Accounting Policies of Samvardhana Motherson International Ltd. Company
Mar 31, 2023
1. Corporate Information
Samvardhana Motherson International limited (formerly known as Motherson Sumi Systems Limited) (new SAMIL or ''the Company'') was incorporated on December 19, 1986 and domiciled in India and is engaged primarily in the manufacture and sale of components to automotive original equipment manufacturers. The address of its registered office is Unit 705, C Wing, ONE BKC, G Block, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra. The Company is a public limited company and is listed in the Bombay Stock Exchange and National Stock Exchange.
The standalone financial statements were authorised for issue in accordance with a resolution of the Board of directors on May 26, 2023.
2.1 Significant accounting policies(a) Basis of preparation
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time) and presentation requirements of Division II of Schedule III to the Companies Act, 2013, (Ind AS compliant Schedule III), as applicable to the financial statement.
The financial statements have been prepared on a historical cost basis, except for the following assets and liabilities which have been measured at fair value or revalued amount:
⢠Derivative financial instruments, refer note 37
⢠Certain financial assets and liabilities measured at fair value (refer note l below for accounting policy regarding financial instruments)
⢠Defined benefit pension plans - plan assets measured at fair value, refer note 21
In addition, the carrying values of recognised assets and liabilities designated as hedged items in fair value hedges that would otherwise be carried at amortised cost are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective hedge relationships. The financial statements are presented in INR and all values are rounded to the nearest millions ('' 000,000), except when otherwise indicated.
(b) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification. An asset is treated as current when it is:
⢠Expected to be realised or intended to be sold or consumed in normal operating cycle
⢠Held primarily for the purpose of trading
⢠Expected to be realised within twelve months after the reporting period, or
⢠Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period
The Company classifies all other assets as non-current.
A liability is current when:
⢠It is expected to be settled in normal operating cycle
⢠It is held primarily for the purpose of trading
⢠It is due to be settled within twelve months after the reporting period, or
⢠There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has identified twelve months as its operating cycle.
(c) Foreign currencies(i) Functional and presentation currency
The Company''s functional currency is Indian Rupee (?) and the financial statements are presented in Indian Rupee ('').
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in other comprehensive income if they relate to qualifying cash flow hedges
Foreign exchange differences on foreign currency borrowings are presented in the Statement of profit and loss, within finance costs. All other foreign exchange gains and losses are presented in the Statement of profit and loss on a net basis within other income or other expenses.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.
(d) Revenue from contracts with customers
Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company has generally concluded that it is the principal in its revenue arrangements, except for the agency services below, because it typically controls the goods or services before transferring them to the customer.
Revenue from sale of components
Revenue from sale of components is recognised at the point in time when control of the asset is transferred to the customer, generally on delivery of the equipment.
The Company considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of equipment, the Company considers the effects of variable consideration, the existence of significant financing components, non-cash consideration, and consideration payable to the customer (if any).
If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated
uncertainty with the variable consideration is subsequently resolved. Contracts for the sale of components provide customers with a customary right of return in case of defects, quality issues etc. The rights of return give rise to variable consideration.
The Company uses the expected value method to estimate the goods that will not be returned because this method best predicts the amount of variable consideration to which the Company will be entitled. The requirements in Ind AS 115 on constraining estimates of variable consideration are also applied in order to determine the amount of variable consideration that can be included in the transaction price. For goods that are expected to be returned, instead of revenue, the Company recognises a refund liability. A right of return asset (and corresponding adjustment to cost of sales) is also recognised for the right to recover products from a customer.
The Company typically provides warranties for general repairs of defects that existed at the time of sale, as required by law. These assurance-type warranties are accounted for under Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets.
Revenue from assembly of components
The Company has contracts with customers to assemble, on their behalf, customised components from various parts procured from suppliers identified by the customer. The Company is acting as an agent in these arrangements.
When another party is involved in providing goods or services to its customer, the Company determines whether it is a principal or an agent in these transactions by evaluating the nature of its promise to the customer. The Company is a principal and records revenue on a gross basis if it controls the promised goods or services before transferring them to the customer. However, if the Company''s role is only to arrange for another entity to provide the goods or services, then the Company is an agent and will need to record revenue at the net amount that it retains for its agency services.
