established.
E. Other Income
Other Incomes are accounted as and when the right to receive such income arises and it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably.
f) Property, Plant and equipment
Freehold Land is carried at historical cost. Property, plant and equipment are stated at cost of acquisition or construction less accumulated depreciation or accumulated impairment loss, if any. Cost of item of property, plant and equipment includes purchase price, taxes, non- refundable duties, freight and other costs that are directly attributable to bringing assets to their working condition for their intended use. Expenses capitalised include applicable borrowing costs for qualifying assets, if any.
This recognition principle is applied to the costs incurred initially to acquire an item of property, plant and equipment and also to costs incurred subsequently to add to, replace part of, or service it. All other repair and maintenance costs, including regular servicing, are
recognised in the statement of profit and loss as incurred. When a replacement occurs, the carrying value of the replaced part is de-recognised. Where an item of property, plant and equipment comprises major components having different useful lives, these components are accounted for as separate items
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the Statement of Profit and Loss.
The residual values, useful lives and method of depreciation of Property, Plant & Equipment is reviewed at each financial year and adjusted prospectively, if any.
Spares that can be used only with particular items of plant and machinery and such usage is expected to be for more than once accounting period are capitalized.
Property, Plant and Equipment under construction are recognized as capital work in progress.
g) Provision for Decommissioning, Restoration and Similar Liabilities
The Company has liabilities related to dismantling (restoration of soil) and other related works, which are due upon the closure of certain of its production sites. Such liabilities are estimated case-by-case based on available information, taking into account applicable local legal requirements. The estimation is made using existing technology and discounted using a discount rate where the effect of time value of money is material.
Future dismantling and restoration costs discounted to net present value, are capitalised and the corresponding dismantling liability is recognized as soon as the obligation to incur such costs arises. Future dismantling costs are capitalised in property, plant and equipment as appropriate and are depreciated over the life of the related asset. The effect of the time value of money on the dismantling and restoration costs liability is recognised in the statement of profit and loss.
h) Goodwill and other Intangible assets
Goodwill arising on acquisition of business is measured at cost less any accumulated impairment loss. Goodwill is assessed at every balance sheet date for any impairment.
Intangible assets are only recognized when it is probable that associated future economic benefits would flow to the Company.
Intangibles in respect of non- compete and customer relationships acquired in a business combination are recognized at fair value at the acquisition date. They have a finite useful life and are subsequently carried at costs less accumulated amortization and accumulated impairment losses, if any.
Intangible assets in respect of software''s acquired separately are measured on initial recognition at cost. Following initial recognition, they are carried at cost less accumulated amortization and accumulated impairment losses, if any.
Intangible assets are derecognised either on their disposal or where no future economic benefits are expected from their use. Gains or losses arising from derecognition of an intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the Statement of Profit and Loss when the asset is derecognized.
Subsequent to initial recognition, intangible assets with definite useful lives are reported at cost less accumulated amortisation and accumulated impairment losses.
i) Depreciation of Property, Plant and Equipment
Depreciation is computed as per the straight line method based on the management''s estimate of useful life of a property, plant and equipment. Land is not depreciated but subject to impairment. These charges are commenced from the dates the assets are available for their intended use and are spread over their estimated useful economic lives. The estimated useful lives of assets and residual values are reviewed regularly and, when necessary, revised.
The following useful lives a assets: |
pply to the different types of tangible |
Buildings |
4 - 30 Years |
Plant and Equipment |
10 - 42 Years |
Furniture and fixtures |
5 - 10 Years |
Vehicles |
3 -15 Years |
Office Equipment |
1- 15 Years |
Freehold land is not depreciated.
Assets individually costing Rs. 10,000 or less are fully depreciated in the year of acquisition.
Spares capitalized are being depreciated over the useful life / remaining useful life of the plant and machinery with which such spares can be used.
Schedule II to the Companies Act, 2013 ("Schedule") prescribes the useful lives for various classes of tangible assets. For certain class of assets, based on the technical evaluation and assessment, the Company believes that the useful lives adopted by it best represent the period over which an asset is expected to be available for use. Accordingly, for these assets, the useful lives estimated by the Company are different from those prescribed in the Schedule.
The useful lives are reviewed atleast at each year end. Changes in expected useful lives are treated as changes in accounting estimates.
j) Amortisation of Intangible assets
Intangible assets except Goodwill are amortised in Statement of Profit or Loss over their estimated useful lives, from the date that they are available for use based on the expected pattern of consumption of economic benefits of the asset. Accordingly, at present, these are being amortised on straight line basis.
The estimated useful lives of Intangible Assets are as follows: Software 6 Years Non-compete fee 15 Years Customer Relationship 25 Years |
The useful lives are reviewed atleast at each year end. Changes in expected useful lives are treated as changes in accounting estimates.
k) Impairment of non financial assets
The carrying amounts of property, plant & equipment, capital work in progress and intangible assets are reviewed at each Balance Sheet date, to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amounts are estimated at each reporting date. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset or the cash-generating unit. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit"). An impairment loss is recognised whenever the carrying amount of an asset or the cash generating unit exceeds the corresponding recoverable amount. Impairment losses are recognised in the Statement of Profit and Loss.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined net of depreciation or amortisation, if no impairment loss had been recognised. Impairment loss recognized for goodwill is not reversed in a subsequent period unless the impairment loss was caused by a specific external event of an exceptional nature that is not expected to recur, and subsequent external events have occurred that reverse the effect of that event.
Borrowing costs that are attributable to the acquisition, construction or production of qualifying assets are treated as direct cost and are considered as part of cost of such assets. A qualifying asset is an asset that necessarily requires a substantial period of
time to get ready for its intended use or sale. Capitalisation of borrowing costs is suspended in the period during which the active development is delayed beyond reasonable time due to other than temporary interruption. All other borrowing costs are charged to the statement of profit and loss as incurred.
Inventories of raw materials, components and stores and spare parts are valued at lower of cost and net realisable value. Cost includes purchase price, duties and taxes (other than those subsequently recoverable by the Company from taxing authorities), freight inward and other expenditure in bringing inventories to present locations and conditions. In determining the cost, weighted average cost method is used. The carrying costs of raw materials, components and stores and spare parts are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost.
Finished goods are valued at the lower of cost and net realisable value. The comparison of cost and net realisable value is made on an item by item basis. Cost comprises of direct material and labour expenses and an appropriate portion of production overheads incurred in bringing the inventory to their present location and condition. Fixed production overheads are allocated on the basis of normal capacity of the production facilities. Cost is determined on a weighted average basis.
Net Realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
Costs incurred on long term construction contracts representing general purpose item of inventories are disclosed as contract work in progress net of provision for loss.
n) Leases
The Company has adopted Ind AS 116 "Leases" and applied the standard to all lease contracts.
Company as a lessee
The Company, as a lessee, recognises a right-of-use asset and a lease liability for its leasing arrangements, if the contract conveys the right to control the use of an identified asset. The contract conveys the right to control the use of an identified asset, if it involves the use of an identified asset and the Company has substantially all of the economic benefits from use of the asset and has right to direct the use of the identified asset. The cost of the right-of-use asset shall comprise of the amount of the initial measurement of the lease liability adjusted for any lease payments made at or before the commencement date plus any initial direct costs incurred. The right-of-use assets is subsequently measured at cost less any accumulated depreciation, accumulated impairment losses, if any and adjusted for any remeasurement of the lease liability. The right-of-use assets is depreciated using the straightline method from the commencement date over the shorter of lease term or useful life of right-of-use asset.
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 payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined.
If that rate cannot be readily determined, the Company uses incremental borrowing rate. For short-term and low value leases, the Company recognises the lease payments as an operating expense on a straight-line basis over the lease term. When the lease liability is remeasured due to change in contract terms, a corresponding change is made to the carrying amount of right-of-use asset, or is recorded in the profit and loss account if the carrying amount of right-of-use asset is reduced to zero.
Lease under which the Company assumes substantially all the risks and rewards of ownership are classified as finance lease. Such assets acquired are capitalised at fair value of the asset or present value of the minimum lease payments at the inception of the lease, whichever is lower. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease unless the payments are structured to increase in line with expected general inflation to compensate for the lessor''s expected inflationary cost increases.
Company as lessor
In respect of assets given on operating lease, the lease rental income is recognised in the Statement of Profit and Loss on a straight-line basis over the lease term unless the receipts are structured to increase in line with expected general inflation to compensate for the expected inflationary cost increases.
The Company''s obligation towards various employee benefits have been recognized as follows:
Employee benefits payable wholly within twelve months of receiving employees services are classified as short-term employee benefits. These benefits include salaries and wages, bonus and exgratia. The undiscounted amount of short-term employee benefits to be paid in exchange for employee services is recognized as an expense as the related service is rendered by employees. The company recognizes a liability & expense for bonuses. The company recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation.
Post-employment Benefits Defined contribution plans
The Company pays provident fund contributions to publicly administered provident funds as per local regulations. The Company has no further payment obligations once the contributions have been paid. The contributions are accounted for as defined
contribution plans and the contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
Recognition and measurement of defined benefit plans:
For defined benefit schemes i.e. gratuity, superannuation and post-retirement medical benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuation being carried out at each balance sheet date. Re-measurement gains and losses of the net defined benefit liability/ (asset) are recognized immediately in other comprehensive income. Such re-measurements are not re-classified to the Statement of Profit & Loss in the subsequent period. The service cost and net interest on the net defined benefit liability/ (asset) is treated as a net expense within employment costs.
Past service cost is recognised as an expense when the plan amendment or curtailment occurs or when any related restructuring costs or termination benefits are recognised, whichever is earlier.
The defined benefit obligation recognised in the balance sheet represents the present value of the defined-benefit obligation as reduced by the fair value of plan assets.
Other long-term employee benefits Compensated absences
Liabilities recognised in respect of other long-term employee benefits such as annual leave and sick leave are measured at the present value of the estimated future cash outflows expected to be made by the Company in respect of services provided by employees up to the reporting date using the projected unit credit method with actuarial valuation being carried out at each year end balance sheet date. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to the statement of profit and loss in the period in which they arise. Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related service are recognized based on actuarial valuation.
Termination Benefits
Termination Benefits, in the nature of voluntary retirement benefits or Termination Benefits arising from restructuring, are recognized in the Statement of Profit & Loss. The Company recognizes Termination Benefits at the earlier of the following dates:
(a) when the Company can no longer withdraw the offer of these benefits, or
(b) when the Company recognizes costs for a restructuring that is within the scope of Ind AS 37 and involves the payment of termination benefits.
Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value
Share-based compensation benefits are provided to employees under Long Term Incentive Plan which permits the grant of Nonqualified Stock Options, Restricted Stock Units and Performance stock Units. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. That cost is recognised, together with a corresponding increase in Employee Stock Options Outstanding Account in equity, over the period in which the performance and/ or service conditions are fulfilled, in Employee Benefit Expense.
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company''s best estimate of the number of equity instruments that will ultimately vest. Stock options which are equity settled options, is granted, subject to the terms and provisions of the Plan, to participants as determined by the Committee, in its sole discretion. Each option granted shall be evidenced by an award agreement that shall specify the option price, the term of the option, the number of shares to which the option pertains, the conditions, including any performance goals, upon which an option shall become vested and exercisable, and such other terms and conditions as the committee shall determine which are not inconsistent with the terms of the Plan. PSU and RSU which are equity settled options are granted under the 2009 Plan to senior level executives that vest over a period of three years. The exercise price is Nil. Linde Plc cross charges the amount to the Company, determined based on the fair value of the shares on vesting of PSU and RSU at the end of three years.
q) Foreign exchange transactions
Foreign exchange transactions are recorded at the exchange rate prevailing on the date of the transactions. Year-end monetary assets and liabilities denominated in foreign currencies are translated at the year-end foreign exchange rates. Non- Monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of transaction. Non-monetary items, measured at fair value denominated in a foreign currency are translated using the exchange rates that existed when the fair value was determined.
Exchange differences arising on settlement or translation of monetary items are recognised in the Statement of Profit and Loss. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e. translation differences on items whose fair value gain or loss is recognised in other comprehensive income (OCI) or profit and loss are also recognised in OCI or profit and loss, respectively).
r) Provisions, contingent liabilities and contingent assets
A provision is reconised when there is a present obligation (legal or constructive) as a result of a past event that probably requires
an outflow of resources and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted to reflect its present value using a current pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost. Each provision is based on the best estimate of the expenditure required to settle the present obligation at the balance sheet date.
Constructive obligation is an obligation that derives from an entity''s actions where:
(a) by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity
has indicated to other parties that it will accept certain responsibilities and;
(b) as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.
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. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
Contingent assets are generally not recognized but are disclosed when inflow of economic benefit is probable.
Provisions, Contingent liabilities and contingent assets are reviewed at each Balance Sheet date.
s) Income taxes
Tax expense for the year comprises current tax and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of profit and loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company''s liability for current tax is calculated using tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying values of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using liability method. Deferred tax liabilities are generally recognised for all
taxable temporary differences. In contrast, deferred tax assets are only recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.
The carrying value of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on the tax rates and tax laws that have been enacted or substantially enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to cover or settle the carrying value of its assets and liabilities.
Deferred tax assets and liabilities are offset to the extent that they relate to taxes levied by the same tax authority and there are legally enforceable rights to set off current tax assets and current tax liabilities within that jurisdiction and there is an intention to settle the asset & liability on a net basis.
Current and deferred tax are recognised as an expense or income in the statement of profit and loss, except when they relate to items credited or debited either in other comprehensive income or directly in equity, in which case tax is also recognized in other comprehensive income or directly in equity.
Deferred tax assets include Minimum Alternate Tax (MAT) paid in accordance with the tax laws in India, which is likely to give future economic benefits in the form of availability of set off against future income tax liability. MAT is recognised as deferred tax assets in the Balance Sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with the asset will be realised.
Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders of the Company by the weighted average number of the equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profit or loss for the year attributable to equity shareholders of the Company and the weighted average number of equity shares outstanding during the year are adjusted for the effect of all dilutive potential equity shares.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets and 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 measured on initial recognition of financial asset or financial liability. The transaction costs directly attributable to the acquisition of financial assets and financial liabilities at fair value through profit and loss are immediately recognised in the statement of profit and loss. Where the fair value of a financial asset at initial recognition is different from its transaction price, the difference between the fair value and the transaction price is recognized as a gain or loss in the Statement of Profit and Loss. However, trade receivables that do not contain a significant financing component are measured at Transaction price.
(a) Financial assets
i. Financial assets at amortised cost
Financial assets are subsequently measured at amortised cost if these financial assets are held within a business model whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The effective interest method is a method of calculating the amortised cost of a financial instrument and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts future cash receipts or payments through the expected life of the financial instrument, or where appropriate, a shorter period.
ii. Financial assets measured at fair value
Fair Value through other comprehensive income (FVTOCI)
Financial assets are measured at fair value through other comprehensive income if these financial assets are held within a business model whose objective is to hold these assets in order to collect contractual cash flows or to sell these financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognised in the OCI. However, the Company recognises interest income, impairment losses and reversals and foreign exchange gain or loss in the statement of profit and loss. On derecognition of the asset, cumulative gain or loss previously recognised in OCI is reclassified to the statement of profit and loss. Interest earned while holding a FVTOCI instrument is reported as interest income using the effective interest rate method.
The Company in respect of equity investments (other than in subsidiaries, associates and joint ventures) which are not held for trading has made an irrevocable election to present in other
comprehensive income subsequent changes in the fair value of such equity instruments. Such an election is made by the Company on an instrument by instrument basis at the time of initial recognition of such equity investments.
Fair value through the statement of profit and loss (FVTPL)
Financial asset not measured at amortised cost or at fair value through other comprehensive income is carried at fair value through the statement of profit and loss. Fair value changes are recognized in the Statement of Profit & Loss at each reporting period.
Cash and bank balances consist of:
(i) Cash and cash equivalents - which includes cash in hand, deposits held at call with banks and other short term deposits which are readily convertible into known amounts of cash, are subject to an insignificant risk of change in value and have maturities of less than one year from the date of such deposits. These balances with banks are unrestricted for withdrawal and usage.
(ii) Other bank balances - which includes balances and deposits with banks that are restricted for withdrawal and usage.
iv. Impairment of financial assets:
The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial assets and unbilled revenues which are not fair valued through profit or loss.
The Company recognises life time expected credit losses for all trade receivables and unbilled revenues that do not constitute a financing transaction. For all other financial assets whose credit risk has not significantly increased since initial recognition, loss allowance equal to twelve months expected credit losses is recognised. Loss allowance equal to the lifetime expected credit losses is recognised if the credit risk on the financial instruments has significantly increased since initial recognition. The Impairment losses and reversals are recognized in the Statement of Profit & Loss.
v. De-recognition of financial assets
The Company de-recognises a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the assets and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognizes a collateralised borrowing for the proceeds received. On de-recognition of a Financial Asset (except for Financial Assets measured at FVTOCI), the difference between the carrying amount and the consideration received is recognized in the Statement of Profit & Loss.
(b) Financial liabilities and equity instruments Classification as debt or equity
Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.
Financial Liabilities
Trade and other payables are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, using the effective interest rate method where the time value of money is significant. Interest bearing bank loans, overdrafts and issued debt are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in the statement of profit and loss.
De-recognition of financial liabilities
The Company de-recognises financial liabilities when, and only when, the Company''s obligations are discharged, cancelled or they expire. The differences between the carrying amount of the financial liability derecognized and the consideration paid is recognized in the Statement of Profit & Loss.
Derivative financial instruments and hedge accounting
The Company enters into forward contracts and principal and interest swap contracts to hedge its risks associated with foreign currency and variable interest rate fluctuations related to existing financial assets and liabilities, certain firm commitments and forecasted transactions. These derivative contracts are being considered as cash flow hedge.
The use of hedging instruments is governed by the Company''s policies approved by the Board of Directors. The Company does not use these contracts for trading or speculative purposes.
To designate a forward contract/ swap contract as an effective hedge, management objectively evaluates and evidences with appropriate supporting documents at the inception of each contract whether the contract is effective in offsetting cash flows attributable to the hedged risk.
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 recognised immediately in the statement of profit and loss. The effective portion is recognized in Other Comprehensive Income.
When hedge accounting is applied:
¦ 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
¦ 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 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 recognised in equity is transferred to the statement of profit and loss for the period.
v) Investment in Joint Ventures & associates
A joint venture is a joint arrangement whereby the parties have the joint control of the arrangement and have rights to the net assets to joint arrangement. Joint control is contractually agreed sharing of control of an arrangement which exists only when decisions about the relevant activity require unanimous consent of the parties sharing control. Investment in joint ventures are carried at cost less accumulated impairment, if any. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in joint venture, the difference between net disposal proceeds and the carrying amounts are recognized in the Statement of Profit and Loss.
An associate is an entity over which the investor has significant influence. Investment in associates are carried at fair value through Profit & Loss.
A provision for onerous contracts is recognised in the statement of profit and loss when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.
x) Non-current assets held for sale and discontinued operations
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and contractual rights under insurance contracts, which are specifically exempt from this requirement.
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of de-recognition.
Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.
Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the statement of profit and loss.
y) Business Combinations
Business Combinations are accounted for using the acquisition method of accounting, except for common control transactions which are accounted using the pooling of interest method that is accounted at carrying values. The cost of an acquisition is measured at the fair value of the assets transferred, equity instruments issued and liabilities assumed at their acquisition date i.e. the date on which control is acquired.
Goodwill arising on business combination is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for noncontrolling interests, and any previous interest held, over the fair value of net identifiable assets acquired and liabilities assumed. After initial recognition, Goodwill is tested for impairment annually and measured at cost less any accumulated impairment losses if any.
z) Segment Reporting
Operating Segments are reported in a manner consistent with the information reported to the Chief Operating Decision Maker (CODM) for the purpose of resource allocation and assessment of segment performance based on product and services.
aa) Rounding of amounts
All amounts disclosed in the financial statements and notes have been rounded of to the nearest million as per the requirement of Schedule III.
3. Recent Accounting Pronouncements
Ministry of Corporate Affairs (âMCA") has notified the following new amendments to Ind AS which the Company has not applied as they are effective for annual periods beginning on or after April 1, 2023.
Amendment to Ind AS 1 "Presentation of Financial Instruments"
The amendments require companies to disclose their material accounting policies rather than their significant accounting policies. Accounting policy information is material if, together with other information 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.