Revenue from development of tools
The Company develops customised tooling for its customers and recognises its revenue over time using an input method to measure progress towards complete satisfaction of the tool development.
The Company recognises revenue from development of tools over time if it can reasonably measure its progress towards complete satisfaction of the performance obligation.
Where the Company cannot reasonably measure the outcome of a performance obligation, but the Company expects to recover the costs incurred in satisfying the performance obligation. In those circumstances, the Company recognises revenue only to the extent of the costs incurred until such time that it can reasonably measure the outcome of the performance obligation
Judgments applied in determining amount and timing of revenue
The Company applied the following judgements that significantly affect the determination of the amount and timing of revenue from contracts with customers:
(i) Determining the timing of satisfaction of tooling development
The Company concluded that revenue for development of tooling is to be recognised over time because the Company''s performance does not create asset with an alternative use to the Company since the tools are customised for each customer and the Company has a legally enforceable right to payment of fair value for performance completed to date.
The Company determined that the input method is the best method in measuring progress of the tooling development because there is a direct relationship between the Company''s effort (i.e., costs
incurred) and the transfer of tooling to the customer. The Company recognises revenue on the basis of the total costs incurred relative to the total expected costs to complete the tool.
(ii) Principal versus agent considerations
The Company enters into contracts with its customers to assemble, on their behalf, customised components using various parts procured from suppliers identified by the customer. Under these contracts, the Company provides assembly services (i.e., coordinating the procurement of various parts from the identified suppliers and combining or assembling them into components as desired by the customer). The Company determined that it does not control the goods before they are transferred to customers, and it does not have the ability to direct the use of the component or obtain benefits from the component. The following factors indicate that the Company does not control the goods before they are being transferred to customers. Therefore, the Company determined that it is an agent in these contracts.
⢠The Company is not primarily responsible for fulfilling the promise to provide the specified equipment.
⢠The Company does not have inventory risk before or after the specified component has been transferred to the customer as it purchases various parts on just-in-time basis and only upon contract of the customer.
⢠The Company has no discretion in establishing the price for the specified component. The Company''s consideration in these contracts is only based on the difference between the maximum purchase price quoted by the customer and the cost of various parts purchased from the suppliers.
⢠In addition, the Company concluded that it transfers control over its services (i.e., assembling the component from various parts), at a point in time, upon receipt by the customer of the component, because this is when the customer benefits from the Company''s agency service.
(iii) Consideration of significant financing component in a contract
The Company develops customised tooling and secondary equipment''s for which the manufacturing lead time after signing the contract is usually more than one year. This type of contract includes two payment options for the customer, i.e., payment of the transaction price equal to the cash selling price upon delivery of the tooling or payment of the transaction price as part of the component''s selling price. The Company concluded that there is a significant financing component for those contracts where the customer elects to pay along with the component''s selling price considering the length of time between the transfer of tooling and secondary equipment and the recovery of transaction price from the customer, as well as the prevailing interest rates in the market, if any.
In determining the interest to be applied to the amount of consideration, the Company concluded that the interest rate implicit in the contract (i.e., the interest rate that discounts the cash selling price of the equipment to the amount paid in advance) is appropriate because this is commensurate with the rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception.
Fees earned for the provision of services are recognised over time or point in time as per contract with the customer. In case of contracts where the customer receives and consumes the benefits simultaneously, as the services are rendered, the revenue is recognised over the term of the contract.
In cases where the customer receives and consume the services at single point in time, revenue is recognised as and when the performance obligation is satisfied.
Fees earned for the provision of guarantees are recognised over time as the customer simultaneously receives and consumes the benefits, as the services are rendered. The revenue for such contracts is recognised over the term of the guarantee contract.
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within one year and therefore are all classified as current. Where the settlement is due after one year, they are classified as non-current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Company holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Trade receivables are disclosed in Note 45.
A contract asset is the entity''s right to consideration in exchange for goods or services that the entity has transferred to the customer. A contract asset becomes a receivable when the entity''s right to consideration is unconditional, which is the case when only the passage of time is required before payment of the consideration is due. The impairment of contract assets is measured, presented and disclosed on the same basis as trade receivables. The Company''s contract assets are disclosed in Note 45 as Unbilled Receivables.
A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract. Contract Liabilities are disclosed in Note 45 as Advances received from customers.