Amendment to Ind AS 8 "Accounting Policies, Changes in Accounting Estimates and Errors"
The amendments will help entities to distinguish between accounting policies and accounting estimates. The definition of a change in accounting estimates has been replaced with a definition of accounting estimates. Under the new definition, accounting estimates are âmonetary amounts in financial statements that are subject to measurement uncertainty". Entities use measurement techniques and inputs to develop accounting estimates if accounting policies require items in financial statements to be measured in a way that involves measurement uncertainty. The Company does not expect this amendment to have any significant impact in its financial statements.
Amendment to Ind AS 12 "Income Taxes"
This amendment has narrowed the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. Company does not expect this amendment to have any significant impact in its financial statements.
3.1 New and amended standards adopted by the Company
The Ministry of Corporate Affairs, vide notification dated 23rd March, 2022, had notified Companies (Indian Accounting Standards) Amendment Rules, 2022 which amended certain accounting standards with effect from 1st April,
2022. These amendments did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.
4. Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with generally accepted accounting principles which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period end. Although these estimates are based upon management''s best knowledge of current events and actions, actual results could differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions 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.
This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed.
(i) Estimation of Expected Useful Lives of Property, Plant and Equipment and Intangible assets
The estimated useful lives of property, plant and equipment and intangible assets are based on a number of factors including the effects of obsolescence, demand, competition, historical experience, internal assessment of user experience and other economic factors (such as the stability of the industry and known technological advances) and the level of maintenance expenditure required to obtain the expected future cash flows from the asset. The Company reviews the useful life of property, plant and equipment and intangible assets at the end of each reporting period
(ii) Accounting for revenue from contracts wherein company satisfies performance obligation and recognises revenue over time
For contracts wherein performance obligation are satisfied over time, an entity recognises revenue over time by measuring the progress towards complete satisfaction of that performance obligation, in order to depict an entity''s performance in transferring control of goods or services p
Dec 31, 2018
1. Significant accounting policies
The significant accounting policies applied by the Company in the preparation of its financial statements are listed below. Such accounting policies have been applied consistently to all the periods presented in these financial statements, unless otherwise indicated.
a) Statement of compliance
The financial statements have been prepared in accordance with the Indian Accounting Standards (referred to as âInd ASâ) prescribed under section 133 of the companies Act, 2013 read with Companies (Indian Accounting Standards) Rules, as amended from time to time.
b) Basis of preparation of financial statements
These financial statements have been prepared and presented under the historical cost convention with the exception of certain assets and liabilities that are required to be carried at fair values by Ind AS.
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.
c) Use of estimates and critical accounting judgements
In preparation of the financial statements, the Company makes judgements, estimates and assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and the 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 the underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods affected.
Significant judgements and estimates relating to the carrying values of assets and liabilities include useful lives of property, plant and equipment and intangible assets, impairment of property, plant and equipment, intangible assets, provision for employee benefits and other claims, provision and contingent liabilities, recoverability of deferred tax assets.
d) Current - Non-current classification
All assets and liabilities are classified into current and non-current assets and liabilities.
Assets
An asset is classified as current when it satisfies any of the following criteria:
a) it is expected to be realised in, or is intended for sale or consumption in the companyâs normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is expected to be realised within 12 months after the reporting date; or
d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.
Current assets include the current portion of non-current financial assets.
All other assets are classified as non-current.
Liabilities
A liability is classified as current when it satisfies any of the following criteria:
a) it is expected to be settled in the companyâs normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is due to be settled within 12 months after the reporting date; or
d) the company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
Current liabilities include current portion of non-current financial liabilities.
All other liabilities are classified as non-current.
All assets and liabilities have been classified as current or noncurrent as per the Companyâs normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013.
Based on the nature of manufacturing activity 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 for the purpose of current - noncurrent classification of assets and liabilities:
- as 12 months for the gases and related products of the Company
- as 24 months for the Project Engineering Division of the Company
which are engaged in the manufacture and construction of cryogenic and non-cryogenic air separation plants.
e) 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 be measured, regardless of when the payment is being made. Revenue is being measured at fair value of the consideration received or receivable net of discounts, taking into account the contractually defined terms and excluding taxes or duties collected on behalf of the government.
A. Sale of Products
Revenue from sale of gas and related products in the course of ordinary activities is recognised when property in the goods and related products or all significant risk and rewards of their ownership are transferred to the customer, the amount of revenue can be measured reliably, no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of gas and its related products and regarding its collection. Facility charge is recognised on accrual basis as per the terms of the contract with the customers or on a straight-line basis over the specified period of the contract. The amount recognized as revenue is exclusive of Goods and Service Tax (GST).
B. Revenue from Construction
Contract revenue and contract costs associated with the long-term construction contracts are recognized as revenue and expenses respectively by reference to the stage of completion of the project at the Balance Sheet date. The stage of completion of project is determined by the proportion that contract costs incurred for work performed up to the balance sheet date bear to the estimated total contract costs. If total cost is estimated to exceed total contract revenue, the company provides for foreseeable loss.
C. Interest & Dividend lncome
Interest income is recognised on a time proportion basis taking into account the amount outstanding and the interest rate applicable.
Income from dividend is recognised when right to receive payment is established.
D. Other Income
Other Incomes are accounted as and when the right to receive such income arises and it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably.
f) Property, Plant and equipment
Property, plant and equipment are stated at cost of acquisition or construction less accumulated depreciation or accumulated impairment loss, if any. Cost of item of property, plant and equipment includes purchase price, taxes, non- refundable duties, freight and other costs that are directly attributable to bringing assets to their working condition for their intended use. Expenses capitalised include applicable borrowing costs for qualifying assets, if any.
This recognition principle is applied to the costs incurred initially to acquire an item of property, plant and equipment and also to costs incurred subsequently to add to, replace part of, or service it. All other repair and maintenance costs, including regular servicing, are recognised in the statement of profit and loss as incurred. When a replacement occurs, the carrying value of the replaced part is de-recognised. Where an item of property, plant and equipment comprises major components having different useful lives, these components are accounted for as separate items.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the Statement of Profit and Loss.
The residual values, useful lives and method of depreciation of Property, Plant & Equipment is reviewed at each financial year and adjusted prospectively, if any.
Spares that can be used only with particular items of plant and machinery and such usage is expected to be for more than once accounting period are capitalized.
Property, Plant and Equipment under construction are recognized as capital work in progress.
g) Provision for Decommissioning, Restoration and Similar Liabilities
The Company has liabilities related to dismantling (restoration of soil) and other related works, which are due upon the closure of certain production sites. Such liabilities are estimated case-by-case based on available information, taking into account applicable local legal requirements. The estimation is made using existing technology, at current prices, and discounted using a discount rate where the effect of time value of money is material.
Future dismantling costs discounted to net present value, are capitalised and the corresponding dismantling liability is raised as soon as the obligation to incur such costs arises. Future dismantling costs are capitalised in property, plant and equipment as appropriate and are depreciated over the life of the related asset. The effect of the time value of money on the restoration and environmental costs liability is recognised in the statement of profit and loss.
h) Intangible assets
Software and Non- compete fees costs are included in the balance sheet as intangible assets where they are clearly linked to long term economic benefits for the Company. They are measured initially at purchase cost and then amortised on a straight line basis over their estimated useful lives. All other costs on software and noncompete fees are expensed in the statement of profit and loss as and when incurred.
Goodwill arising on acquisition of business is measured at cost less any accumulated impairment loss. Goodwill is assessed at every balance sheet date for any impairment.
Subsequent to initial recognition, intangible assets with definite useful lives are reported at cost less accumulated amortisation and accumulated impairment losses.
i) Depreciation of Property, Plant and Equipment
Depreciation computed as per the straight line method based on the managementâs estimate of useful life of a property, plant and equipment which is in accordance with the useful lives of property, plant and equipment indicated in Schedule II of the Act. These charges are commenced from the dates the assets are available for their intended use and are spread over their estimated useful economic lives. The estimated useful lives of assets and residual values are reviewed regularly and, when necessary, revised.
For certain assets categorized under âPlant and equipmentâ, based on internal assessment, the management believes that these assets have useful lives of 10 years, 15 years and 18 years, which is different from the useful lives as prescribed under Part C of Schedule II of the Act.
The following useful lives apply to the different types of tangible assets:
Buildings 10-40years
Plant and Equipment 10 - 18 years
Furniture and fixtures 5-10years
Vehicles 5-10years
Office Equipments 3-10 years
Freehold land is not depreciated.
Assets individually costing Rs. 10,000.00 or less are fully depreciated in the year of acquisition.
Spares capitalized are being depreciated over the useful life / remaining useful life of the plant and machinery with which such spares can be used.
The useful lives are reviewed at least at each year end. Changes in expected useful lives are treated as changes in accounting estimates.
j) Amortisation of Intangible assets
Intangible assets except Goodwill are amortised in Statement of Profit or Loss over their estimated useful lives, from the date that they are available for use based on the expected pattern of consumption of economic benefits of the asset. Accordingly, at present, these are being amortised on straight line basis.
The estimated useful lives of Intangible Assets are as follows:
Software 5 Years
Non-compete fee 5 Years
Leasehold rights 3 Years
The useful lives are reviewed at least at each year end. Changes in expected useful lives are treated as changes in accounting estimates.
k) Impairment
The carrying amounts of property, plant & equipment, capital work in progress and intangible assets are reviewed at each Balance Sheet date, to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amounts are estimated at each reporting date. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-discount rate that reflects the current market assessments of the time value of money. An impairment loss is recognised whenever the carrying amount of an asset or the cash generating unit of which it is a part exceeds the corresponding recoverable amount. Impairment losses are recognised in the Statement of Profit and Loss.
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined net of depreciation or amortisation, if no impairment loss had been recognised. Impairment loss recognized for goodwill is not reversed in a subsequent period unless the impairment loss was caused by a specific external event of an exceptional nature that is not expected to recur, and subsequent external events have occurred that reverse the effect of that event.
I) Borrowing costs
Borrowing costs that are attributable to the acquisition, construction or production of qualifying assets are treated as direct cost and are considered as part of cost of such assets. A qualifying asset is an asset that necessarily requires a substantial period of time to get ready for its intended use or sale. Capitalisation of borrowing costs is suspended in the period during which the active development is delayed beyond reasonable time due to other than temporary interruption. All other borrowing costs are charged to the statement of profit and loss as incurred.
m) Inventories
Inventories which comprise raw materials, components, stores and spare parts are valued at lower of cost and net realisable value.
Cost includes purchase price, duties and taxes (other than those subsequently recoverable by the Company from taxing authorities), freight inward and other expenditure in bringing inventories to present locations and conditions. In determining the cost, weighted average cost method is used. The carrying costs of raw materials, components and stores and spare parts are appropriately written down when there is a decline in replacement cost of such materials and the finished products in which they will be incorporated are expected to be sold below cost.
Finished goods are valued at the lower of cost and net realisable value. The comparison of cost and net realisable value is made on an item by item basis. Cost comprises of direct material and labour expenses and an appropriate portion of production overheads incurred in bringing the inventory to their present location and condition. Fixed production overheads are allocated on the basis of normal capacity of the production facilities.
Costs incurred on long term construction contracts representing general purpose item of inventories are disclosed as contract work in progress net of provision for loss.
n) Leases
The Company determines whether an arrangement contains a lease by assessing whether the fulfillment of a transaction is dependent on the use of a specific asset and whether the transaction conveys the right to use that asset to the Company in return for payment. Where this occurs, the arrangement is deemed to include a lease and is accounted for either as finance or operating lease. Leases are classified as finance leases where the terms of the lease transfers substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
The Company as lessee
(i) Operating lease - Rentals payable under operating leases are charged to the statement of profit and loss as per the terms of the relevant lease contract unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
(ii) Finance lease - Finance leases are capitalised at the commencement of lease, at the lower of the fair value of the property or the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the statement of profit and loss over the period of the lease.
The Company as lessor
(i) Operating lease - Rental income from operating leases is recognised in the statement of profit and loss on a straight line basis over the term of the relevant lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset is diminished. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying value of the leased asset and recognised on a straight line basis over the lease term.
(ii) Finance lease - When assets are leased out under a finance lease, the present value of the minimum lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognized as unearned finance income. Lease income is recognised over the term of the lease using the net investment method before tax, which reflects a constant periodic rate of return.
o) Employee benefits
The Companyâs obligation towards various employee benefits have been recognized as follows:
Short term benefits
Employee benefits payable wholly within twelve months of receiving employees services are classified as short-term employee benefits. These benefits include salaries and wages, bonus and exgratia. The undiscounted amount of short-term employee benefits to be paid in exchange for employee services is recognized as an expense as the related service is rendered by employees.
Post-employment Benefits
Defined contribution plans
Employee benefits payable wholly within twelve months of receiving employees services are classified as short-term employee benefits. These benefits include salaries and wages, bonus and exgratia. The undiscounted amount of short-term employee benefits to be paid in exchange for employee services is recognized as an expense as the related service is rendered by employees.
Defined benefit plans
Recognition and measurement of defined benefit plans:
For defined benefit retirement schemes i.e. gratuity, superannuation and post retirement medical benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuation being carried out at each balance sheet date. Remeasurement gains and losses of the net defined benefit liability/ (asset) are recognized immediately in other comprehensive income. Such re-measurements are not re-classified to the Statement of Profit & Loss in the subsequent period. The service cost and net interest on the net defined benefit liability/ (asset) is treated as a net expense within employment costs.
Past service cost is recognised as an expense when the plan amendment or curtailment occurs or when any related restructuring costs or termination benefits are recognised, whichever is earlier.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined-benefit obligation as reduced by the fair value of plan assets.
Provident fund administered through Companyâs trust for certain employees (in accordance with the Provident Fund Regulation) are defined benefit obligations with respect to the yearly interest guarantee. Annual charge is recognized based on actuarial valuation of the Companyâs related obligation on the reporting date. Actuarial gain or losses for the year are recognized in the Statement of other Comprehensive Income.
Other long term employee benefits
Compensated absences
Cost of long term benefit by way of accumulating compensated absences that are expected to be availed after a period of 12 months from period-end are recognized when the employees render the services that increases their entitlement to future compensated absences. Such costs are recognized in the Statement of Profit & Loss on actuarial valuation of related obligation on the reporting date.
Termination Benefits
Termination Benefits, in the nature of voluntary retirement benefits or Termination Benefits arising from restructuring, are recognized in the Statement of Profit & Loss. The Company recognizes Termination Benefits at the earlier of the following dates:
(a) when the Company can no longer withdraw the offer of these benefits, or
(b) when the Company recognizes costs for a restructuring that is within the scope of Ind AS 37 and involves the payment of termination benefits.
Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value
p) Foreign exchange transactions
Measurement of Foreign Currency items at reporting dates:
Foreign exchange transactions are recorded at the exchange rate prevailing on the date of the transactions. Year-end monetary assets and liabilities denominated in foreign currencies are translated at the year-end foreign exchange rates. Non- Monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of transaction.
Exchange differences arising on settlements/ translations are recognised in the Statement of Profit and Loss.
q) Provisions, contingent liabilities and contingent assets
A provision is created when there is a present obligation (legal or constructive) as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted to reflect its present value using a current pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost. Each provision is based on the best estimate of the expenditure required to settle the present obligation at the balance sheet date.
Constructive obligation is an obligation that derives from an entityâs actions where:
(a) by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities and;
(b) as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.
A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
Contingent assets are generally not recognized but are disclosed when inflow of economic benefit is probable.
Provisions, Contingent liabilities and contingent assets are reviewed at each Balance Sheet date.
r) Income taxes
Tax expense for the year comprises current tax and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of profit and loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Companyâs liability for current tax is calculated using tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying values of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences. In contrast, deferred tax assets are only recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.
The carrying value of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on the tax rates and tax laws that have been enacted or substantially enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to cover or settle the carrying value of its assets and liabilities.
Deferred tax assets and liabilities are offset to the extent that they relate to taxes levied by the same tax authority and there are legally enforceable rights to set off current tax assets and current tax liabilities within that jurisdiction and there is an intention to settle the asset & liability on a net basis.
Current and deferred tax are recognised as an expense or income in the statement of profit and loss, except when they relate to items credited or debited either in other comprehensive income or directly in equity, in which case tax is also recognized in other comprehensive income or directly in equity.
Deferred tax assets include Minimum Alternate Tax (MAT) paid in accordance with the tax laws in India, which is likely to give future economic benefits in the form of availability of set off against future income tax liability. MAT is recognised as deferred tax assets in the Balance Sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with the asset will be realised.
s) Earnings per share
Basic earnings per share are computed using the weighted average number of equity shares outstanding during the year. Diluted earnings per share are computed using the weighted average number of equity and dilutive equity equivalent shares outstanding during the year, except where the results would be anti- dilutive.
t) Financial Instruments
Financial assets and 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 measured on initial recognition of financial asset or financial liability. Ihe transaction costs directly attributable to the acquisition of financial assets and financial liabilities at fair value through profit and loss are immediately recognised in the statement of profit and loss. Where the fair value of a financial asset at initial recognition is different from its transaction price, the difference between the fair value and the transaction price is recognized as a gain or loss in the Statement of Profit and Loss. However, trade receivables that do not contain a significant financing component are measured at Transaction price.
(a) Financial assets
i. Financial assets at amortised cost:
Financial assets are subsequently measured at amortised cost if these financial assets are held within a business model whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The effective interest method is a method of calculating the amortised cost of a financial instrument and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts future cash receipts or payments through the expected life of the financial instrument, or where appropriate, a shorter period.
ii. Financial assets measured at fair value
Fair Value through other comprehensive income (FVTOCI)
Financial assets are measured at fair value through other comprehensive income if these financial assets are held within a business model whose objective is to hold these assets in order to collect contractual cash flows or to sell these financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company in respect of equity investments (other than in subsidiaries, associates and joint ventures) which are not held for trading has made an irrevocable election to present in other comprehensive income subsequent changes in the fair value of such equity instruments. Such an election is made by the Company on an instrument by instrument basis at the time of initial recognition of such equity investments.
Fair value through the statement of profit and loss (FVTPL) Financial asset not measured at amortised cost or at fair value through other comprehensive income is carried at fair value through the statement of profit and loss. Fair value changes are recognized in the Statement of Profit & Loss at each reporting period.
iii. Cash and bank balances
Cash and bank balances consist of:
(i) Cash and cash equivalents - which includes cash in hand, deposits held at call with banks and other short term deposits which are readily convertible into known amounts of cash, are subject to an insignificant risk of change in value and have maturities of less than one year from the date of such deposits. These balances with banks are unrestricted for withdrawal and usage.
(ii) Other bank balances - which includes balances and deposits with banks that are restricted for withdrawal and usage.
Impairment of financial assets:
Loss allowance for expected credit losses is recognised for financial assets measured at amortised cost and fair value through other comprehensive income. The Company recognises life time expected credit losses for all trade receivables that do not constitute a financing transaction. For financial assets whose credit risk has not significantly increased since initial recognition, loss allowance equal to twelve months expected credit losses is recognised. Loss allowance equal to the lifetime expected credit losses is recognised if the credit risk on the financial instruments has significantly increased since initial recognition. The Impairment losses and reversals are recognized in the Statement of Profit & Loss.
De-recognition of financial assets
The Company de-recognises a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the assets and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognizes a collateralised borrowing for the proceeds received. On de-recognition of a Financial Asset (except for Financial Assets measured at FVTOCI), the difference between the carrying amount and the consideration received is recognized in the Statement of Profit & Loss.
(b) Financial liabilities and equity instruments Classification as debt or equity Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.
Financial Liabilities
Trade and other payables are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, using the effective interest rate method where the time value of money is significant. Interest bearing bank loans, overdrafts and issued debt are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in the statement of profit and loss.
De-recognition of financial liabilities
The Company de-recognises financial liabilities when, and only when, the Companyâs obligations are discharged, cancelled or they expire. The differences between the carrying amount of the financial liability derecognized and the consideration paid is recognized in the Statement of Profit & Loss.
Derivative financial instruments and hedge accounting The Company enters into forward contracts and principal and interest swap contracts to hedge its risks associated with foreign currency and variable interest rate fluctuations related to existing financial assets and liabilities, certain firm commitments and forecasted transactions. These derivative contracts are being considered as cash flow hedge.
The use of hedging instruments is governed by the Companyâs policies approved by the Board of Directors. The Company does not use these contracts for trading or speculative purposes.
To designate a forward contract/ swap contract as an effective hedge, management objectively evaluates and evidences with appropriate supporting documents at the inception of each contract whether the contract is effective in offsetting cash flows attributable to the hedged risk.
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 recognised immediately in the statement of profit and loss. The effective portion is recognized in Other Comprehensive Income.
When hedge accounting is applied:
- 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
- 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 ot 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 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 recognised in equity is transferred to the statement of profit and loss for the period.
u) Investment in Joint Ventures
A joint venture is a joint arrangement whereby the parties have the joint control of the arrangement and have rights to the net assets to joint arrangement. Joint control is contractually agreed sharing of control of an arrangement which exists only when decisions about the relevant activity require unanimous consent of the parties sharing control.
Investment in joint ventures are carried at cost less accumulated impairment, if any.
Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in joint venture, the difference between net disposal proceeds and the carrying amounts are recognized in the Statement of Profit and Loss.
v) Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.
w) Non-current assets held for sale and discontinued operations
Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying value and fair value less costs to sell.
Assets and disposal groups are classified as held for sale if their carrying value will be recovered through a sale transaction rather than through continuing use. This condition is only met when the sale is highly probable and the asset, or disposal group, is available for immediate sale in its present condition and is marketed for sale at a price that is reasonable in relation to its current fair value. The Company must also be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets held for sale are not depreciated or amortized.
Where a disposal group represents a separate major line of business or geographical area of operations, or is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, then it is treated as a discontinued operation.
The post-tax profit or loss of the discontinued operation together with the gain or loss recognised on its disposal are disclosed as a single amount in the statement of profit and loss, with all prior periods being presented on this basis.
Dec 31, 2017
1. Significant accounting policies
The significant accounting policies applied by the Company in the preparation of its financial statements are listed below. Such accounting policies have been applied consistently to all the periods presented in these financial statements and in preparing the opening Ind AS Balance Sheet as at January 1, 2016 for the purpose of transition to Ind AS, unless otherwise indicated.
a) Statement of compliance
In accordance with the notification issued by the Ministry of Corporate Affairs, the Company has adopted Ind AS notified under the Companies (Indian Accounting Standards) Rules, 2015 with effect from 1 January 2017.
The transition from Previous GAAP to Ind AS has been accounted for in accordance with Ind AS 101 âFirst Time Adoption of Indian Accounting Standardsâ, with 1 January 2016 being the transition date.
In accordance with Ind AS 101 âFirst time adoption of Indian Accounting Standardâ, the Company has presented a reconciliation from the presentation of financial statements under accounting standards notified under the Companies (Accounting Standards) Rules, 2006 (âPrevious GAAPâ) to Ind AS of total equity as at 1 January 2016 and 31 December 2016, total comprehensive income and cash flow for the year ended 31 December 2016.
b) Basis of preparation of financial statements
These financial statements have been prepared and presented under the historical cost convention with the exception of certain assets and liabilities that are required to be carried at fair values by Ind AS.
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.
c) Use of estimates and critical accounting judgements
In preparation of the financial statements, the Company makes judgements, estimates and assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and the 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 the underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods affected.
Significant judgements and estimates relating to the carrying values of assets and liabilities include useful lives of property, plant and equipment and intangible assets, impairment of property, plant and equipment, intangible assets, provision for employee benefits and other claims, provision and contingent liabilities, recoverability of deferred tax assets.
d) Current - Non-current classification
All assets and liabilities are classified into current and non-current assets and liabilities.
Assets
An asset is classified as current when it satisfies any of the following criteria:
a) it is expected to be realised in, or is intended for sale or consumption in the companyâs normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is expected to be realised within 12 months after the reporting date; or
d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.
Current assets include the current portion of non-current financial assets.
All other assets are classified as non-current.
Liabilities
A liability is classified as current when it satisfies any of the following criteria:
a) it is expected to be settled in the companyâs normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is due to be settled within 12 months after the reporting date; or
d) the company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
Current liabilities include current portion of non-current financial liabilities.
All other liabilities are classified as non-current.
All assets and liabilities have been classified as current or noncurrent as per the Companyâs normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013.
Based on the nature of manufacturing activity 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 for the purpose of current - noncurrent classification of assets and liabilities:
- as 12 months for the gases and related products of the Company
- as 24 months for the Project Engineering Division of the Company which are engaged in the manufacture and construction of cryogenic and non-cryogenic air separation plants.
e) 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 be measured, regardless of when the payment is being made. Revenue is being measured at fair value of the consideration received or receivable net of discounts, taking into account the contractually defined terms and excluding taxes or duties collected on behalf of the government.
A. Sale of Products
Revenue from sale of gas and related products in the course of ordinary activities is recognised when property in the goods and related products or all significant risk and rewards of their ownership are transferred to the customer, the amount of revenue can be measured reliably, no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of gas and its related products and regarding its collection. Facility charge is recognised on accrual basis as per the terms of the contract with the customers or on a straight-line basis over the specified period of the contract. The amount recognized as revenue is exclusive of Goods and Service Tax (GST).
B. Revenue from Construction
Contract revenue and contract costs associated with the long-term construction contracts are recognized as revenue and expenses respectively by reference to the stage of completion of the project at the Balance Sheet date. The stage of completion of project is determined by the proportion that contract costs incurred for work performed up to the balance sheet date bear to the estimated total contract costs. If total cost is estimated to exceed total contract revenue, the company provides for foreseeable loss.
C. Interest and Dividend Income
Interest income is recognised on a time proportion basis taking into account the amount outstanding and the interest rate applicable.
Income from dividend is recognised when right to receive payment is established.
D. Other Income
Other Incomes are accounted as and when the right to receive such income arises and it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably.
f) Property, Plant and equipment
Property, plant and equipment are stated at cost of acquisition or construction less accumulated depreciation or accumulated impairment loss, if any. Cost of item of property, plant and equipment includes purchase price, taxes, non- refundable duties, freight and other costs that are directly attributable to bringing assets to their working condition for their intended use. Expenses capitalised include applicable borrowing costs for qualifying assets, if any.
This recognition principle is applied to the costs incurred initially to acquire an item of property, plant and equipment and also to costs incurred subsequently to add to, replace part of, or service it. All other repair and maintenance costs, including regular servicing, are recognised in the statement of profit and loss as incurred. When a replacement occurs, the carrying value of the replaced part is de-recognised. Where an item of property, plant and equipment comprises major components having different useful lives, these components are accounted for as separate items
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the Statement of Profit and Loss.
The residual values, useful lives and method of depreciation of Property, Plant and Equipment is reviewed at each financial year and adjusted prospectively, if any.
Spares that can be used only with particular items of plant and machinery and such usage is expected to be for more than once accounting period are capitalized.
Property, Plant and Equipment under construction are recognized as capital work in progress.
Upon first-time adoption of Ind AS, the Company has elected to measure its Property, Plant and Equipment at the Previous GAAP carrying amount as its deemed cost on the date of transition to Ind AS i.e., 1 January 2016.
g) Provision for Decommissioning, Restoration and Similar Liabilities
The Company has liabilities related to dismantling (restoration of soil) and other related works, which are due upon the closure of certain production sites. Such liabilities are estimated case-by-case based on available information, taking into account applicable local legal requirements. The estimation is made using existing technology, at current prices, and discounted using a discount rate where the effect of time value of money is material.
Future dismantling costs discounted to net present value, are capitalised and the corresponding dismantling liability is raised as soon as the obligation to incur such costs arises. Future dismantling costs are capitalised in property, plant and equipment as appropriate and are depreciated over the life of the related asset. The effect of the time value of money on the restoration and environmental costs liability is recognised in the statement of profit and loss.
h) Intangible assets
Software and Non- compete fees costs are included in the balance sheet as intangible assets where they are clearly linked to long term economic benefits for the Company. They are measured initially at purchase cost and then amortised on a straight line basis over their estimated useful lives. All other costs on software and non compete fees are expensed in the statement of profit and loss as and when incurred.
Goodwill arising on acquisition of business is measured at cost less any accumulated impairment loss. Goodwill is assessed at every balance sheet date for any impairment.
Subsequent to initial recognition, intangible assets with definite useful lives are reported at cost less accumulated amortisation and accumulated impairment losses.
Upon first-time adoption of Ind AS, the Company has elected to measure its intangible assets at the Previous GAAP carrying amount as its deemed cost on the date of transition to Ind AS i.e., 1 January 2016.
i) Depreciation of Property, Plant and Equipment
Depreciation computed as per the straight line method based on the managementâs estimate of useful life of a property, plant and equipment which is in accordance with the useful lives of property, plant and equipment indicated in Schedule II of the Act. These charges are commenced from the dates the assets are available for their intended use and are spread over their estimated useful economic lives. The estimated useful lives of assets and residual values are reviewed regularly and, when necessary, revised.
For certain assets categorized under âPlant and equipmentâ, based on internal assessment, the management believes that these assets have useful lives of 10 years, 15 years and 18 years, which is different from the useful lives as prescribed under Part C of Schedule II of the Act.
The following useful lives apply to the different types of tangible assets:
Assets individually costing Rs. 10,000 or less are fully depreciated in the year of acquisition.
Spares capitalized are being depreciated over the useful life / remaining useful life of the plant and machinery with which such spares can be used.
The useful lives are reviewed atleast at each year end. Changes in expected useful lives are treated as changes in accounting estimates.
j) Amortisation of Intangible assets
Intangible assets except Goodwill are amortised in Statement of Profit or Loss over their estimated useful lives, from the date that they are available for use based on the expected pattern of consumption of economic benefits of the asset. Accordingly, at present, these are being amortised on straight line basis.
The estimated useful lives of Intangible Assets are as follows:
The useful lives are reviewed atleast at each year end. Changes in expected useful lives are treated as changes in accounting estimates.
k) Impairment
The carrying amounts of property, plant and equipment, capital work in progress and intangible assets are reviewed at each Balance Sheet date, to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amounts are estimated at each reporting date. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-discount rate that reflects the current market assessments of the time value of money. An impairment loss is recognised whenever the carrying amount of an asset or the cash generating unit of which it is a part exceeds the corresponding recoverable amount. Impairment losses are recognised in the Statement of Profit and Loss.
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined net of depreciation or amortisation, if no impairment loss had been recognised. Impairment loss recognized for goodwill is not reversed in a subsequent period unless the impairment loss was caused by a specific external event of an exceptional nature that is not expected to recur, and subsequent external events have occurred that reverse the effect of that event.
l) Borrowing costs
Borrowing costs that are attributable to the acquisition, construction or production of qualifying assets are treated as direct cost and are considered as part of cost of such assets. A qualifying asset is an asset that necessarily requires a substantial period of time to get ready for its intended use or sale. Capitalisation of borrowing costs is suspended in the period during which the active development is delayed beyond reasonable time due to other than temporary interruption. All other borrowing costs are charged to the statement of profit and loss as incurred.
m) Inventories
Inventories which comprise raw materials, components, stores and spare parts are valued at lower of cost and net realisable value.
Cost includes purchase price, duties and taxes (other than those subsequently recoverable by the Company from taxing authorities), freight inward and other expenditure in bringing inventories to present locations and conditions. In determining the cost, weighted average cost method is used. The carrying costs of raw materials, components and stores and spare parts are appropriately written down when there is a decline in replacement cost of such materials and the finished products in which they will be incorporated are expected to be sold below cost.
Finished goods are valued at the lower of cost and net realisable value. The comparison of cost and net realisable value is made on an item by item basis. Cost comprises of direct material and labour expenses and an appropriate portion of production overheads incurred in bringing the inventory to their present location and condition. Fixed production overheads are allocated on the basis of normal capacity of the production facilities.
Costs incurred on long term construction contracts representing general purpose item of inventories are disclosed as contract work in progress net of provision for loss.
n) Leases
The Company determines whether an arrangement contains a lease by assessing whether the fulfillment of a transaction is dependent on the use of a specific asset and whether the transaction conveys the right to use that asset to the Company in return for payment. Where this occurs, the arrangement is deemed to include a lease and is accounted for either as finance or operating lease. Leases are classified as finance leases where the terms of the lease transfers substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
The Company as lessee
(i) Operating lease - Rentals payable under operating leases are charged to the statement of profit and loss as per the terms of the relevant lease contract unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
(ii) Finance lease - Finance leases are capitalised at the
commencement of lease, at the lower of the fair value of the property or the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the statement of profit and loss over the period of the lease.
The Company as lessor
(i) Operating lease - Rental income from operating leases is recognised in the statement of profit and loss on a straight line basis over the term of the relevant lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset is diminished. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying value of the leased asset and recognised on a straight line basis over the lease term.
(ii) Finance lease - When assets are leased out under a finance lease, the present value of the minimum lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognized as unearned finance income. Lease income is recognised over the term of the lease using the net investment method before tax, which reflects a constant periodic rate of return.
o) Employee benefits
The Companyâs obligation towards various employee benefits have been recognized as follows:
Short term benefits
Employee benefits payable wholly within twelve months of receiving employees services are classified as short-term employee benefits. These benefits include salaries and wages, bonus and exgratia. The undiscounted amount of short-term employee benefits to be paid in exchange for employee services is recognized as an expense as the related service is rendered by employees.
Post-employment Benefits
Defined contribution plans
Employee benefits payable wholly within twelve months of receiving employees services are classified as short-term employee benefits. These benefits include salaries and wages, bonus and exgratia. The undiscounted amount of short-term employee benefits to be paid in exchange for employee services is recognized as an expense as the related service is rendered by employees.
Defined benefit plans
Recognition and measurement of defined benefit plans:
For defined benefit retirement schemes i.e gratuity and superannuation schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuation being carried out at each balance sheet date. Remeasurement gains and losses of the net defined benefit liability/ (asset) are recognized immediately in other comprehensive income. Such re-measurements are not re-classified to the Statement of Profit and Loss in the subsequent period. The service cost and net interest on the net defined benefit liability/ (asset) is treated as a net expense within employment costs.
Past service cost is recognised as an expense when the plan amendment or curtailment occurs or when any related restructuring costs or termination benefits are recognised, whichever is earlier.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined-benefit obligation as reduced by the fair value of plan assets.
Provident fund administered through Companyâs trust for certain employees (in accordance with the Provident Fund Regulation) are defined benefit obligations with respect to the yearly interest guarantee. Annual charge is recognized based on actuarial valuation of the Companyâs related obligation on the reporting date. Actuarial gain or losses for the year are recognized in the Statement of other Comprehensive Income.
Other long term employee benefits
Compensated absences
Cost of long term benefit by way of accumulating compensated absences that are expected to be availed after a period of 12 months from period-end are recognized when the employees render the services that increases their entitlement to future compensated absences. Such costs are recognized in the Statement of Profit and Loss on actuarial valuation of related obligation on the reporting date.
Termination Benefits
Termination Benefits, in the nature of voluntary retirement benefits or Termination Benefits arising from restructuring, are recognized in the Statement of Profit and Loss. The Company recognizes Termination Benefits at the earlier of the following dates:
(a) when the Company can no longer withdraw the offer of these benefits, or
(b) when the Company recognizes costs for a restructuring that is within the scope of Ind AS 37 and involves the payment of termination benefits.
Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value
p) Foreign exchange transactions
Measurement of Foreign Currency items at reporting dates:
Foreign exchange transactions are recorded at the exchange rate prevailing on the date of the transactions. Year-end monetary assets and liabilities denominated in foreign currencies are translated at the year-end foreign exchange rates. Non- Monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of transaction.
Exchange differences arising on settlements/ translations are recognised in the Statement of Profit and Loss.
q) Provisions, contingent liabilities and contingent assets
A provision is created when there is a present obligation (legal or constructive) as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted to reflect its present value using a current pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost. Each provision is based on the best estimate of the expenditure required to settle the present obligation at the balance sheet date.
Constructive obligation is an obligation that derives from an entityâs actions where:
(a) by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities and;
(b) as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.
A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
Contingent assets are generally not recognized but are disclosed when inflow of economic benefit is probable.
Provisions, Contingent liabilities and contingent assets are reviewed at each Balance Sheet date.
r) Income taxes
Tax expense for the year comprises current tax and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of profit and loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Companyâs liability for current tax is calculated using tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying values of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences. In contrast, deferred tax assets are only recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.
The carrying value of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on the tax rates and tax laws that have been enacted or substantially enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to cover or settle the carrying value of its assets and liabilities.
Deferred tax assets and liabilities are offset to the extent that they relate to taxes levied by the same tax authority and there are legally enforceable rights to set off current tax assets and current tax liabilities within that jurisdiction and there is an intention to settle the asset and liability on a net basis.
Current and deferred tax are recognised as an expense or income in the statement of profit and loss, except when they relate to items credited or debited either in other comprehensive income or directly in equity, in which case tax is also recognized in other comprehensive income or directly in equity.
Deferred tax assets include Minimum Alternate Tax (MAT) paid in accordance with the tax laws in India, which is likely to give future economic benefits in the form of availability of set off against future income tax liability. MAT is recognised as deferred tax assets in the Balance Sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with the asset will be realised.
s) Earnings per share
Basic earnings per share are computed using the weighted average number of equity shares outstanding during the year. Diluted earnings per share are computed using the weighted average number of equity and dilutive equity equivalent shares outstanding during the year, except where the results would be anti- dilutive.
t) Financial Instruments
Financial assets and 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 measured on initial recognition of financial asset or financial liability. The transaction costs directly attributable to the acquisition of financial assets and financial liabilities at fair value through profit and loss are immediately recognised in the statement of profit and loss. Where the fair value of a financial asset at initial recognition is different from its transaction price, the difference between the fair value and the transaction price is recognized as a gain or loss in the Statement of Profit and Loss. However, trade receivables that do not contain a significant financing component are measured at Transaction price.
(a) Financial assets
i. Financial assets at amortised cost:
Financial assets are subsequently measured at amortised cost if these financial assets are held within a business model whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The effective interest method is a method of calculating the amortised cost of a financial instrument and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts future cash receipts or payments through the expected life of the financial instrument, or where appropriate, a shorter period.
ii. Financial assets measured at fair value
Fair Value through other comprehensive income (FVTOCI) Financial assets are measured at fair value through other comprehensive income if these financial assets are held within a business model whose objective is to hold these assets in order to collect contractual cash flows or to sell these financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company in respect of equity investments (other than in subsidiaries, associates and joint ventures) which are not held for trading has made an irrevocable election to present in other comprehensive income subsequent changes in the fair value of such equity instruments. Such an election is made by the Company on an instrument by instrument basis at the time of initial recognition of such equity investments.
Fair value through the statement of profit and loss (FVTPL) Financial asset not measured at amortised cost or at fair value through other comprehensive income is carried at fair value through the statement of profit and loss. Fair value changes are recognized in the Statement of Profit and Loss at each reporting period.
iii. Cash and bank balances
Cash and bank balances consist of:
(i) Cash and cash equivalents - which includes cash in hand, deposits held at call with banks and other short term deposits which are readily convertible into known amounts of cash, are subject to an insignificant risk of change in value and have maturities of less than one year from the date of such deposits. These balances with banks are unrestricted for withdrawal and usage.
(ii) Other bank balances - which includes balances and deposits with banks that are restricted for withdrawal and usage.
Impairment of financial assets:
Loss allowance for expected credit losses is recognised for financial assets measured at amortised cost and fair value through other comprehensive income. The Company recognises life time expected credit losses for all trade receivables that do not constitute a financing transaction. For financial assets whose credit risk has not significantly increased since initial recognition, loss allowance equal to twelve months expected credit losses is recognised. Loss allowance equal to the lifetime expected credit losses is recognised if the credit risk on the financial instruments has significantly increased since initial recognition. The Impairment losses and reversals are recognized in the Statement of Profit and Loss.
De-recognition of financial assets
The Company de-recognises a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the assets and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognizes a collateralised borrowing for the proceeds received. On de-recognition of a Financial Asset (except for Financial Assets measured at FVTOCI), the difference between the carrying amount and the consideration received is recognized in the Statement of Profit and Loss.
(b) Financial liabilities and equity instruments
Classification as debt or equity Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.
Financial Liabilities
Trade and other payables are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, using the effective interest rate method where the time value of money is significant. Interest bearing bank loans, overdrafts and issued debt are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in the statement of profit and loss.
De-recognition of financial liabilities
The Company de-recognises financial liabilities when, and only when, the Companyâs obligations are discharged, cancelled or they expire. The differences between the carrying amount of the financial liability derecognized and the consideration paid is recognized in the Statement of Profit and Loss.