An impairment is recognised to the extent that the carrying amount of receivable or asset relating to contracts with customers (a) the remaining amount of consideration that the Company expects to receive in exchange for the goods or services to which such asset relates; less (b) the costs that relate directly to providing those goods or services and that have not been recognised as expenses.
Interest is recognised using the effective interest rate (EIR) method, as income for the period in which it occurs. EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument to the gross carrying amount of the financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses.
Rental income arising from investment properties given on leases is accounted for on a straight-line basis over the lease terms unless the receipts are structured to increase in line with expected general inflation to compensate for the lessor''s expected inflationary cost increases and is included in other income in the statement of profit and loss.
Dividend income is recognised when the right to receive payment is established, which is generally when shareholders approve the dividend.
Duty drawback and export incentives
Income from duty drawback and export incentives is recognized on an accrual basis.
Royalty income is recognized in Other operating income on an accrual basis in accordance with the substance of the relevant agreements.
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions.
Government grants relating to income are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate and presented within other income.
Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets and presented within other income.
When government grants relating to loans or similar assistance are provided by governments or related institutions, with an interest rate below the current applicable market rate, the effect of this favourable interest is regarded as a government grant. The loan or assistance is initially recognised and measured at fair value and the government grant is measured as the difference between the initial carrying value of the loan and the proceeds received. The loan is subsequently measured as per the accounting policy applicable to financial liabilities.
The income tax expense or credit for the period is the tax payable on the current period''s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in India. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the standalone financial statements. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for all deductible temporary differences only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax
assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Investment allowances and similar tax incentives:
The Company may be entitled to claim special tax deductions for investments in qualifying assets or in relation to qualifying expenditure. The Company accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and current tax expense.
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange of consideration is considered as lease.
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
The Company recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
The right-of-use assets are also subject to impairment. Refer to the accounting policies in section (i) Impairment of non-financial assets.
At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate.
Lease liabilities, which separately shown in the financial statement are measured initially at the present value of the lease payments. Subsequent measurement of a lease liability includes the increase of the carrying amount to reflect interest on the lease liability and reducing (while affecting other comprehensive income) the carrying amount to reflect the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments.
Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase
option). It also applies the lease of low-value assets recognition exemption to leases that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
Lease income from operating leases where the Company is a lessor is recognised in income on a straightline basis over the lease term unless the receipts are structured to increase in line with expected general inflation to compensate the lessor for the expected inflationary cost increases. The respective leased assets are included in the balance sheet based on their respective nature.
(i) Impairment of non-financial assets
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset''s recoverable amount. An asset''s recoverable amount is the higher of an asset''s or cash-generating unit''s (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Company''s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. To estimate cash flow projections beyond periods covered by the most recent budgets/forecasts, the Company extrapolates cash flow projections in the budget using a steady or declining growth rate for subsequent years, unless an increasing rate can be justified. In any case, this growth rate does not exceed the long-term average growth rate for the products, industries, or country or countries in which the entity operates, or for the market in which the asset is used. Impairment losses including impairment on inventories, are recognised in the statement of profit and loss
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset''s or CGU''s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset''s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit and loss.
Intangible assets with indefinite useful lives are tested for impairment annually at the end of the financial year at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.
Cash and cash equivalent includes cash on hand, cash at banks and short term deposits with original maturities of three months or less that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of change in value. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
Raw materials, stores and spares, work in progress, stock in trade and finished goods are stated at the lower of cost and net realisable value.
Cost of raw material and traded goods comprise cost of purchase and is determined after rebate and discounts. Cost of work in progress and finished goods comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity.
Cost of inventories also includes all other cost incurred in bringing the inventories to their present location and condition. Costs are determined on weighted average cost basis.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
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 assetsInitial recognition and measurement
Financial assets are classified, at initial recognition and subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
With the exception of trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient, the Company initially measures financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price determined under Ind AS 115. Refer to the accounting policies in section (d) Revenue from contracts with customers.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ''solely payments of principal and interest (SPPI)'' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
For purposes of subsequent measurement, financial assets are classified in four categories:
⢠Debt instruments at amortised cost
⢠Debt instruments at fair value through other comprehensive income (FVTOCI)
⢠Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
⢠Equity instruments measured at fair value through other comprehensive income (FVTOCI)
Debt instruments at amortised cost
This category is the most relevant to the Company. A ''debt instrument'' is measured at the amortised cost if both the following conditions are met:
a. The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b. Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the profit or loss. The losses arising from impairment are recognised in the profit or loss. This category generally applies to trade and other receivables.