Derivative financial instruments and hedge accounting The Company enters into forward contracts and principal and interest swap contracts to hedge its risks associated with foreign currency and variable interest rate fluctuations related to existing financial assets and liabilities, certain firm commitments and forecasted transactions. These derivative contracts are being considered as cash flow hedge.
The use of hedging instruments is governed by the Companyâs policies approved by the Board of Directors. The Company does not use these contracts for trading or speculative purposes.
To designate a forward contract/ swap contract as an effective hedge, management objectively evaluates and evidences with appropriate supporting documents at the inception of each contract whether the contract is effective in offsetting cash flows attributable to the hedged risk.
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 recognised immediately in the statement of profit and loss. The effective portion is recognized in Other Comprehensive Income.
When hedge accounting is applied:
- 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.
- 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 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 recognised in equity is transferred to the statement of profit and loss for the period.
u) Investment in Joint Ventures
A joint venture is a joint arrangement whereby the parties have the joint control of the arrangement and have rights to the net assets to joint arrangement. Joint control is contractually agreed sharing of control of an arrangement which exists only when decisions about the relevant activity require unanimous consent of the parties sharing control.
Investment in joint ventures are carried at cost less accumulated impairment, if any.
Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in joint venture, the difference between net disposal proceeds and the carrying amounts are recognized in the Statement of Profit and Loss.
Upon first-time adoption of Ind AS, the Company has elected to measure its investments in joint ventures at the Previous GAAP carrying amount as its deemed cost on the date of transition to Ind AS i.e., 1 January 2016.
v) Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.
w) Non-current assets held for sale and discontinued operations
Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying value and fair value less costs to sell.
Assets and disposal groups are classified as held for sale if their carrying value will be recovered through a sale transaction rather than through continuing use. This condition is only met when the sale is highly probable and the asset, or disposal group, is available for immediate sale in its present condition and is marketed for sale at a price that is reasonable in relation to its current fair value. The Company must also be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets held for sale are not depreciated or amortized.
x) First time adoption
The Company had prepared its financial statements in accordance with the Accounting Standards (AS) notified under section 133 of the Companies Act 2013 (Previous GAAP) for and including the year ended 31 December 2016. The Company has prepared its first Ind AS (Indian Accounting Standards) compliant Financial Statements for the year ended 31 December 2017 with restated comparative figures for the year ended 31 December 2016 in compliance with Ind AS. Accordingly, the Opening Balance Sheet, in line with Ind AS transitional provisions, has been prepared as at 1 January 2016, the date of Companyâs transition to Ind AS. The principal adjustments made by the Company in restating its Previous GAAP financial statements as at and for the Financial year ended 31 December 2016 and the balance sheet as at 1 January 2016 are as mentioned below:
A. Exceptions applied
Ind AS 101 specifies mandatory exceptions from retrospective application of some aspects of other Ind ASs for first-time adopters. Following exception is applicable to the Company:
i. Estimates
The estimates at 1 January 2016 and 31 December 2016 are consistent with those made for the same dates in accordance with Previous GAAP (after adjustments to reflect any differences in accounting policies) and there is no necessity to revise such estimates under Ind AS, as there is no objective evidence of error in those estimates.
ii. Classification and measurement of Financial Assets The classification of financial assets to be measured at amortised cost or fair value through other comprehensive income is made on the basis of facts and circumstances that existed on the date of transition to Ind AS.
iii. Impairment of Financial Assets
The Company has applied the impairment requirements of Ind AS 109 prospectively; however, as permitted by Ind AS 101, it has used reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial instruments were initially recognised in order to compare it with the credit risk at the transition date.
B. Exemptions applied
Ind AS 101 on First Time Adoption of Ind AS allows first-time adopters certain voluntary exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemption:
i. Past Business Combination
The Company has elected not to apply Ind AS 103 Business Combinations retrospectively to past business combinations that occurred before the transition date of January 1, 2016. Consequently, the Company has kept the same classification for the past business combinations as in its previous GAAP financial statements.
ii. Deemed Cost
The Company has elected to continue with the carrying value of all of its property, plant and equipment and intangible assets recognised as of January 1, 2016 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.
iii. Leases
The Company has applied Appendix C of Ind AS 17 âDetermining whether an Arrangement contains a Leaseâ to determine whether an arrangement existing at the transition date contains a lease on the basis of facts and circumstances existing at that date.
iv. Investments in joint venture
On transition, Ind AS 101 allows an entity to treat fair value as deemed cost for investments held in subsidiaries, associates and joint ventures. Accordingly, the Company has elected to treat fair value as deemed cost for its investments held in a joint venture.
v. Designation of previously recognised financial instruments Under Ind AS 109 âFinancial Instrumentâ, at initial recognition of a financial asset, an entity may make an irrevocable election to present subsequent changes in fair value of an investment in equity instrument in Other Comprehensive Income.
Ind AS 101 âFirst time adoption of Indian Accounting Standardsâ allows such designation of previously recognised financial assets as âfair value through other comprehensive incomeâ on the basis of facts and circumstances that existed at the date of transition to Ind AS.
Accordingly, the Company has designated its investments in equity instruments at fair value through Other Comprehensive Income on the basis of facts and circumstances that existed at the date of transition to Ind AS.
vi. Fair value measurement of financial assets or financial liabilities at initial recognition
As per Ind AS 109 âFinancial Instrumentâ, the Company is required to measure the financial assets and financial liabilities at fair value at initial recognition. However, Ind AS 101 âFirst time adoption of Indian Accounting Standardsâ allows the entity to recognise financial assets or financial liabilities prospectively from the transition date.
Accordingly, the Company has opted for this exemption and have measured the financial assets or financial liabilities at fair value on the transition date.
vii. Decommissioning liabilities included in the cost of property, plant and equipment
Adoption of Appendix A to Ind AS 16 âChanges in Existing Decommissioning, Restoration and Similar Liabilitiesâ requires specified changes in such liabilities to be added to or deducted from the cost of the asset to which it relates and adjust depreciable amount of the asset to be depreciated prospectively over its remaining useful life.
An option exists under Ind AS 101, to measure such liability as at the date of transition to Ind AS in accordance with Ind AS 37 and to the extent such liability is within the scope of appendix A of Ind AS 16, estimate the amount that would have been included in the cost of the related asset when the liability first arose, by discounting the liability to that date using best estimate of the historical risk adjusted discount rate(s) and adjust the accumulated depreciation on that amount at the date of transition to Ind AS on the basis of the current estimate of the useful life of the asset.
The Company under its previous GAAP have recorded these decommissioning liability and have recorded a corresponding asset. These were recorded at the value which the Company would incur at the end of the lease term. However, under Ind AS the Company has opted for this exemption and have computed the present value of such liability on the transition date and the changes in such liabilities have been added or deducted from the cost of the asset. The adjusted value of these assets will be depreciated prospectively over its remaining useful life.
viii. Non-current assets held for sale and discontinued operations On adoption of Ind AS 105 âNon-Current Assets Held for Sale and Discontinued Operationsâ, an entity is required to apply the requirements relating to classification and measurement on the initial date of identification.
However, a first time adopter can measure such assets or operations at the lower of carrying value and fair value less cost to sell at the date of transition to Ind ASs in accordance with Ind AS 105 and recognise directly in retained earnings any difference between that amount and the carrying amount of those assets at the date of transition to Ind ASs determined under the entityâs previous GAAP.
Accordingly, the Company has opted the exemption and have measured such assets at the lower of carrying value and fair value less cost to sell at the date of transition to Ind ASs.
3. New amendment that is not yet effective and have not been early adopted
In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind-AS 7, âStatement of cash flowsâ and Ind-AS 102, âShare-based paymentâ. The amendments are applicable to the Company from 1 January 2018. However, the Company does not have Share Based Payments hence amendments in Ind AS 102 will not be applicable.
Amendment to Ind-AS 7 - Statement of cash flows:
The amendment to Ind-AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the balance sheet for liabilities arising from financing activities, to meet the disclosure requirement. The Company is evaluating the requirements of the amendment and its impact on the cash flows, which are not expected to be material.
4. Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with generally accepted accounting principles which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period end. Although these estimates are based upon managementâs best knowledge of current events and actions, actual results could differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions 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.
Critical judgments in applying accounting policies:
The following are the critical judgments, apart from those involving estimations [see point below], that the management have made in the process of applying the Companyâs accounting policies and that have the most significant effect on the amounts recognized in the financial statements.
i) Useful life of Property, Plant and Equipment and Intangible assets
The Company has made in the process of applying its accounting policies that have a significant effect on the amounts recognised in these financial statements pertain to useful life of Property, Plant and Equipment and Intangible assets. The Company is required to determine whether its intangible assets have indefinite or finite life which is a subject matter of judgement. Currently, the Intangible assets have been determined to have a finite useful life and are amortised over this useful life.
In terms of Part B of Schedule II of the Companies Act, 2013, the Company has followed the depreciation rates and depreciation method which is reviewed at each year end.
Key sources of estimation uncertainty:
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:
i) Deferred tax assets
Management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
ii) Claims, Provisions and Contingent Liabilities
Contingent liabilities arising from past events the existence of which would be confirmed only on occurrence or non occurrence of one or more future uncertain events not wholly within the control of the Company. Or
Contingent liabilities where there is a present obligations but it is not probable that economic benefits would be required to settle the obligations are disclosed in the financial statements unless the possibility of any outflow in settlement is remote.
Where an outflow of funds is believed to be probable and a reliable estimate of the outcome of the dispute can be made based on managementâs assessment of specific circumstances of each dispute and relevant external advice, management provides for its best estimate of the liability. Such accruals are by nature complex and can take number of years to resolve and can involve estimation uncertainty. Information about such litigations is provided in notes to the financial statements.
iii) Impairment of Property, Plant and Equipment
At the end of each reporting period, the Company reviews the carrying amounts of its property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
iv) Actuarial Valuation
The determination of Companyâs liability towards defined benefit obligation to employees is made through independent actuarial valuation including determination of amounts to be recognised in the Statement of Profit and Loss and in other comprehensive income. Such valuation depends upon assumptions determined after taking into account inflation, seniority, promotion and other relevant factors such as supply and demand factors in the employment market.
Dec 31, 2016
Company Overview
Linde India Limited is a public company having Corporate Identity Number L40200WB1935PLC008184. It is incorporated under the Companies Act, 1956 and its shares are listed on the National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Limited (BSE). The Company is primarily engaged in manufacture of industrial and medical gases and construction of cryogenic and non cryogenic air separation plants.
1. Significant accounting policies
The accounting policies set out below have been applied consistently to the periods presented in these financial statements.
a) Basis of preparation of financial statements
These financial statements have been prepared and presented under the historical cost convention, on the accrual basis of accounting and comply with the Accounting Standards prescribed under Section 133 of the Companies Act, 2013 (''the Act'') read with rule 7 of the Companies (Accounts) Rules, 2014 other relevant provisions of the Act, to the extent notified and applicable, and other accounting principles generally accepted in India. The financial statements are presented in Indian rupees rounded off to the nearest million.
b) Use of estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses and the disclosure of contingent liabilities on the date of the financial statements. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Any revision to accounting estimates is recognized prospectively in current and future periods.
c) Current - noncurrent classification
All assets and liabilities are classified into current and non-current assets.
Assets
An asset is classified as current when it satisfies any of the following criteria:
a) it is expected to be realized in, or is intended for sale or consumption in, the company''s normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is expected to be realized within 12 months after the reporting date; or
d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.
Current assets include the current portion of non-current financial assets.
All other assets are classified as non-current.
Liabilities
A liability is classified as current when it satisfies any of the following criteria:
a) it is expected to be settled in the company''s normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is due to be settled within 12 months after the reporting date; or
d) the company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
Current liabilities include current portion of non-current financial liabilities.
All other liabilities are classified as non-current.
All assets and liabilities have been classified as current or noncurrent as per the Company''s normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013.
Based on the nature of manufacturing activity 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 for the purpose of current - noncurrent classification of assets and liabilities:
- as 12 months for the gases and related products of the Company
- as 24 months for the Project Engineering Division of the Company which are engaged in the manufacture and construction of cryogenic and non-cryogenic air separation plants.
d) Revenue recognition
Revenue from sale of gas and related products in the course of ordinary activities is recognized when property in the goods and related products or all significant risk and rewards of their ownership are transferred to the customer and no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of gas and its related products and regarding its collection. Facility charge is recognized on accrual basis as per the terms of the contract with the customers. The amount recognized as revenue is exclusive of sales tax and value added tax.
Contract revenue and contract costs associated with the long term construction contracts are recognized as revenue and expenses respectively by reference to the stage of completion of the project at the Balance Sheet date. The stage of completion of project is determined by the proportion that contract costs incurred for work performed upto the balance sheet date bear to the estimated total contract costs. If total cost is estimated to exceed total contract revenue, the company provides for foreseeable loss.
Interest income is recognized on a time proportion basis taking into account the amount outstanding and the interest rate applicable.
Income from dividend is recognized when right to receive payment is established.
e) Tangible fixed Assets
Tangible fixed assets are stated at cost of acquisition or construction or revalued amounts less accumulated depreciation or accumulated impairment loss, if any. Cost of item of tangible fixed asset includes purchase price, taxes, non- refundable duties, freight and other costs that are directly attributable to bringing assets to their working condition for their intended use. Subsequent expenditures related to an item of tangible assets are added to its book value only if they increase the future benefit from the existing asset beyond its previously assessed standard of performance.
Assets retired from active use and held for disposal are stated at lower of their net book value and net realizable value and shown under "Other current assets".
Spares that can be used only with particular items of plant and machinery and such usage is expected to be irregular are capitalized.
Fixed assets under construction are disclosed as capital work in progress.
Losses arising from the retirement of, and gains or losses arising from disposal of tangible assets which are carried at cost is recognized in the statement of Profit and Loss.
f) Intangible fixed Assets
Goodwill arising on acquisition of a business is measured at cost less any accumulated impairment loss.
Intangible assets that are acquired by the Company are measured initially at cost. After initial recognition, an intangible asset is carried at its cost less any accumulated amortization and any accumulated impairment loss.
Subsequent expenditure is capitalized only when it increases the future economic benefits from the specific asset to which it relates.
g) Depreciation
Tangible fixed assets
-Depreciation is computed as per the straight line method based on the management''s estimate of useful life of a fixed asset which is in accordance with the useful lives of fixed assets indicated in Schedule II of the Act. For certain assets categorized under "Plant and equipment", based on internal assessment, the management believes that these assets have useful lives of 10 years, 15 years and 18 years, which is different from the useful lives as prescribed under Part C of Schedule II of the Act.
- In case of revalued fixed assets, depreciation is provided as aforesaid, on the total value of fixed assets as appearing in the books of account after revaluation. Additional depreciation attributable to revalued amount is charged to the Statement of Profit and Loss. On disposal of a previously revalued item of fixed asset, the difference between the net disposal proceeds and the net book value is charged or credited to the Statement of Profit and Loss except that, to the extent such loss is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilized, is charged directly to that account. The amount standing in revaluation reserve following the retirement or disposal of an asset, which relates to that asset is transferred to general reserve.
- Assets individually costing Rs. 10,000 or less are fully depreciated in the year of acquisition.
- Spares capitalized are being depreciated over the useful life / remaining useful life of the plant and machinery with which such spares can be used.
h) Amortization
Intangible fixed assets are amortized in Statement of Profit or Loss over their estimated useful lives, from the date that they are available for use based on the expected pattern of consumption of economic benefits of the asset. Accordingly, at present, these are being amortized on straight line basis. In accordance with the applicable Accounting Standard, the Company follows 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. However, if there is persuasive evidence that the useful life of an intangible asset is longer than ten years, it is amortized over the best estimate of its useful life. Such intangible assets and intangible assets that are not yet available for use are tested annually for impairment.
i) Impairment
The carrying amounts of fixed assets and capital work in progress are reviewed at each Balance Sheet date in accordance with Accounting Standard 28 on ''Impairment of Assets'', to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amounts are estimated at each reporting date. An impairment loss is recognized whenever the carrying amount of an asset or the cash generating unit of which it is a part exceeds the corresponding recoverable amount. Impairment losses are recognized in the Statement of Profit and Loss. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined net of depreciation or amortization, if no impairment loss had been recognized. Impairment loss recognized for goodwill is not reversed in a subsequent period unless the impairment loss was caused by a specific external event of an exceptional nature that is not expected to recur, and subsequent external events have occurred that reverse the effect of that event. Goodwill, intangible assets which are amortized over a period exceeding ten years and intangible assets which are not yet available for use are tested for impairment annually.
j) Borrowing costs
Borrowing costs that are attributable to the acquisition, construction or production of qualifying assets are treated as direct cost and are considered as part of cost of such assets. A qualifying asset is an asset that necessarily requires a substantial period of time to get ready for its intended use or sale. Capitalization of borrowing costs is suspended in the period during which the active development is delayed beyond reasonable time due to other than temporary interruption. All other borrowing costs are charged to the statement of profit and loss as incurred.
k) Investments
Non-current investments are stated at cost. Provision is made for diminution, other than temporary, in the value of investments, wherever applicable. Current investments are stated at lower of cost and fair value.
l) Inventories
Inventories which comprise raw materials, components, stores and spare parts are valued at lower of cost and net realizable value.
Cost includes purchase price, duties and taxes (other than those subsequently recoverable by the Company from taxing authorities), freight inward and other expenditure in bringing inventories to present locations and conditions. In determining the cost, weighted average cost method is used. The carrying costs of raw materials, components and stores and spare parts are appropriately written down when there is a decline in replacement cost of such materials and the finished products in which they will be incorporated are expected to be sold below cost.
Finished goods are valued at the lower of cost and net realizable value. The comparison of cost and net realizable value is made on an item by item basis. Cost comprises of direct material and labour expenses and an appropriate portion of production overheads incurred in bringing the inventory to their present location and condition. Fixed production overheads are allocated on the basis of normal capacity of the production facilities.
Excise duty liability is included in the valuation of year - end inventory of finished goods.
Costs incurred on long term construction contracts representing general purpose item of inventories are disclosed as contract work in progress net of provision for loss.
m) Leases
Finance leases
Assets made available to customers under arrangements which are in the nature of finance lease are recognized as a receivable at the inception of the lease at an amount equal to the net investment in the lease or the fair value of the leased assets, whichever is lower. The excess of net investment in the lease/ fair value of the leased asset, as the case may be, over the book value of the leased asset are recognized as gain in the Statement of Profit and Loss at the inception of the lease. Lease rentals are apportioned between principal and interest based on a pattern reflecting a constant periodic return on the net investment of the lessor outstanding in respect of the finance lease. The lease rental amount received reduces the net investment in the lease and interest is recognized as revenue. Initial direct costs are recognized immediately in the Statement of Profit and Loss.
Operating leases
Lease payments under operating leases are recognized as expense in the Statement of Profit and Loss on a straight line basis over the lease term.
n) Research and development
Revenue expenditure on research and development is expensed in the year in which it is incurred and related capital expenditure is considered as addition to fixed assets.
o) Employee benefits
The Company''s obligations towards various employee benefits have been recognized as follows:
Short term benefits
Employee benefits payable wholly within twelve months of receiving employees services are classified as short-term employee benefits. These benefits include salaries and wages, bonus and ex-gratia. The undiscounted amount of short-term employee benefits to be paid in exchange for employee services is recognized as an expense as the related service is rendered by employees.
Cost of accumulating compensated absences that are expected to be availed within a period of 12 months from the period end are recognized when the employees render the service that increases their entitlement to future compensated absences. Cost is computed based on past trends and is not discounted. Cost of non- accumulating compensated absences is recognized when absences occur.
Post employment benefits
i) Monthly contributions to Provident Funds which are in the nature of defined contribution schemes are charged to Statement of Profit and Loss and deposited with the provident fund authorities on a monthly basis.
Provident fund administered through Company''s trust for certain employees (in accordance with Provident Fund Regulation) are in the nature of defined benefit obligations with respect to the yearly interest guarantee. Annual charge is recognized based on actuarial valuation of the Company''s related obligation on the reporting date. Actuarial gains or losses for the year are recognized in the Statement of Profit and Loss as income or expenses.
ii) Gratuity and superannuation schemes which are in the nature of defined benefit plans, excepting Plan B of Executive Staff Pension Fund, are administered by the Trustees. Annual contributions are recognized on the basis of actuarial valuation of related obligations and plan assets conducted by an external actuary appointed by the Company and are paid to the respective funds. Plan B of Executive Staff Pension Fund which is a defined contribution scheme for which the Trustees of the scheme have entrusted the administration of the related fund to the Life Insurance Corporation of India (LICI).
The contributions are charged to Statement of Profit and Loss and deposited with LICI on a monthly basis.
Compensated absences
Cost of long term benefit by way of accumulating compensated absences that are expected to be availed after a period of 12 months from the period-end are recognized when the employees render the service that increases their entitlement to future compensated absences. Such costs are recognized based on actuarial valuation of related obligation on the reporting date. Actuarial gains and losses for the year are recognized in the Statement of Profit and Loss as income or expense.
Termination Benefits
Costs of termination benefits have been recognized only when the Company has a present obligation as a result of a past event, it is probable that an outflow of resources will be required to settle such obligation and the amount of the obligation can be reliably estimated.
p) Foreign exchange transactions
Foreign exchange transactions are recorded at the exchange rate prevailing on the dates of the transactions. Year-end monetary assets and liabilities denominated in foreign currencies are translated at the year-end foreign exchange rates.
Exchange differences arising on settlements/ translations are recognized in the Statement of Profit and Loss. In case of forward exchange contracts which are entered into to hedge the foreign currency risk of a receivable/ payable recognized in these financial statements, premium or discount on such contracts are amortized over the life of the contract and exchange differences arising thereon in the reporting period are recognized in the Statement of Profit and Loss.
q) Derivative instruments and hedge accounting
The Company has entered into forward contracts and principal and interest swap contracts with a bank to hedge its risks associated with foreign currency and variable interest rate fluctuations related to certain firm commitments and forecasted transactions. These derivative contracts are being considered as cash flow hedges applying the recognition and measurement principles set out in the Guidance Note on Accounting for Derivative Contracts issued by the Institute of Chartered Accountants of India. The use of hedging instruments is governed by the Company''s policies approved by the Board of Directors. The Company does not use these contracts for trading or speculative purposes.
To designate a forward contract/ swap contract as an effective hedge, management objectively evaluates and evidences with appropriate supporting documents at the inception of each contract whether the contract is effective in offsetting cash flows attributable to the hedged risk.
Hedging instruments are initially measured at fair value and are re-measured at subsequent reporting dates at fair value.
Gain/ loss arising from year end translation of borrowings drawn down and gain/ loss arising from changes in fair values of these derivatives that are effective hedges are recognized directly in the shareholders'' funds and retained their till these hedging instruments either expire or are sold, terminated, exercised or no longer qualify for hedge accounting. When a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in shareholders'' funds is transferred to the Statement of Profit and Loss for the year.
In the absence of designation as effective hedge, gain or loss arising from changes in fair values of these swap contracts are recognized in the Statement of Profit and Loss.
The fair value of the forward contracts and the swap contracts are based on the appropriation valuation technique, considering the terms of the contract.
r) Provisions and contingent liabilities
A provision is created when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.
A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Contingent assets are neither recognized nor disclosed in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.
s) Tax
Income-tax expense comprises current tax (i.e. amount of tax for the period determined in accordance with the income-tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period).
Current tax is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws. Deferred tax is recognized in respect of timing differences between taxable income and accounting income i.e. differences that originate in one period and are capable of reversal in one or more subsequent periods. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognized using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognized only if there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realized. Deferred tax assets are reviewed as at each balance sheet date and written down or written-up to reflect the amount that is reasonably/ virtually certain (as the case may be) to be realized.
Minimum Alternative Tax (''MAT'') under the provisions of the Income-tax Act, 1961 is recognized as current tax in the Statement of Profit and Loss. The credit available under the Act in respect of MAT paid is recognized as an asset only when and to the extent there is convincing evidence that the company will pay normal income tax during the period for which the MAT credit can be carried forward for set-off against the normal tax liability. MAT credit recognized as an asset is reviewed at each balance sheet date and written down to the extent the aforesaid convincing evidence no longer exists.
t) Earnings per share
Basic earnings per share are computed using the weighted average number of equity shares outstanding during the year. Diluted earnings per share are computed using the weighted average number of equity and dilutive equity equivalent shares outstanding during the year, except where the results would be anti- dilutive.
u) CSR Expenditure
All amounts spent on Corporate Social Responsibility (CSR) activities, which is specified in Schedule VII to the Companies Act, 2013 read with MCA Circular No. 21/ 2014 dated 24.10.2014, is recognized as CSR Expenditure in the Statement of Profit and Loss.
No provision for the amount which is not spent, i.e., any shortfall in the amount that was expected to be spent as per the provisions of the Act on CSR activities and the amount actually spent at the end of financial year is made in the financial statements. However, if the company has already undertaken certain CSR activity for which a liability has been incurred by entering into a contractual obligation, then in accordance with the generally accepted principles of accounting, a provision for the amount representing the extent to which the CSR activity was completed during the year, is recognized in the financial statements.
Dec 31, 2014
A) Basis of preparation of financial statements
These financial statements have been prepared and presented on the
accrual basis of accounting and comply with the Accounting Standards
prescribed in the Companies (Accounting Standards) Rules, 2006 issued
by the Central Government, the relevant provisions of the Companies
Act, 1956/Companies Act, 2013 (as applicable) and other accounting
principles generally accepted in India, to the extent applicable. The
financial statements are presented in Indian rupees rounded off to the
nearest million.
b) Use of estimates
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles (GAAP) requires management to make
judgments, estimates and assumptions that affect the application of
accounting policies and reported amounts of assets, liabilities, income
and expenses and the disclosure of contingent liabilities on the date
of the financial statements. Actual results could differ from those
estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis. Any revision to accounting estimates is recognised
prospectively in current and future periods.
c) Current - non current classification
All assets and liabilities are classified into current and non-current.
Assets
An asset is classified as current when it satisfies any of the
following criteria:
a. it is expected to be realised in, or is intended for sale or
consumption in, the Company''s normal operating cycle;
b. it is held primarily for the purpose of being traded;
c. it is expected to be realised within 12 months after the reporting
date; or
d. it is cash or cash equivalent unless it is restricted from being
exchanged or used to settle a liability for at least 12 months after
the reporting date.
Current assets include the current portion of non-current financial
assets.
All other assets are classified as non-current.
Liabilities
A liability is classified as current when it satisfies any of the
following criteria:
a. it is expected to be settled in the Company''s normal operating
cycle;
b. it is held primarily for the purpose of being traded;
c. it is due to be settled within 12 months after the reporting date;
or
d. the Company does not have an unconditional right to defer
settlement of the liability for at least 12 months after the reporting
date. Terms of a liability that could, at the option of the
counterparty, result in its settlement by the issue of equity
instruments do not affect its classification.
Current liabilities include current portion of non-current financial
liabilities.
All other liabilities are classified as non-current.
All assets and liabilities have been classified as current or
non-current as per the Company''s normal operating cycle and other
criteria set out in the Revised Schedule VI to the Companies Act, 1956.
Based on the nature of manufacturing activity 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 for
the purpose of current - non current classification of assets and
liabilities:
* as 12 months for the gases and related products of the Company
* as 24 months for the Project Engineering Division of the Company
which are engaged in the manufacture and construction of cryogenic and
non-cryogenic air separation plants.
d) Revenue recognition
Revenue from sale of gas and related products in the course of ordinary
activities is recognised when property in the goods and related
products or all significant risk and rewards of their ownership are
transferred to the customer and no significant uncertainty exists
regarding the amount of the consideration that will be derived from the
sale of gas and its related products and regarding its collection.
Facility charge is recognised on accrual basis as per the terms of the
contract with the customers. The amount recognized as revenue is
exclusive of sales tax and value added tax.
Contract revenue and contract costs associated with the long term
construction contracts are recognised as revenue and expenses
respectively by reference to the stage of completion of the project at
the Balance Sheet date. The stage of completion of project is
determined by the proportion that contract costs incurred for work
performed upto the balance sheet date bear to the estimated total
contract costs. If total cost is estimated to exceed total contract
revenue, the Company provides for foreseeable loss.
Interest income is recognised on a time proportion basis taking into
account the amount outstanding and the interest rate applicable.
Income from dividend is recognised when right to receive payment is
established.
e) Tangible fixed Assets
Tangible fixed assets are stated at cost of acquisition or construction
or revalued amounts less accumulated depreciation or accumulated
impairment loss, if any. Cost of item of tangible fixed asset includes
purchase price, taxes, non refundable duties, freight and other costs
that are directly attributable to bringing assets to their working
condition for their intended use.
Spares that can be used only with particular items of plant and
machinery and such usage is expected to be irregular are capitalised.
Fixed assets under construction are disclosed as capital work in
progress.
f) Intangible fixed Assets
Goodwill arising on acquisition of a business is measured at cost less
any accumulated impairment loss.
Intangible assets that are acquired by the Company are measured
initially at cost. After initial recognition, an intangible asset is
carried at its cost less any accumulated amortisation and any
accumulated impairment loss.
Subsequent expenditure is capitalised only when it increases the future
economic benefits from the specific asset to which it relates.
g) Depreciation
Tangible fixed assets
* Depreciation is provided on the straight line method. The rates of
depreciation prescribed in Schedule XIV of the Companies Act, 1956, are
considered as minimum rates. If the management''s estimate of useful
life of a fixed asset at the time of acquisition of the asset or the
remaining useful life on a subsequent review is shorter than the useful
life derived from the rate of depreciation prescribed in Schedule XIV,
depreciation is provided at a higher rate based on the management''s
estimate of the useful life/ remaining useful life. Pursuant to this
policy, certain components of plant and machinery are being depreciated
at the rate of 10% and 6.91% that are higher than the corresponding
rates prescribed in the aforesaid Schedule XIV.
* In case of revalued fixed assets, depreciation is provided as
aforesaid, on the total value of fixed assets as appearing in the books
of account after revaluation. Additional depreciation attributable to
revalued amount is charged to the Statement of Profit and Loss. On
disposal of a previously revalued item of fixed asset, the difference
between the net disposal proceeds and the net book value is charged or
credited to the Statement of Profit and Loss except that, to the extent
such loss is related to an increase which was previously recorded as a
credit to revaluation reserve and which has not been subsequently
reversed or utilised, is charged directly to that account. The amount
standing in revaluation reserve following the retirement or disposal of
an asset, which relates to that asset is transferred to general
reserve.
* Consideration for obtaining leasehold rights over land is being
amortised over the period of the lease.
* Assets individually costing Rs. 5,000 or less are depreciated fully
in the year of acquisition.
* Spares capitalised are being depreciated over the useful life/
remaining useful life of the plant and machinery with which such spares
can be used.
* Assets retired from active use and held for disposal are stated at
lower of their net book value and net realizable value and shown under
"Other current assets".
h) Amortisation
Intangible fixed assets are amortised in Statement of Profit or Loss
over their estimated useful lives, from the date that they are
available for use based on the expected pattern of consumption of
economic benefits of the asset. Accordingly, at present, these are
being amortised on straight line basis. In accordance with the
applicable Accounting Standard, the Company follows 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. However,
if there is persuasive evidence that the useful life of an intangible
asset is longer than ten years, it is amortised over the best estimate
of its useful life. Such intangible assets and intangible assets that
are not yet available for use are tested annually for impairment.
The amortisation rates are as follows:
Goodwill 20%
Software 20%
Non compete fee 20%
Leasehold rights 33.33%
Customer Lists 20%
i) Impairment
The carrying amounts of fixed assets and capital work in progress are
reviewed at each Balance Sheet date in accordance with Accounting
Standard 28 on ''Impairment of Assets'' prescribed by the Companies
(Accounting Standards) Rules, 2006 (as amended), to determine whether
there is any indication of impairment. If any such indication exists,
the assets recoverable amounts are estimated at each reporting date. An
impairment loss is recognised whenever the carrying amount of an asset
or the cash generating unit of which it is a part exceeds the
corresponding recoverable amount. Impairment losses are recognised in
the Statement of Profit and Loss. An impairment loss is reversed if
there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent
that the assets carrying amount does not exceed the carrying amount
that would have been determined net of depreciation or amortisation, if
no impairment loss had been recognised. Impairment loss recognized for
goodwill is not reversed in a subsequent period unless the impairment
loss was caused by a specific external event of an exceptional nature
that is not expected to recur, and subsequent external events have
occurred that reverse the effect of that event. Goodwill, intangible
assets which are amortised over a period exceeding ten years and
intangible assets which are not yet available for use are tested for
impairment annually.
j) Borrowing costs
Borrowing costs directly attributable to acquisition or construction of
those fixed assets which necessarily take a substantial period of time
to get ready for their intended use are capitalised. Other borrowing
costs are recognised as an expense in the period in which they are
incurred.
k) Investments
Non-current investments are stated at cost. Provision is made for
diminution, other than temporary, in the value of investments, wherever
applicable. Current investments are stated at lower of cost and fair
value.
l) Inventories
Inventories which comprise raw materials, components, stores and spare
parts are valued at lower of cost and net realisable value.
Cost includes purchase price, duties and taxes (other than those
subsequently recoverable by the Company from taxing authorities),
freight inward and other expenditure in bringing inventories to present
locations and conditions. In determining the cost, weighted average
cost method is used. The carrying costs of raw materials, components
and stores and spare parts are appropriately written down when there is
a decline in replacement cost of such materials and the finished
products in which they will be incorporated are expected to be sold
below cost.
Finished goods are valued at the lower of cost and net realisable
value. The comparison of cost and net realisable value is made on an
item by item basis. Cost comprises of direct material and labour
expenses and an appropriate portion of production overheads incurred in
bringing the inventory to their present location and condition. Fixed
production overheads are allocated on the basis of normal capacity of
the production facilities.
Excise duty liability is included in the valuation of year - end
inventory of finished goods.
Costs incurred on long term construction contracts representing general
purpose item of inventories are disclosed as contract work in progress
net of provision for loss.
m) Leases
Finance leases
Assets made available to customers under arrangements which are in the
nature of finance lease are recognised as a receivable at the inception
of the lease at an amount equal to the net investment in the lease or
the fair value of the leased assets, whichever is lower. The excess of
net investment in the lease/fair value of the leased asset, as the case
may be, over the book value of the leased asset are recognised as gain
in the Statement of Profit and Loss at the inception of the lease.
Lease rentals are apportioned between principal and interest based on a
pattern reflecting a constant periodic return on the net investment of
the lessor outstanding in respect of the finance lease. The lease
rental amount received reduces the net investment in the lease and
interest is recognised as revenue. Initial direct costs are recognised
immediately in the Statement of Profit and Loss.
Operating leases
Lease payments under operating leases are recognised as expense in the
Statement of Profit and Loss on a straight line basis over the lease
term.
n) Research and development
Revenue expenditure on research and development is expensed in the year
in which it is incurred and related capital expenditure is considered
as addition to fixed assets.
o) Employee benefits
The Company''s obligations towards various employee benefits have been
recognised as follows:
Short term benefits
Employee benefits payable wholly within twelve months of receiving
employees services are classified as short-term employee benefits.
These benefits include salaries and wages, bonus and ex-gratia. The
undiscounted amount of short-term employee benefits to be paid in
exchange for employee services is recognized as an expense as the
related service is rendered by employees.
Cost of accumulating compensated absences that are expected to be
availed within a period of 12 months from the period end are recognised
when the employees render the service that increases their entitlement
to future compensated absences. Cost is computed based on past trends
and is not discounted. Cost of non-accumulating compensated absences is
recognised when absences occur.
Post employment benefits
i) Monthly contributions to Provident Funds which are in the nature of
defined contribution schemes are charged to Statement of Profit and
Loss and deposited with the provident fund authorities on a monthly
basis.
Provident fund administered through Company''s trust for certain
employees (in accordance with Provident Fund Regulation) are in the
nature of defined benefit obligations with respect to the yearly
interest guarantee. Annual charge is recognised based on actuarial
valuation of the Company''s related obligation on the reporting date.
Actuarial gains or losses for the year are recognised in the Statement
of Profit and Loss as income or expenses.
ii) Gratuity and superannuation schemes which are in the nature of
defined benefit plans, excepting Plan B of Executive Staff Pension
Fund, are administered by the Trustees. Annual contributions are
recognised on the basis of actuarial valuation of related obligations
and plan assets conducted by an external actuary appointed by the
Company and are paid to the respective funds. Plan B of Executive Staff
Pension Fund which is a defined contribution scheme for which the
Trustees of the scheme have entrusted the administration of the related
fund to the Life Insurance Corporation of India (LICI). The
contributions are charged to Statement of Profit and Loss and deposited
with LICI on a monthly basis.
Compensated absences
Cost of long term benefit by way of accumulating compensated absences
that are expected to be availed after a period of 12 months from the
period-end are recognised when the employees render the service that
increases their entitlement to future compensated absences. Such costs
are recognised based on actuarial valuation of related obligation on
the reporting date. Actuarial gains and losses for the year are
recognised in the Statement of Profit and Loss as income or expense.
Termination Benefits
Costs of termination benefits have been recognised only when the
Company has a present obligation as a result of a past event, it is
probable that an outflow of resources will be required to settle such
obligation and the amount of the obligation can be reliably estimated.
p) Foreign exchange transactions
Foreign exchange transactions are recorded at the exchange rate
prevailing on the dates of the transactions. Year-end monetary assets
and liabilities denominated in foreign currencies are translated at the
year-end foreign exchange rates.
Exchange differences arising on settlements/translations are recognised
in the Statement of Profit and Loss. In case of forward exchange
contracts which are entered into to hedge the foreign currency risk of
a receivable/payable recognised in these financial statements, premium
or discount on such contracts are amortised over the life of the
contract and exchange differences arising thereon in the reporting
period are recognised in the Statement of Profit and Loss.
q) Derivative instruments and hedge accounting
The Company has entered into forward contracts and principal and
interest swap contracts with a bank to hedge its risks associated with
foreign currency and variable interest rate fluctuations related to
certain firm commitments and forecasted transactions. These derivative
contracts are being considered as cash flow hedges applying the
recognition and measurement principles set out in the Accounting
Standard 30 "Financial Instruments : Recognition and Measurement" (AS
30). The use of hedging instruments is governed by the Company''s
policies approved by the Board of Directors. The Company does not use
these contracts for trading or speculative purposes.
To designate a forward contract/swap contract as an effective hedge,
management objectively evaluates and evidences with appropriate
supporting documents at the inception of each contract whether the
contract is effective in offsetting cash flows attributable to the
hedged risk.
Hedging instruments are initially measured at fair value and are
re-measured at subsequent reporting dates at fair value. Gain/loss
arising from year end translation of borrowings drawn down and
gain/loss arising from changes in fair values of these derivatives that
are effective hedges are recognized directly in the shareholders'' funds
and retained there till these hedging instruments either expire or are
sold, terminated, exercised or no longer qualify for hedge accounting.
When a hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognized in shareholders'' funds is
transferred to the Statement of Profit and Loss for the year.
In the absence of designation as effective hedge, gain or loss arising
from changes in fair values of these swap contracts are recognized in
the Statement of Profit and Loss.
r) Provisions and contingent liabilities
A provision is created when there is a present obligation as a result
of a past event that probably requires an outflow of resources and a
reliable estimate can be made of the amount of the obligation. A
disclosure for a contingent liability is made when there is a possible
obligation or a present obligation that may, but probably will not,
require an outflow of resources. When there is a possible obligation or
a present obligation in respect of which the likelihood of outflow of
resources is remote, no provision or disclosure is made. Contingent
assets are neither recognised nor disclosed in the financial
statements. However, contingent assets are assessed continually and if
it is virtually certain that an inflow of economic benefits will arise,
the asset and related income are recognised in the period in which the
change occurs.
s) Tax
Income-tax expense comprises current tax (i.e. amount of tax for the
period determined in accordance with the income-tax law) and deferred
tax charge or credit (reflecting the tax effects of timing differences
between accounting income and taxable income for the period).
Current tax is measured at the amount expected to be paid to (recovered
from) the taxation authorities, using the applicable tax rates and tax
laws. Deferred tax is recognised in respect of timing differences
between taxable income and accounting income i.e. differences that
originate in one period and are capable of reversal in one or more
subsequent periods. The deferred tax charge or credit and the
corresponding deferred tax liabilities or assets are recognised using
the tax rates and tax laws that have been enacted or substantively
enacted by the balance sheet date. Deferred tax assets are recognised
only to the extent there is reasonable certainty that the assets can be
realised in future; however, where there is unabsorbed depreciation or
carried forward loss under taxation laws, deferred tax assets are
recognised only if there is a virtual certainty supported by convincing
evidence that sufficient future taxable income will be available
against which such deferred tax assets can be realised. Deferred tax
assets are reviewed as at each balance sheet date and written down or
written-up to reflect the amount that is reasonably/virtually certain
(as the case may be) to be realised.