A ''debt instrument'' is classified as at the FVTOCI if both of the following criteria are met:
a. The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b. The asset''s contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI). However, the Company recognizes interest income, impairment losses & 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 from the equity to statement of profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income in statement of profit and loss using the EIR method.
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortized cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as ''accounting mismatch''). The Company has not designated any debt instrument as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the statement of profit and loss.
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS103 applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument-by-instrument basis. The classification is made on initial recognition and is irrevocable. The Company elected to classify irrevocably its non-listed equity investments under this category.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to P&L, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the P&L.
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Company''s balance sheet) when:
⢠The rights to receive cash flows from the asset have expired, or
⢠The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ''pass-through'' arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Company''s continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
a. Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities, deposits, trade receivables and bank balance
b. Financial assets that are debt instruments and are measured as at FVTOCI
c. Lease receivables under Ind AS 116
d. Trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within the scope of Ind AS 115
e. Loan commitments which are not measured as at FVTPL
f. Financial guarantee contracts which are not measured as at FVTPL
The Company follows ''simplified approach'' for recognition of impairment loss allowance on:
⢠Trade receivables or contract revenue receivables; and
⢠All lease receivables resulting from transactions within the scope of Ind AS 116
The application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk
has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12-month ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12-month ECL is a portion of the lifetime ECL which results from default events that are possible within 12 months after the reporting date.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss (P&L). This amount is reflected under the head ''other expenses'' in the P&L. The balance sheet presentation for various financial instruments is described below:
⢠Financial assets measured as at amortised cost, contractual revenue receivables and lease receivables: ECL is presented as an allowance, i.e., as an integral part of the measurement of those assets in the balance sheet. The allowance reduces the net carrying amount. Until the asset meets write-off criteria, the Company does not reduce impairment allowance from the gross carrying amount.
⢠Loan commitments and financial guarantee contracts: ECL is presented as a provision in the balance sheet, i.e. as a liability. Debt instruments measured at FVTOCI: For debt instruments measured at FVOCI, the expected credit losses do not reduce the carrying amount in the balance sheet, which remains at fair value. Instead, an amount equal to the allowance that would arise if the asset was measured at amortised cost is recognised in other comprehensive income as the ''accumulated impairment amount''
The Company does not have any purchased or originated credit-impaired (POCI) financial assets, i.e., financial assets which are credit impaired on purchase/ origination.
Financial liabilitiesInitial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company''s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments.
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains/ loss are not subsequently transferred to P&L. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the statement of profit or loss. The Company has not designated any financial liability as at fair value through profit and loss.
This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit and loss.
This category generally applies to borrowings and other payables.
Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the amount of loss allowance determined as per impairment requirements of Ind AS 109 and the amount recognised less cumulative amortisation.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit and loss.
An embedded derivative is a component of a hybrid (combined) instrument that also includes a nonderivative host contract - with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract. Derivatives embedded in all other host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair
value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in statement of profit and loss, unless designated as effective hedging instruments.
Reclassification of financial assets
The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. The Company''s senior management determines change in the business model as a result of external or internal changes which are significant to the Company''s operations. Such changes are evident to external parties. A change in the business model occurs when the Company either begins or ceases to perform an activity that is significant to its operations. If the Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Company does not restate any previously recognised gains, losses (including impairment gains or losses) or interest.