Minimum Alternative Tax (''MAT'') under the provisions of the Income- tax
Act, 1961 is recognised as current tax in the Statement of Profit and
Loss. The credit available under the Act in respect of MAT paid 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 period
for which the MAT credit can be carried forward for set-off against the
normal tax liability. MAT credit recognised as an asset is reviewed at
each balance sheet date and written down to the extent the aforesaid
convincing evidence no longer exists.
t) Earnings per share
Basic earnings per share are computed using the weighted average number
of equity shares outstanding during the year. Diluted earnings per
share are computed using the weighted average number of equity and
dilutive equity equivalent shares outstanding during the year, except
where the results would be anti dilutive.
Dec 31, 2013
A) Basis of preparation of financial statements
These financial statements have been prepared and presented on the
accrual basis of accounting and comply with the Accounting Standards
prescribed in the Companies (Accounting Standards) Rules, 2006 issued
by the Central Government, the relevant provisions of the Companies
Act, 1956 and other accounting principles generally accepted in India,
to the extent applicable. The financial statements are presented in
Indian rupees rounded off to the nearest million.
b) Use of estimates
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles (GAAP) requires management to make
judgments, estimates and assumptions that affect the application of
accounting policies and reported amounts of assets, liabilities, income
and expenses and the disclosure of contingent liabilities on the date
of the financial statements. Actual results could differ from those
estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis. Any revision to accounting estimates is recognised
prospectively in current and future periods.
c) Current-noncurrent classification
All assets and liabilities are classified into current and non-current.
Assets
An asset is classified as current when it satisfies any of the
following
criteria:
a. it is expected to be realised in, or is intended for sale or
consumption ,n, the company''s normal operating cycle;
b. it is held primarily for the purpose of being traded;
c. it is expected to be realised within 12 months after the reporting
date; or
d. it is cash or cash equivalent unless it is restricted from being
exchanged or used to settle a liability for at least 12 months after
the reporting date.
Current assets include the current portion of non-current financial
assets.
All other assets are classified as non-current.
Liabilities
A liability ,s classified as current when it satisfies any of the
following
criteria:
a. it is expected to be settled in the company''s normal operating
cycle;
b. it is held primarily for the purpose of being traded;
c. it is due to be settled within 12 months after the reporting date;
or
d. the company does not have an unconditional right to defer
settlement of the liability for at least 12 months after the reporting
date. Terms of a liability that could, at the option of the
counterparty, result in its settlement by the issue of equity
instruments do not affect its classification.
Current liabilities include current portion of non-current financial
liabilities.
All other liabilities are classified as non-current.
All assets and liabilities have been classified as current or
non-current as per the Company''s normal operating cycle and other
criteria set out in the Revised Schedule VI to the Companies Act, 1956.
Based on the nature of manufacturing activity 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 for
the purpose of current - noncurrent classification of assets and
liabilities:
- as 12 months for the gases and related products of the Company
- as 24 months for the Project Engineering Division of the Company
which are engaged in the manufacture and construction of cryogenic and
non-cryogenic air separation plants.
d) Revenue recognition
Revenue from sale of gas and related products in the course of ordinary
activities is recognised when property in the goods and related
products or all significant risk and rewards of their ownership are
transferred to the customer and no significant uncertainty exists
regarding the amount of the consideration that will be derived from the
sale of gas and its related products and regarding its collection.
Facility charge is recognised on accrual basis as per the terms of the
contract with the customers. The amount recognized as revenue is
exclusive of sales tax and value added tax.
Contract revenue and contract costs associated with the long term
construction contracts are recognised as revenue and expenses
respectively by reference to the stage of completion of the project at
the Balance Sheet date. The stage of completion of project is
determined by the proportion that contract costs incurred for work
performed upto the balance sheet date bear to the estimated total
contract costs. If total cost ,s estimated to exceed total contract
revenue, the company provides for foreseeable loss.
interest income is recognised on a time proportion basis taking into
account the amount outstanding and the interest rate applicable.
income from dividend is recognised when right to receive payment is
established.
e) Tangible fixed assets
Tangible fixed assets are stated at cost of acquisition or construction
or revalued amounts less accumulated deprecation or accumulated
impairment loss, if any. Cost of item of tangible fixed asset includes
purchase price, taxes, non refundable duties, freight and other costs
that are directly attributable to bringing assets to their working
condition for their intended use.
Spares that can be used only with particular items of plant and
machinery and such usage is expected to be irregular are capitalised.
Fixed assets under construction are disclosed as capital work in
progress.
f) intangible fixed assets
Goodwill arising on acquisition of a business is measured at cost less
any accumulated impairment loss.
intangible assets that are acquired by the Company are measured
initially at cost. After initial recognition, an intangible asset is
earned at its cost less any accumulated amortisation and any
accumulated impairment loss.
Subsequent expenditure is capitalised only when it increases the future
economic benefits from the speck asset to which it relates.
g) Depreciation
Tangible fixed assets
- Deprecation is provided on the straight line method. The rates of
deprecation prescribed in Schedule XIV of the Companies Act, 1956, are
considered as minimum rates. If the management''s estimate of useful
life of a fixed asset at the time of acquisition of the asset or the
remaining useful life on a subsequent review is shorter than the useful
life derived from the rate of deprecation prescribed in Schedule XIV,
deprecation is provided at a higher rate based on the management''s
estimate of the useful life/remaining useful life. Pursuant to this
policy, certain components of plant and machinery are be,ng deprecated
at the rate of 10% and 6.91 % that are higher than the corresponding
rates prescribed in the aforesaid Schedule XIV.
- in case of revalued fixed assets, deprecation is provided as
aforesaid, on the total value of fixed assets as appearing in the books
of account after revaluation. Additional deprecation attributable to
revalued amount is charged to the Statement of Profit and Loss. On
disposal of a previously revalued item of fixed asset, the difference
between the net disposal proceeds and the net book value is charged or
credited to the Statement of Profit and Loss except that, to the extent
such loss is related to an increase which was previously recorded as a
credit to revaluation reserve and which has not been subsequently
reversed or utilised, is charged directly to that account. The amount
standing in revaluation reserve following the retirement or disposal of
an asset, which relates to that asset is transferred to general
reserve.
- Consideration for obtaining leasehold rights over land is be,ng
amortised over the period of the lease.
- Assets individually costing Rs. 5,000 or less are deprecated fully in
the year of acquisition.
- Spares capitalised are being deprecated over the useful life/
remaining useful life of the plant and machinery with which such spares
can be used.
- Assets retired from active use and held for disposal are stated at
lower of their net book value and net realizable value and shown under
"Other current assets".
h) Amortisation
intangible fixed assets are amortised in Statement of Profit and Loss
over their estimated useful lives, from the date that they are
available for use based on the expected pattern of consumption of
economic benefits of the asset. Accordingly, at present, these are
being amortised on straight line basis. In accordance with the
applicable Accounting Standard, the Company follows 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. However,
if there is persuasive evidence that the useful life of an intangible
asset is longer than ten years, it is amortised over the best estimate
of its useful life. Such intangible assets and intangible assets that
are not yet available for use are tested annually for impairment.
i) impairment
The carrying amounts of fixed assets and capital work in progress are
reviewed at each Balance Sheet date in accordance with Accounting
Standard 28 on ''Impairment of Assets'' prescribed by the Companies
(Accounting Standards) Rules, 2006 (as amended), to determine whether
there is any indication of impairment. If any such indication exists,
the assets recoverable amounts are estimated at each reporting date. An
impairment loss is recognised whenever the carrying amount of an asset
or the cash generating unit of which it is a part exceeds the
corresponding recoverable amount. Impairment losses are recognised in
the Statement of Profit and Loss. An impairment loss is reversed ,f
there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent
that the assets carrying amount does not exceed the carrying amount
that would have been determined net of depreciation or amortisation, if
no impairment loss had been recognised. Impairment loss recognized for
goodwill is not reversed in a subsequent period unless the impairment
loss was caused by a specific external event of an exceptional nature
that is not expected to recur, and subsequent external events have
occurred that reverse the effect of that event. Goodwill, intangible
assets which are amortised over a period exceeding ten years and
intangible assets which are not yet available for use are tested for
impairment annually.
j) Borrowing costs
Borrowing costs directly attributable to acquisition or construction of
those fixed assets which necessarily take a substantial period of time
to get ready for their intended use are capitalised. Other borrowing
costs are recognised as an expense in the period in which they are
incurred.
k) investments
Long term investments are stated at cost. Provision is made for
diminution, other than temporary, in the value of investments, wherever
applicable. Current investments are stated at lower of cost and fair
value.
I) inventories
inventories which comprise raw materials, components, stores and spare
parts are valued at lower of cost and net realisable value. Cost
includes purchase price, duties and taxes (other than those
subsequently recoverable by the Company from taxing authorities),
freight inward and other expenditure in bringing inventories to present
locations and conditions. In determining the cost, weighted average
cost method is used. The carrying costs of raw materials, components
and stores and spare parts are appropriately written down when there ,s
a decline in replacement cost of such materials and the finished
products in which they will be incorporated are expected to be sold
below cost.
Finished goods are valued at the lower of cost and net realisable
value. The comparison of cost and net realisable value is made on an
item by item basis. Cost comprises of direct material and labor
expenses and an appropriate portion of production overheads incurred in
bringing the inventory to their present location and condition. Fixed
production overheads are allocated on the basis of normal capacity of
the production facilities.
Excise duty liability is included in the valuation of year - end
inventory of finished goods.
Costs incurred on long term construction contracts representing general
purpose item of inventories are disclosed as contract work in progress
net of provision for loss.
m)Leases
Finance leases
Assets made available to customers under arrangements which are in the
nature of finance lease are recognised as a receivable at the inception
of the lease at an amount equal to the net investment in the lease or
the fair value of the leased assets, whichever is lower. The excess of
net investment in the lease/fair value of the leased asset, as the case
may be, over the book value of the leased asset are recognised as gam
in the Statement of Profit and Loss at the inception of the lease.
Lease rentals are apportioned between principal and interest based on a
pattern reflecting a constant periodic return on the net investment of
the lessor outstanding in respect of the finance lease. The lease
rental amount received reduces the net investment in the lease and
interest is recognised as revenue. Initial direct costs are recognised
immediately in the Statement of Profit and Loss.
Operating leases
Lease payments under operating leases are recognised as expense in the
Statement of Profit and Loss on a straight line basis over the lease
term.
n) Research and development
Revenue expenditure on research and development is expensed in the year
in which it is incurred and related capital expenditure is considered
as addition to fixed assets.
o) Employee benefits
The Company''s obligations towards various employee benefits have been
recognised as follows:
Short term benefits
Employee benefits payable wholly within twelve months of receiving
employees services are classified as short-term employee benefits.
These benefits include salaries and wages, bonus and ex-grat,a. The
undiscounted amount of short-term employee benefits to be paid in
exchange for employee services is recognized as an expense as the
related service ,s rendered by employees.
Cost of accumulating compensated absences that are expected to be
availed within a period of 12 months from the period end are recognised
when the employees render the service that increases their entitlement
to future compensated absences. Cost is computed based on past trends
and is not discounted. Cost of non-accumulating compensated absences is
recognised when absences occur.
Post employment benefits
Monthly contributions to Provident Funds which are in the nature of
defined contribution schemes are charged to Statement of Profit and
Loss and deposited with the provident fund authorities on a monthly
basis.
Provident fund administered through Company''s trust for certain
employees (in accordance with Provident Fund Regulation) are in the
nature of defined benefit obligations with respect to the yearly
interest guarantee. Annual charge is recognised based on actuarial
valuation of the Company''s related obligation on the reporting date.
Actuarial gams or losses for the year are recognised in the Statement
of Profit and Loss as income or expenses.
Gratuity and superannuation schemes which are in the nature of defined
benefit plans, excepting Plan B of Executive Staff Pension Fund, are
administered by the Trustees. Annual contributions are recognised on
the basis of actuarial valuation of related obligations and plan assets
conducted by an external actuary appointed by the Company and are pa,d
to the respective funds. Plan B of Executive Staff Pension Fund which
is a defined contribution scheme for which the Trustees of the scheme
have entrusted the administration of the related fund to the Life
Insurance Corporation of India (LICI). The contributions are charged
to Statement of Profit and Loss and deposited with LICI on a monthly
bas,s.
Compensated absences
Cost of long term benefit by way of accumulating compensated absences
that are expected to be availed after a period of 12 months from the
period-end are recognised when the employees render the service that
increases their entitlement to future compensated absences. Such costs
are recognised based on actuarial valuation of related obligation on
the reporting date. Actuarial gams and losses for the year are
recognised in the Statement of Profit and Loss as income or expense.
Termination Benefits
Costs of termination benefits have been recognised only when the
Company has a present obligation as a result of a past event, it ,s
probable that an outflow of resources will be required to settle such
obligation and the amount of the obligation can be reliably estimated.
p) Foreign exchange transactions
Foreign exchange transactions are recorded at the exchange rate
prevailing on the dates of the transactions. Year-end monetary assets
and liabilities denominated in foreign currencies are translated at the
year-end foreign exchange rates.
Exchange differences arising on settlements/translations are recognised
in the Statement of Profit and Loss. In case of forward exchange
contracts which are entered into to hedge the foreign currency risk of
a receivable/payable recognised in these financial statements, premium
or discount on such contracts are amortised over the life of the
contract and exchange differences arising thereon in the reporting
period are recognised in the Statement of Profit and Loss.
q) Derivative instruments and hedge accounting
The Company has entered into forward contracts and principal and
interest swap contracts with a bank to hedge its risks associated with
foreign currency and variable interest rate fluctuations related to
certain firm commitments and forecasted transactions. These derivative
contracts are being considered as cash flow hedges applying the
recognition and measurement principles set out in the Accounting
Standard 30 "Financial Instruments: Recognition and Measurement" (AS
30). The use of hedging instruments is governed by the Company''s
polices approved by the Board of Directors. The Company does not use
these contracts for trading or speculative purposes.
To designate a forward contract/swap contract as an effective hedge,
management objectively evaluates and evidences with appropriate
supporting documents at the inception of each contract whether the
contract is effective in offsetting cash flows attributable to the
hedged risk.
Hedging instruments are initially measured at fair value and are re-
measured at subsequent reporting dates at fair value. Gam/loss arising
from year end translation of borrowings drawn down and gam/ loss
arising from changes in fair values of these derivatives that are
effective hedges are recognized directly in the shareholders'' funds and
retained there till these hedging instruments either expire or are
sold, terminated, exercised or no longer qualify for hedge accounting.
When a hedged transaction is no longer expected to occur, the net
cumulative gam or loss recognized in shareholders'' funds is transferred
to the Statement of Profit and Loss for the year.
in the absence of designation as effective hedge, gam or loss arising
from changes in fair values of these swap contracts are recognized in
the Statement of Profit and Loss.
r) Provisions and contingent liabilities
A provision is created when there is a present obligation as a result
of a past event that probably requires an outflow of resources and a
reliable estimate can be made of the amount of the obligation. A
disclosure for a contingent liability is made when there is a possible
obligation or a present obligation that may, but probably will not,
require an outflow of resources. When there is a possible obligation or
a present obligation in respect of which the likelihood of outflow of
resources is remote, no provision or disclosure is made. Contingent
assets are neither recognised nor disclosed in the financial
statements. However, contingent assets are assessed continually and if
it is virtually certain that an inflow of economic benefits will arise,
the asset and related income are recognised in the period in which the
change occurs.
s)Tax
income-tax expense comprises current tax (i.e. amount of tax for the
period determined in accordance with the income-tax law) and deferred
tax charge or credit (reflecting the tax effects of timing differences
between accounting income and taxable income for the period).
Current tax is measured at the amount expected to be paid to (recovered
from) the taxation authorities, using the applicable tax rates and tax
laws. Deferred tax is recognised in respect of timing differences
between taxable income and accounting income i.e. differences that
originate in one period and are capable of reversal in one or more
subsequent periods. The deferred tax charge or credit and the
corresponding deferred tax liabilities or assets are recognised using
the tax rates and tax laws that have been enacted or substantively
enacted by the balance sheet date. Deferred tax assets are recognised
only to the extent there is reasonable certainty that the assets can be
realised in future; however, where there is unabsorbed deprecation or
earned forward loss under taxation laws, deferred tax assets are
recognised only if there is a virtual certainty supported by convincing
evidence that sufficient future taxable income will be available
against which such deferred tax assets can be realised. Deferred tax
assets are reviewed as at each balance sheet date and written down or
wntten- up to reflect the amount that is reasonably/virtually certain
(as the case may be) to be realised.
Minimum Alternative Tax (''MAT'') under the provisions of the Income- tax
Act, 1961 ,s recognised as current tax in the Statement of Profit and
Loss. The credit available under the Act in respect of MAT paid 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 period
for which the MAT credit can be earned forward for set-off against the
normal tax liability. MAT credit recognised as an asset is reviewed at
each balance sheet date and written down to the extent the aforesaid
convincing evidence no longer exists.
t) Earnings per share
Basic earnings per share are computed using the weighted average number
of equity shares outstanding during the year. Diluted earnings per
share are computed using the weighted average number of equity and
dilutive equity equivalent shares outstanding during the year, except
where the results would be ant, dilutive.
Rights, preferences and restrictions attached to equity shares
The Company has a single class of equity shares. Accordingly all equity
shares rank equally with regard to dividends and share in the Company''s
residual assets. The equity shares are entitled to receive dividend as
declared from time to time. The voting rights of an equity shareholder
on a poll (not on show of hands) are in proportion to its share of the
paid- up equity capital of the Company. Voting rights cannot be
exercised in respect of shares on which any call or other sums
presently payable have not been paid.
On w,nd,ng up of the company, the holders of equity shares will be
entitled to receive the residual assets of the company, remaining after
distribution of all preferential amounts in proportion to the number of
equity shares held.
-Consequent upon the offer for sale through the stock exchange
mechanism on 16 May 2013 made by The BOC Group Limited, a member of The
Linde Group, the promoter shareholding in the Company was reduced from
89.48o/o to 75o/Â in compliance with minimum public shareholding
requirement under the Listing Agreement.
a) Provision for liquidated damages
Liquidated damages are provided based on contractual terms when the
delivery/commissioning dates of an individual project have exceeded or
are likely to exceed the delivery/commissioning dates and/or on the
deviation in contractual performance as per the respective contracts.
This expenditure is expected to be incurred over the respective
contractual terms up to closure of the contract (including warranty
penod).
b) Provision for warranties
Warranty costs are provided based on a technical estimate of the costs
required to be incurred for repairs, replacement, material cost,
servicing and past experience in respect of warranty costs. It is
expected that this expenditure will be incurred over the contractual
warranty period.
c) Provision for contingencies
Provision is towards known contractual obligation, litigation cases and
pending assessments in respect of taxes, duties and other levies in
respect of which management believes that there are present obligations
and the settlement of such obligations are expected to result in
outflow of resources, to the extent provided for.
d) Provision for dismantling costs
Provision is towards estimated cost to be incurred on dismantling of
plants at the customers'' site upon expiry of the tenure of the
contractual agreement with the customer. Such cost has been capitalised
under plant and machinery
Dec 31, 2012
A) Basis of preparation of financial statements
These financial statements have been prepared and presented on the
accrual basis of accounting and comply with the Accounting Standards
prescribed in the Companies (Accounting Standards) Rules, 2006 issued
by the Central Government, the relevant provisions of the Companies
Act, 1956 and other accounting principles generally accepted in India,
to the extent applicable. The financial statements are presented in
Indian rupees rounded off to the nearest million.
This is the first year of application of the revised Schedule VI to the
Companies Act, 1956 for the preparation of the financial statements of
the Company. The revised Schedule VI introduces some significant con-
ceptual changes as well as new disclosures. These include
classification of all assets and liabilities into current and
non-current. The previous year figures have also undergone a major
reclassification to comply with the requirements of the revised
Schedule VI.
b) Use of estimates
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles (GAAP) requires management to make
judgments, estimates and assumptions that affect the application of
accounting policies and reported amounts of assets, liabilities, income
and expenses and the disclosure of contingent liabilities on the date
of the financial statements. Actual results could differ from those
estima- tes. Estimates and underlying assumptions are reviewed on an
ongoing basis. Any revision to accounting estimates is recognised
prospectively in current and future periods.
c) Current - non current classification
All assets and liabilities have been classified as current or
non-current as per the Company''s normal operating cycle and other
criteria set out in the Revised Schedule VI to the Companies Act, 1956.
Based on the nature of manufacturing activity and the time between the
acqui- sition of assets for processing and their realization in cash
and cash equivalents, the Company has ascertained its operating cycle
for the purpose of current - non current classification of assets and
liabilities:
- as 12 months for the gases and related products of the Company
- as 24 months for the Project Engineering Division of the Company
which are engaged in the manufacture and construction of cryogenic and
non-cryogenic air separation plants.
All assets and liabilities are classified into current and non-current.
Assets
An asset is classified as current when it satisfies any of the
following criteria:
- it is expected to be realised in, or is intended for sale or
consumption in, the company''s normal operating cycle;
- it is held primarily for the purpose of being traded;
- it is expected to be realised within 12 months after the reporting
date; or
- it is cash or cash equivalent unless it is restricted from being
exchanged or used to settle a liability for at least 12 months after
the reporting date.
Current assets include the current portion of non-current financial
assets.
All other assets are classified as non-current.
Liabilities
A liability is classified as current when it satisfies any of the
following criteria:
- it is expected to be settled in the company''s normal operating
cycle;
- it is held primarily for the purpose of being traded;
- it is due to be settled within 12 months after the reporting date;
or
- the company does not have an unconditional right to defer settle-
ment of the liability for at least 12 months after the reporting date.
Terms of a liability that could, at the option of the counterparty,
result in its settlement by the issue of equity instruments do not
affect its classification.
Current liabilities include current portion of non-current financial
liabilities.
All other liabilities are classified as non-current.
d) Revenue recognition
Revenue from sale of gas and related products in the course of ordi-
nary activities is recognised when property in the goods and related
products or all significant risk and rewards of ownership are transfer-
red to the customer and no significant uncertainty exists regarding the
amount of the consideration that will be derived from the sale of gas
and its related products and regarding its collection. Facility charge
is recognised on accrual basis as per the terms of the contract with
the customers. The amount recognized as revenue is exclusive of sales
tax, value added tax and service tax.
Contract revenue and contract costs associated with the long term con-
struction contracts are recognised as revenue and expenses respec-
tively by reference to the stage of completion of the project at the
balance sheet date. The stage of completion of project is determined by
the proportion that contract costs incurred for work performed upto the
balance sheet date bear to the estimated total contract costs. If total
cost is estimated to exceed total contract revenue, the company
provides for foreseeable loss.
Interest income is recognised on a time proportion basis taking into
account the amount outstanding and the interest rate applicable.
Income from dividend is recognised when right to receive payment is
established.
e) Fixed assets
Fixed assets are stated at cost of acquisition/revalued amounts less
accumulated depreciation and impairment. Cost of acquisition includes
taxes, duties, freight and other costs that are directly attributable
to bringing assets to their working condition for their intended use.
Spares that can be used only with particular items of plant and machi-
nery and such usage is expected to be irregular are capitalised.
Fixed assets under construction are disclosed as capital work in
progress.
f) Depreciation/amortisation
Tangible fixed assets
- Depreciation is provided under straight line method. The rates of
depreciation prescribed by Schedule XIV of the Companies Act, 1956, are
considered as minimum rates. If the management''s estimate of useful
life of a fixed asset at the time of acquisition of the asset or the
remaining useful life on a subsequent review is shorter than the useful
life derived from the rate of depreciation prescribed in Sched- ule
XIV, depreciation is provided at a higher rate based on the man-
agement''s estimate of the useful life/remaining useful life. Pursu- ant
to this policy, certain components of plant and machinery are being
depreciated at the rate of 10 % and 6.91 % that are higher than the
corresponding rates prescribed in the aforesaid Schedule XIV.
In case of revalued fixed assets, depreciation is provided as
aforesaid, on the total value of fixed assets as appearing in the books
of account after revaluation. Additional depreciation attributable to
revalued amount is charged to the Statement of Profit and Loss. On
disposal of a previously revalued item of fixed asset, the difference
between the net disposal proceeds and the net book value is charged or
credited to the Statement of Profit and Loss except that, to the extent
such loss is related to an increase which was previously recorded as a
credit to revaluation reserve and which has not been subsequently
reversed or utilised, is charged directly to that account. The amount
stand- ing in revaluation reserve following the retirement or disposal
of an asset, which relates to that asset is transferred to general
reserve.
- Consideration for obtaining leasehold rights over land is being
amor- tised over the period of the lease.
- Assets individually costing Rs. 5,000 or less are depreciated fully
in the year of acquisition.
- Spares capitalised are being depreciated over the useful
life/remain- ing useful life of the plant and machinery with which such
spares can be used.
- Assets retired from active use and held for disposal are stated at
lower of their net book value and net realizable value and shown under
"Other current assets".
Intangible fixed assets
- Goodwill arising on account of business acquisition is amortised
over the period of 5 years, being the useful life as estimated by
manage- ment.
- Software is amortised over its useful life of 5 years as estimated
by management.
g) Impairment of fixed assets
The carrying amounts of fixed assets and capital work in progress are
reviewed at each Balance Sheet date in accordance with Accounting
Standard 28 on "Impairment of Assets" prescribed by the Companies
(Accounting Standards) Rules, 2006 (as amended), to determine whe- ther
there is any indication of impairment. If any such indication exists,
the assets recoverable amounts are estimated at each reporting date.
An impairment loss is recognised whenever the carrying amount of an
asset or the cash generating unit of which it is a part exceeds the
corresponding recoverable amount. Impairment losses are recognised in
the Statement of Profit and Loss. An impairment loss is reversed if
there has been a change in the estimates used to determine the reco-
verable amount. An impairment loss is reversed only to the extent that
the assets carrying amount does not exceed the carrying amount that
would have been determined net of depreciation or amortisation, if no
impairment loss had been recognised.
h) Borrowing costs
Borrowing costs directly attributable to acquisition or construction of
those fixed assets which necessarily take a substantial period of time
to get ready for their intended use are capitalised. Other borrowing
costs are recognised as an expense in the period in which they are
incurred.
i) Investments
Long Term Investments are stated at cost. Provision is made for dimi-
nution, other than temporary, in the value of investments, wherever
applicable. Current investments are stated at lower of cost and fair
value.
j) Inventories
Inventories which comprises of raw materials, components, stores and
spare parts are valued at lower of cost and net realisable value. Cost
includes purchase price, duties and taxes (other than those subse-
quently recoverable by the Company from taxing authorities), freight
inward and other expenditure in bringing inventories to present loca-
tions and conditions. In determining the cost, weighted average cost
method is used. The carrying costs of raw materials, components and
stores and spare parts are appropriately written down when there is a
decline in replacement cost of such materials and the finished products
in which they will be incorporated are expected to be sold below cost.
Finished goods are valued at the lower of cost and net realisable
value. The comparison of cost and net realisable value is made on an
item by item basis. Cost comprises of direct material and labour
expenses and an appropriate portion of production overheads incurred in
bringing the inventory to their present location and condition. Fixed
production overheads are allocated on the basis of normal capacity of
the produc- tion facilities.
Excise duty liability is included in the valuation of year - end
inventory of finished goods.
Costs incurred on long term contracts representing general purpose item
of inventories are disclosed as contract work in progress net of
provision for loss.
k) Leases
Finance leases
Assets made available to customers under arrangements which are in the
nature of finance lease are recognised as a receivable at the incep-
tion of the lease at an amount equal to the net investment in the lease
or the fair value of the leased assets, whichever is lower. The excess
of net investment in the lease/fair value of the leased asset, as the
case may be, over the book value of the leased asset are recognised as
gain in the Statement of Profit and Loss at the inception of the lease.
Lease rentals are apportioned between principal and interest based on a
pattern reflecting a constant periodic return on the net investment of
the lessor outstanding in respect of the finance lease. The lease
rental amount received reduces the net investment in the lease and
interest is recognised as revenue. Initial direct costs are recognised
immediately in the Statement of Profit and Loss.
Operating leases
Lease payments under operating leases are recognised as expense in the
Statement of Profit and Loss on a straight line basis over the lease
term.
I) Research and development
Revenue expenditure on research and development is expensed in the year
in which it is incurred and related capital expenditure is conside- red
as addition to fixed assets.
m) Employee benefits
The Company''s obligations towards various employee benefits have been
recognised as follows:
Short term benefits
Cost of accumulating compensated absences that are expected to be
availed within a period of 12 months from the period end are recog-
nised when the employees render the service that increases their
entitlement to future compensated absences. Cost is computed based on
past trends and is not discounted.
Cost of non-accumulating compensated absences is recognised when
absences occur. Costs of other short term employee benefits are recog-
nised on accrual basis based on the terms of employment contract and
other relevant compensation policies followed by the Company.
Post employment benefits
- Monthly contributions to Provident Funds which are in the nature of
defined contribution schemes are charged to Statement of Profit and
Loss and deposited with the provident fund authorities on a monthly
basis
Provident fund administered through Company''s trust for cer- tain
employees (in accordance with Provident Fund Regulation) are in the
nature of defined benefit obligations with respect to the yearly
interest guarantee. Annual charge is recognised based on actuarial
valuation of the Company''s related obligation on the reporting date.
Actuarial gains or losses for the year are recog- nised in the
Statement of Profit and Loss as income or expenses.
- Gratuity and superannuation schemes which are in the nature of
defined benefit plans, excepting Plan B of Executive Staff Pension
Fund, are administered by the Trustees. Annual contributions are
recognised on the basis of actuarial valuation of related obligations
and plan assets conducted by an external actuary appointed by the
Company and are paid to the respective funds. Plan B of Executive Staff
Pension Fund which is a defined contribution scheme for which the
Trustees of the scheme have entrusted the administration of the related
fund to the Life Insurance Corporation of India (LICI). The con-
tributions are charged to Statement of Profit and Loss and deposited
with LICI on a monthly basis.
Other long-term benefits
Cost of long term benefit by way of accumulating compensated absen- ces
that are expected to be availed after a period of 12 months from the
period-end are recognised when the employees render the service that
increases their entitlement to future compensated absences. Such costs
are recognised based on actuarial valuation of related obligation on
the reporting date. Actuarial gains and losses for the year are recog-
nised in the Statement of Profit and Loss as income or expense.
Termination benefits
Costs of termination benefits have been recognised only when the
Company has a present obligation as a result of a past event, it is
pro- bable that an outflow of resources will be required to settle such
obli- gation and the amount of the obligation can be reliably
estimated.
n) Foreign exchange transactions
Foreign exchange transactions are recorded at the exchange rate
prevailing on the dates of the transactions. Year-end monetary assets
and liabilities denominated in foreign currencies are translated at the
year-end foreign exchange rates.
Exchange differences arising on settlements/translations are recog-
nised in the Statement of Profit and Loss. In case of forward exchange
contracts which are entered into to hedge the foreign currency risk of
a receivable/payable recognised in these financial statements, premium
or discount on such contracts are amortised over the life of the
contract and exchange differences arising thereon in the reporting
period are recognised in the Statement of Profit and Loss.
o) Derivative instruments and hedge accounting
The Company has entered into forward contracts and principal and inte-
rest swap contracts with banks to hedge its risks associated with for-
eign currency and variable interest rate fluctuations related to
certain firm commitments and forecasted transactions. These derivative
con- tracts are being considered as cash flow hedges applying the
recog- nition and measurement principles set out in the Accounting
Standard 30 "Financial Instruments: Recognition and Measurement" (AS
30). The use of hedging instruments is governed by the Company''s
policies approved by the Board of Directors. The Company does not use
these contracts for trading or speculative purposes.
To designate a forward contract/swap contract as an effective hedge,
management objectively evaluates and evidences with appropriate
supporting documents at the inception of each contract whether the
contract is effective in offsetting cash flows attributable to the
hedged risk.
Fledging instruments are initially measured at fair value and are
re-measured at subsequent reporting dates at fair value. Gain / loss
arising from year end translation of borrowings drawn down and
gain/loss arising from changes in fair values of these derivatives that
are effective hedges are recognized directly in the shareholders'' funds
and retained there till these hedging instruments either expire or are
sold, terminated, exercised or no longer qualify for hedge accounting.
When a hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognized in shareholders'' funds is
transferred to the Statement of Profit and Loss for the year.
In the absence of designation as effective hedge, gain or loss arising
from changes in fair values of these swap contracts are recognized in
the Statement of Profit and Loss.
p) Provisions and contingent liabilities
A provision is created when there is a present obligation as a result
of a past event that probably requires an outflow of resources and a
reli- able estimate can be made of the amount of the obligation. A
disclo- sure for a contingent liability is made when there is a
possible obliga- tion or a present obligation that may, but probably
will not, require an outflow of resources. When there is a possible
obligation or a present obligation in respect of which the likelihood
of outflow of resources is remote, no provision or disclosure is made.
Contingent assets are neit- her recognised nor disclosed in the
financial statements. However, con- tingent assets are assessed
continually and if it is virtually certain that an inflow of economic
benefits will arise, the asset and related income are recognised in the
period in which the change occurs.
q) Tax
Income tax expense comprises current tax (i.e. amount of tax for the
period determined in accordance with the income tax law) and defer- red
tax charge or credit (reflecting the tax effects of timing differences
between accounting income and taxable income for the period).
Current tax is measured at the amount expected to be paid to (reco-
vered from) the taxation authorities, using the applicable tax rates
and tax laws. Deferred tax is recognised in respect of timing
differences between taxable income and accounting income i.e.
differences that originate in one period and are capable of reversal in
one or more subsequent periods. The deferred tax charge or credit and
the corres- ponding deferred tax liabilities or assets are recognised
using the tax rates and tax laws that have been enacted or
substantively enacted by the balance sheet date. Deferred tax assets
are recognised only to the extent there is reasonable certainty that
the assets can be realised in future; however, where there is
unabsorbed depreciation or carried forward loss under taxation laws,
deferred tax assets are recognised only if there is a virtual certainty
supported by convincing evidence that sufficient future taxable income
will be available against which such deferred tax assets can be
realised. Deferred tax assets are revie- wed as at each balance sheet
date and written down or written-up to reflect the amount that is
reasonably/virtually certain (as the case may be) to be realised.
Minimum Alternative Tax ("MAT") under the provisions of the Income- Tax
Act, 1961 is recognised as current tax in the Statement of Profit and
Loss. The credit available under the Act in respect of MAT paid is
recog- nised as an asset only when and to the extent there is
convincing evi- dence that the company will pay normal income tax
during the period for which the MAT credit can be carried forward for
set-off against the normal tax liability. MAT credit recognised as an
asset is reviewed at each balance sheet date and written down to the
extent the aforesaid convincing evidence no longer exists.
r) Government grants
Grants/subsidies are recognised when no uncertainties exist as regards
receipt of the amount of such grant/subsidy and compliance with the
attached terms and conditions.
When the grant or subsidy relates to an expense item, it is recognised
as income over the periods necessary to match them on a systematic
basis to the costs, which it is intended to compensate. Grants/subsi-
dies in respect of fixed assets are adjusted against the cost of the
rela- ted items of fixed assets/capital reserve as the case may be.
s) Earnings per share
Basic earnings per share are computed using the weighted average number
of equity shares outstanding during the year. Diluted earnings per
share are computed using the weighted average number of equity and
dilutive equity equivalent shares outstanding during the year, except
where the results would be anti dilutive.
Dec 31, 2010
(a) Basis of Preparation of Financial Statements
The financial statements have been prepared and presented under the
historical cost convention on the accrual basis of accounting following
generally accepted accounting principles in India (GAAP) and comply
with the Accounting Standards prescribed by the Companies (Accounting
Standards) Rules, 2006 (as amended) and the relevant provisions of the
Companies Act, 1956, to the extent applicable.
(b) Use of Estimates
The preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent liabilities as at the date of the financial statements.
Actual results could differ from those estimates. Any revision to
accounting estimates is recognised prospectively in current and future
periods.
(c) Revenue Recognition
Revenue from sale of gas is recognised on transfer of risk and rewards
of ownership to the customer and facility charge is recognised on
accrual basis as per the terms of the contract with the customers at
the end of the month.
Income from fixed price long term construction contracts are recognised
under the percentage of completion method with reference to the
estimated overall profitability of the contract that is reassessed on a
regular basis. Percentage of completion is ascertained on the basis of
work completed under the contract and accepted by the customer based on
the extent of work performed in accordance with the terms of the
contract. Provision for expected loss is recognised immediately when it
is probable that the total estimated contract costs will exceed total
contract revenue. Revenue from cost plus contracts is recognised based
on cost incurred on the project plus the mark up agreed with the
customer.
Interest is recognised on a time proportion basis. Income from dividend
is recognised on declaration of dividend by the investee company.
(d) Fixed Assets
Fixed assets are stated at cost of acquisition/ revalued amounts less
accumulated depreciation. Cost of acquisition includes taxes, duties,
freight and other costs that are directly attributable to bringing
assets to their working condition for their intended use. Borrowing
costs directly attributable to acquisition or construction of those
fixed assets which necessarily take a substantial period of time to get
ready for their intended use are capitalised.
Spares that can be used only with particular items of plant and
machinery and such usage is expected to be irregular are capitalised.
(e) Depreciation / Amortisation
Tangible Assets
Depreciation is provided under straight line method. The rates of
depreciation prescribed by Schedule XIV of the Companies Act, 1956, are
considered as minimum rates. If the managements estimate of useful
life of a fixed asset at the time of acquisition of the asset or the
remaining useful life on a subsequent review is shorter than the useful
life derived from the rate of depreciation prescribed in Schedule XIV,
depreciation is provided at a higher rate based on the managements
estimate of the useful life/remaining useful life. Accordingly, certain
components of Plant & Machinery are being depreciated at the rate of
10% and 6.91% that are higher than the corresponding rates prescribed
in the aforesaid Schedule XIV.
In case of revalued fixed assets, depreciation is provided as
aforesaid, on the total value of fixed assets as appearing in the books
of account after revaluation. Additional depreciation attributable to
revalued amount is charged to the Profit and Loss Account. On disposal
of a previously revalued item of fixed asset, the difference between
the net disposal proceeds and the net book value is charged or credited
to the Profit and Loss Account except that, to the extent such loss is
related to an increase which was previously recorded as a credit to
revaluation reserve and which has not been subsequently reversed or
utilised, is charged directly to that account. The amount standing in
revaluation reserve following the retirement or disposal of an asset,
which relates to that asset is transferred to general reserve.
Consideration for obtaining leasehold rights over land is being
amortised over the period of the lease.
Assets individually costing Rs. 5 or less are depreciated fully in the
year of acquisition.
Spares capitalised are being depreciated over the useful life /
remaining useful life of the plant and machinery with which such spares
can be used.
Intangible Assets
Computer software is amortised over its useful life of 5 years as
estimated by management.
(f) Impairment of Fixed Assets
The carrying amounts of fixed assets and capital work in progress are
reviewed at each Balance Sheet date in accordance with Accounting
Standard 28 on Impairment of Assets prescribed by the Companies
(Accounting Standards) Rules, 2006 (as amended), to determine whether
there is any indication of impairment. If any such indication exists,
the assets recoverable amounts are estimated at each reporting date. An
impairment loss is recognised whenever the carrying amount of an asset
or the cash generating unit of which it is a part exceeds the
corresponding recoverable amount. Impairment losses are recognised in
the Profit and Loss Account. An impairment loss is reversed if there
has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the
assets carrying amount does not exceed the carrying amount that would
have been determined net of depreciation or amortisation, if no
impairment loss had been recognised.
(g) Investments
Long Term Investments are stated at cost. Provision is made for
diminution, other than temporary, in the value of investments, wherever
applicable. Current investments are stated at lower of cost and fair
value.
(h) Inventories
Raw materials, components, stores and spares are valued at lower of
cost and net realisable value. In determining the cost, weighted
average cost method is used. The carrying costs of raw materials,
components and stores and spare parts are appropriately written down
when there is a decline in replacement cost of such materials and the
finished products in which they will be incorporated are expected to be
sold below cost.
Finished goods are valued at the lower of cost and net realisable
value. The comparison of cost and net realisable value is made on an
item by item basis. Cost comprises of direct material and labour
expenses and an appropriate portion of production overheads incurred in
bringing the inventory to their present location and condition. Fixed
production overheads are allocated on the basis of normal capacity of
the production facilities.
Excise duty liability is included in the valuation of year-end
inventory of finished goods.
Costs incurred on long term contracts that are yet to be billed to the
customer are disclosed as contract work in progress net of provision
for loss.
(i) Leases
Finance Leases
Assets made available to customers under arrangements which are in the
nature of finance lease are recognised as a receivable at the inception
of the lease at an amount equal to the net investment in the lease or
the fair value of the leased assets, whichever is lower. The excess of
net investment in the lease/ fair value of the leased asset, as the
case may be, over the book value of the leased asset are recognised as
gain in the Profit and Loss Account at the inception of the lease.
Lease rentals are apportioned between principal and interest based on a
pattern reflecting a constant periodic return on the net investment of
the lessor outstanding in respect of the finance lease. The lease
rental amount received reduces the net investment in the lease and
interest is recognised as revenue. Initial direct costs are recognised
immediately in the Profit and Loss Account.
Operating Leases
Lease payments under operating leases are recognised as expense in the
Profit and Loss Account on a straight line basis over the lease term.
(j) Research and Development
Revenue expenditure on research and development is expensed in the year
in which it is incurred and related capital expenditure is considered
as addition to fixed assets.
(k) Employee Benefits
The Companys obligations towards various employee benefits have been
recognised as follows:
Short Term Benefits
Cost of accumulating compensated absences that are expected to be
availed within a period of 12 months from the period end are recognised
when the employees render the service that increases their entitlement
to future compensated absences. Cost is computed based on past trends
and is not discounted.
Cost of non-accumulating compensated absences is recognised when
absences occur. Costs of other short term employee benefits are
recognised on accrual basis based on the terms of employment contract
and other relevant compensation policies followed by the Company.
Post Employment Benefits
i) Monthly contributions to Provident Funds which are in the nature of
defined contribution schemes are charged to Profit and Loss Account and
deposited with the Provident Fund authorities on a monthly basis.
Provident fund administered through Companys trust for certain
employees (in accordance with Provident Fund Regulation) are in the
nature of defined benefit obligations with respect to the yearly
interest guarantee. Annual charge is recognised based on actuarial
valuation of the Companys related obligation on the reporting date.
Actuarial gains or losses for the year are recognised in the Profit and
Loss Account as income or expenses.
ii) Gratuity and superannuation schemes which are in the nature of
defined benefit plans, excepting Plan B of Executive Staff Pension
Fund, are administered by the Trustees. Annual contributions are
recognised on the basis of actuarial valuation of related obligations
and plan assets conducted by an external actuary appointed by the
Company and are paid to the respective funds. Plan B of Executive Staff
Pension Fund which is a defined contribution scheme for which the
Trustees of the scheme have entrusted the administration of the related
fund to the Life Insurance Corporation of India (LICI). The
contributions are charged to Profit and Loss Account and deposited with
LICI on a monthly basis. Excess of plan assets over obligations that is
expected to be recovered in future has been recognised as a receivable
in these financial statements.
Other Long Term Benefits
Cost of long term benefit by way of accumulating compensated absences
that are expected to be availed after a period of 12 months from the
period-end are recognised when the employees render the service that
increases their entitlement to future compensated absences. Such costs
are recognised based on actuarial valuation of related obligation on
the reporting date. Actuarial gains and losses for the year are
recognised in the profit and loss account as income or expense.
Termination Benefits
Costs of termination benefits have been recognised only when the
Company has a present obligation as a result of a past event, it is
probable that an outflow of resources will be required to settle such
obligation and the amount of the obligation can be reliably estimated.
(I) Foreign Exchange Transactions
Foreign exchange transactions are recorded at the exchange rate
prevailing on the dates of the transactions. Year-end monetary assets
and liabilities denominated in foreign currencies are translated at the
year-end foreign exchange rates.
Exchange differences arising on settlements/ translations are
recognised in the Profit and Loss Account. In case of forward exchange
contracts which are entered into to hedge the foreign currency risk of
a receivable/ payable recognised in these financial statements, premium
or discount on such contracts are amortised over the life of the
contract and exchange differences arising thereon in the reporting
period are recognised in the Profit and Loss Account.
(m) Derivative Instruments and Hedge Accounting
The Company has entered into forward contracts and principal and
interest swap contracts with a bank to hedge its risks associated with
foreign currency and variable interest rate fluctuations related to
certain firm commitments and forecasted transactions. These derivative
contracts are being considered as cash flow hedges applying the
recognition and measurement principles set out in the Accounting
Standard 30 "Financial Instruments: Recognition and Measurement" (AS
30). The use of hedging instruments is governed by the Companys
policies approved by the Board of Directors. The Company does not use
these contracts for trading or speculative purposes.
To designate a forward contract/ swap contract as an effective hedge,
management objectively evaluates and evidences with appropriate
supporting documents at the inception of each contract whether the
contract is effective in offsetting cash flows attributable to the
hedged risk.
Hedging instruments are initially measured at fair value and are
re-measured at subsequent reporting dates at fair value. Gain/loss
arising from year end translation of borrowings drawn down and
gain/loss arising from changes in fair values of these derivatives that
are effective hedges are recognized directly in the shareholders funds
and retained there till these hedging instruments either expire or are
sold, terminated, exercised or no longer qualify for hedge accounting.
When a hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognized in ShareholdersFunds is transferred
to the Profit and Loss Account for the year.
In the absence of designation as effective hedge, gain or loss arising
from changes in fair values of these swap contracts are recognized in
the Profit and Loss Account.
(n) Provisions and Contingent Liabilities
A provision is recognised in the financial statements where there
exists a present obligation as a result of a past event, the amount of
which can be reliably estimated, and it is probable that an outflow of
resources will be necessary to settle the obligation. Contingent
liability is a possible obligation that arises from past events and 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 and / or is a present obligation that arises
from past events but is not recognised because either it is not
probable that an outflow of resources embodying economic benefits will
be necessary to settle the obligation or the amount of the obligation
cannot be reliably estimated.
(o) Tax
Income tax expense comprises current and fringe benefit (i.e. amount of
taxes for the year determined in accordance with the Income-tax Act,
1961) and deferred tax charge or credit (reflecting the tax effects of
timing differences between accounting income and taxable income for the
year). The deferred tax charge or credit and the corresponding deferred
tax liabilities or assets are recognised using the tax rates that have
been enacted or substantively enacted by the Balance Sheet date.
Deferred tax assets are recognised only to the extent there is
reasonable certainty that the assets can be realised in future.
However, where there is unabsorbed depreciation or carried forward loss
under taxation laws, deferred tax assets are recognised only if there
is a virtual certainty of realisation of such assets. Deferred tax
assets are reviewed as at each balance sheet date and written down or
written up to reflect the amount that is reasonably/virtually certain
(as the case maybe)toberealised.
(p) Government Grants
Grants/subsidies are recognised when no uncertainties exist as regards
receipt of the amount of such grant/subsidy and compliance with the
attached terms and conditions.
When the grant or subsidy relates to an expense item, it is recognised
as income over the periods necessary to match them on a systematic
basis to the costs, which it is intended to compensate.
Grants/subsidies in respect of fixed assets are adjusted against the
cost of the related items of fixed assets/capital reserve as the case
may be.
(q) EarningsperShare
Basic earnings per share are computed using the weighted average number
of equity shares outstanding during the year. Diluted earnings per
share are computed using the weighted average number of equity and
dilutive equity equivalent shares outstanding during the year, except
where the results would be anti dilutive.
Dec 31, 2009
(a) Basis of Preparation of Financial Statements
The financial statements have been prepared and presented under the
historical cost convention on the accrual basis of accountins followins
senerally accepted accounting principles in India (GAAP) and comply
with the Accounting Standards prescribed by the Companies (Accounting
Standards) Rules, 2006 and the relevant provisions of the Companies
Act, 1956, to the extent applicable. Pursuant to Institute of
Chartered Accountants of India (ICAI) announcement, Accounting for
Derivatives", on early adoption of Accounting Standard 30, "Financial
Instruments: Recognition and Measurement", the Company has early
adopted the standard during the year, to the extent the adoption does
not conflict with existing mandatory Accounting Standards and other
authoritative pronouncements, company law and other regulatory
requirements.
(b) Use of Estimates
The preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent liabilities on the date of the financial statements. Actual
results could differ from those estimates. Any revision to accounting
estimates is recognised prospectively in current and future periods.
(c) Revenue Recognition
Revenue from sale of gas is recognised on transfer of risk and rewards
of ownership to the customer and facility charge is recognised on
accrual basis as per the terms of the contract with the customers at
the end of the month.
Income from fixed price long term construction contracts are recognised
under the percentage of completion method with reference to the
estimated overall profitability of the contract that is reassessed on a
regular basis. Percentage of completion is ascertained on the basis of
work completed under the contract and accepted by the customer based on
the extent of work performed in accordance with the terms of the
contract. Provision for expected loss is recognised immediately when it
is probable that the total estimated contract costs will exceed total
contract revenue. Revenue from cost plus contracts is recognised based
on cost incurred on the project plus the mark up agreed with the
customer.
Interest is recognised on a time proportion basis. Income from dividend
is recognised on declaration of dividend by the investee company.
(d) Fixed Assets
Fixed assets are stated at cost of acquisition / revalued amounts less
accumulated depreciation. Cost of acquisition includes taxes, duties,
freight and other costs that are directly attributable to bringing
assets to their working condition for their intended use. Borrowing
costs directly attributable to acquisition or construction of those
fixed assets which necessarily take a substantial period of time to get
ready for their intended use are capitalised.
Spares that can be used only with particular items of plant and
machinery and such usage is expected to be irregular are capitalised.
(e) Depreciation / Amortisation
Tangible Assets
Depreciation is provided on straight line method over the useful lives
of fixed assets as estimated by the management. Useful lives so
estimated are in line with the useful lives derived from the
depreciation rates prescribed by Schedule XIV to the Companies Act,
1956.
In case of revalued fixed assets, depreciation is provided as
aforesaid, on the total value of fixed assets as appearins in the books
of account after revaluation. Additional depreciation attributable to
revalued amount is charged to the Profit and Loss Account. On disposal
of a previously revalued item of fixed asset, the difference between
the net disposal proceeds and the net book value is charged or credited
to the Profit and Loss Account except that, to the extent such loss is
related to an increase which was previously recorded as a credit to
revaluation reserve and which has not been subsequently reversed or
utilised, is charged directly to that account. The amount standing in
revaluation reserve following the retirement or disposal of an asset,
which relates to that asset is transferred to general reserve.
Consideration for obtaining leasehold rights over land is being
amortised over the period of the lease.
Assets individually costing Rs. 5 or less are depreciated fully in the
year of acquisition.
Spares capitalised are being depreciated over the useful life /
remaining useful life of the plant and machinery with which such spares
can be used.
Intangible Assets
Computer software is amortised over its useful life of 5 years as
estimated by management.
(f) Impairment of Fixed Assets
The carrying amounts of fixed assets and capital work in progress are
reviewed at each Balance Sheet date in accordance with Accounting
Standard 28 on Impairment of Assets prescribed by the Companies
(Accounting Standards) Rules, 2006, to determine whether there is any
indication of impairment. If any such indication exists, the assets
recoverable amounts are estimated at each reporting date. An impairment
loss is recognised whenever the carrying amount of an asset or the cash
generating unit of which it is a part exceeds the corresponding
recoverable amount. Impairment losses are recognised in the Profit and
Loss Account. An impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount. An
impairment loss is reversed only to the extent that the assets carrying
amount does not exceed the carrying amount that would have been
determined net of depreciation or amortisation, if no impairment loss
had been recognised.
(g) Investments
Long Term Investments are stated at cost. Provision is made for
diminution, other than temporary, in the value of investments, wherever
applicable. Short term investments are stated at lower of cost and fair
value.
(h) Inventories
Raw materials, components, stores and spares are valued at lower of
cost and net realisable value. In determining the cost, weighted
average cost method is used. The carrying costs of raw materials,
components and stores and spare parts are appropriately written down
when there is a decline in replacement cost of such materials and the
finished products in which they will be incorporated are expected to be
sold below cost.
Finished goods are valued at the lower of cost and net realisable
value. The comparison of cost and net realisable value is made on an
item by item basis. Cost comprises of direct material and labour
expenses and an appropriate portion of production overheads incurred in
bringing the inventory to their present location and condition. Fixed
production overheads are allocated on the basis of normal capacity of
the production facilities.
Costs incurred on long term construction contracts that are yet to be
billed to the customer are disclosed as construction work in progress
net of provision for loss.
Excise duty liability is included in the valuation of year- end
inventory of finished goods.
(i) Leases
Finance Leases
Assets made available to customers under arrangements which are in the
nature of finance lease are recognised as a receivable at the inception
of the lease at an amount equal to the net investment in the lease or
the fair value of the leased assets, whichever is lower. The excess of
net investment in the lease/fair value of the leased asset, as the case
may be, over the book value of the leased asset are recognised as gain
in the Profit and Loss Account at the inception of the lease. Lease
rentals are apportioned between principal and interest based on a
pattern reflecting a constant periodic return on the net investment of
the lessor outstanding in respect of the finance lease. The lease
rental amount received reduces the net investment in the lease and
interest is recognised as revenue. Initial direct costs are recognised
immediately in the Profit and Loss Account.
Operating Leases
Lease payments under operating leases are recognised as expense in the
Profit and Loss Account on a straight line basis over the lease term.
0) Research and Development
Revenue expenditure on research and development is expensed in the year
in which it is incurred and related capital expenditure is considered
as addition to fixed assets.
(k) Employee Benefits
The Companys obligations towards various employee benefits have been
recognised as follows:
Short term benefits
Cost of accumulating compensated absences that are expected to be
availed within a period of 12 months from the period end are recognised
when the employees render the service that increases their entitlement
to future compensated absences. Cost is computed based on past trends
and is not discounted.
Cost of non-accumulating compensated absences is recognised when
absences occur. Costs of other short term employee benefits are
recognised on accrual basis based on the terms of employment contract
and other relevant compensation policies followed by the Company.
Post employment benefits
i) Monthly contributions to Provident Funds which are in the nature of
defined contribution schemes are charged to Profit and Loss Account and
deposited with the Provident Fund authorities on a monthly basis.
Provident fund administered through Companys trust for certain
employees (in accordance with Provident Fund Regulation) are in the
nature of defined benefit obligations with respect to the yearly
interest guarantee. Annual charge is recognised based on actuarial
valuation of the Companys related obligation on the reporting date.
Actuarial gains or losses for the year are recognised in the Profit and
Loss Account as income or expenses.
ii) Gratuity and superannuation schemes which are in the nature of
defined benefit plans, excepting Plan B of Executive Staff Pension
Fund, are administered by the Trustees. Annual contributions are
recognised on the basis of actuarial valuation of related obligations
and plan assets conducted by an external actuary appointed by the
Company and are paid to the respective funds. Plan B of Executive Staff
Pension Fund which is a defined contribution scheme for which the
Trustees of the scheme have entrusted the administration of the related
fund to the Life Insurance Corporation of India (LICI). The
contributions are charged to Profit and Loss Account and deposited with
LICI on a monthly basis. Excess of plan assets over obligations that is
expected to be recovered in future has been recognised as a receivable
in these financial statements.
Other Ions term benefits
Cost of Ions term benefit by way of accumulating compensated absences
that are expected to be availed after a period of 12 months from the
period-end are recognised when the employees render the service that
increases their entitlement to future compensated absences. Such costs
are recognised based on actuarial valuation of related obligation on
the reporting date. Actuarial gains and losses for the year are
recognised in the profit and loss account as income or expense.
Termination benefits
Costs of termination benefits have been recognised only when the
Company has a present obligation as a result of a past event, it is
probable that an outflow of resources will be required to settle such
obligation and the amount of the obligation can be reliably estimated.
(l) Foreign Exchange Transactions
Foreign exchange transactions are recorded at the exchange rate
prevailing on the dates of the transactions. Year-end monetary assets
and liabilities denominated in foreign currencies, other than those
covered by forward exchange contracts, are translated at the year-end
foreign exchange rates.
Exchange differences arising on settlements/ translations are
recognised in the Profit and Loss Account. In case of forward exchange
contracts which are entered into to hedge the foreign currency risk of
a receivable/payable recognised in these financial statements, premium
or discount on such contracts are amortised over the life of the
contract and exchange differences arising thereon in the reporting
period are recognised in the Profit and Loss Account.
(m) Derivative Instruments and Hedge Accounting
During the year, the Company has entered into forward contracts and
principal and interest swap contracts with a bank to hedge its risks
associated with foreign currency and variable interest rate
fluctuations related to certain firm commitments and forecasted
transactions. These derivative contracts are being considered as cash
flow hedges applying the recognition and measurement principles set out
in the Accounting Standard 30 "Financial Instruments : Recognition and
Measurement" (AS 30). The use of hedging instruments is governed by the
Companys policies approved by the Board of Directors. The Company does
not use these contracts for trading or speculative purposes.
To designate a forward contract/ swap contract as an effective hedge,
management objectively evaluates and evidences with appropriate
supporting documents at the inception of each contract whether the
contract is effective in offsetting cash flows attributable to the
hedged risk.
Hedging instruments are initially measured at fair value and are
re-measured at subsequent reporting dates at fair value. Gain/loss
arising from year end translation of borrowings drawn down and
gain/loss arising from changes in fair values of these derivatives that
are effective hedges are recognized directly in the shareholders funds
and retained there till these hedging instruments either expire or are
sold, terminated, exercised or no longer qualify for hedge accounting.
When a hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognized in shareholders funds is
transferred to the Profit and Loss Account for the year.
In the absence of designation as effective hedge, gain or loss arising
from changes in fair^alues of these swap contracts are recognized in
the Profit and Loss Account.
Hitherto, gain/loss arising from year end translation of liabilities in
foreign currency and loss arising from mark to market valuation of
derivative contracts were recognized in the Profit and Loss Account in
accordance with Accounting Standard 11 - "The Effects of Changes in
Foreign Exchange Rates" prescribed by the Companies (Accounting
Standard) Rules, 2006 and notification issued by the Institute of
Chartered Accountants of India on 29 March 2008 respectively.
The impact of adoption of AS 30 has been described in Note (xxii)
below.
(n) Provisions and Contingent Liabilities
A provision is recosnised in the financial statements where there
exists a present oblisation as a result of a past event, the amount of
which can be reliably estimated and it is probable that an outflow of
resources will be necessary to settle the oblisation. Continsent
liability is a possible oblisation that arises from past events and 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 and / or is a present oblisation that arises
from past events but is not recosnised because either it is not
probable that an outflow of resources embodyins economic benefits will
be necessary to settle the oblisation or the amount of the oblisation
cannot be reliably estimated.
(o) Tax
Income tax expense comprises current and frinse benefit (i.e. amount of
taxes for the year determined in accordance with the Income-tax Act,
1961) and deferred tax charse or credit (reflectins the tax effects of
timins differences between accountins income and taxable income for the
year). The deferred tax charse or credit and the corresponding deferred
tax liabilities or assets are recosnised usins the tax rates that have
been enacted or substantively enacted by the Balance Sheet date.
Deferred tax assets are recosnised only to the extent there is
reasonable certainty that the assets can be realised in future.
However, where there is unabsorbed depreciation or carried forward loss
under taxation laws, deferred tax assets are recosnised only if there
is a virtual certainty of realisation of such assets. Deferred tax
assets are reviewed as at each balance sheet date and written down or
written up to reflect the amount that is reasonably/virtually certain
(as the case may be) to be realised.
(p) Government Grants
Grants /subsidies are recosnised when no uncertainties exist as resards
receipt of the amount of such Srant/subsidy and compliance with the
attached terms and conditions.
When the srant or subsidy relates to an expense item, it is recosnised
as income over the periods necessary to match them on a systematic
basis to the costs, which it is intended to compensate. Grants /
subsidies in respect of fixed assets are adjusted asainst the cost of
the related items of fixed assets/capital reserve as the case may be.
(q) Earnings per Share
Basic earninss per share are computed usins the weishted averase number
of equity shares outstandins durins the year. Diluted earninss per
share are computed usins the weishted averase number of equity and
dilutive equity equivalent shares outstandins durins the year, except
where the results would be anti dilutive.