The following table shows various reclassification and how they are accounted for:
|
Original classification |
Revised classification |
Accounting treatment |
|
Amortised cost |
FVTPL |
Fair value is measured at reclassification date. Difference between previous amortized cost and fair value is recognised in P&L. |
|
FVTPL |
Amortised Cost |
Fair value at reclassification date becomes its new gross carrying amount. EIR is calculated based on the new gross carrying amount. |
|
Amortised cost |
FVTOCI |
Fair value is measured at reclassification date. Difference between previous amortised cost and fair value is recognised in OCI. No change in EIR due to reclassification. |
|
FVTOCI |
Amortised cost |
Fair value at reclassification date becomes its new amortised cost carrying amount. However, cumulative gain or loss in OCI is adjusted against fair value. Consequently, the asset is measured as if it had always been measured at amortised cost. |
|
FVTPL |
FVTOCI |
Fair value at reclassification date becomes its new carrying amount. No other adjustment is required. |
|
FVTOCI |
FVTPL |
Assets continue to be measured at fair value. Cumulative gain or loss previously recognized in OCI is reclassified to P&L at the reclassification date. |
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
The Company measures financial instruments, such as, derivatives at fair value at each balance sheet date. 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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
⢠In the principal market for the asset or liability, or
⢠In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
⢠Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
⢠Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
⢠Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The Company determines the policies and procedures for both recurring fair value measurement, such as derivative instruments and unquoted financial assets measured at fair value, and for non-recurring measurement, such as assets held for distribution in discontinued operations.
External valuers are involved for valuation of significant assets and liabilities, if any. At each reporting date, the Company analyses the movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the Company''s accounting policies.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
This note summarises accounting policy for fair value. Other fair value related disclosures are given in the relevant notes.
⢠Disclosures for valuation methods, significant estimates and assumptions (note 2.2, 36 and 37)
⢠Quantitative disclosures of fair value measurement hierarchy (note 36)
⢠Investment properties (note 4)
⢠Financial instruments (including those carried at amortised cost) (note 6, 7, 8, 9, 13, 17, 18, 19, 36 and 37)
(n) Derivative financial instruments and hedge accountingInitial recognition and subsequent measurement
The Company uses derivative financial instruments, such as forward currency contracts, interest rate swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and
commodity price risks, respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
The purchase contracts that meet the definition of a derivative under Ind AS 109 are recognised in the statement of profit and loss. Commodity contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Company''s expected purchase, sale or usage requirements are held at cost.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognised in OCI and later reclassified to statement of profit and loss when the hedge item affects profit and loss or treated as basis adjustment if a hedged forecast transaction subsequently results in the recognition of a non-fin
Mar 31, 2022
1. Corporate Information
Samvardhana Motherson International limited (formerly known as Motherson Sumi Systems Limited) (new SAMIL or ''the Company'') was incorporated on December 19, 1986 and domiciled in India and is engaged primarily in the manufacture and sale of components to automotive original equipment manufacturers. The address of its registered office is Unit 705, C Wing, ONE BKC, G Block, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra. The Company is a public limited company and is listed in the Bombay Stock Exchange and National Stock Exchange.
The standalone financial statements were authorised for issue in accordance with a resolution of the Board of directors on May 26, 2022.
2.1 Significant accounting policies(a) Basis of preparation
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time) and presentation requirements of Division II of Schedule III to the Companies Act, 2013, (Ind AS compliant Schedule III), as applicable to the financial statement.
The financial statements have been prepared on a historical cost basis, except for the following assets and liabilities which have been measured at fair value or revalued amount:
⢠Derivative financial instruments, refer note 37
⢠Certain financial assets and liabilities measured at fair value (refer note l below for accounting policy regarding financial instruments)
⢠Defined benefit pension plans - plan assets measured at fair value, refer note 21
In addition, the carrying values of recognised assets and liabilities designated as hedged items in fair value hedges that would otherwise be carried at amortised cost are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective hedge relationships. The financial statements are presented in INR and all values are rounded to the nearest millions ('' 000,000), except when otherwise indicated.
(b) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification. An asset is treated as current when it is:
⢠Expected to be realised or intended to be sold or consumed in normal operating cycle
⢠Held primarily for the purpose of trading
⢠Expected to be realised within twelve months after the reporting period, or
⢠Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period
The Company classifies all other assets as non-current.
A liability is current when:
⢠It is expected to be settled in normal operating cycle
⢠It is held primarily for the purpose of trading
⢠It is due to be settled within twelve months after the reporting period, or
⢠There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has identified twelve months as its operating cycle.
(c) Foreign currencies(i) Functional and presentation currency
The Company''s functional currency is Indian Rupee (?) and the financial statements are presented in Indian Rupee (?).
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in other comprehensive income if they relate to qualifying cash flow hedges
Foreign exchange differences on foreign currency borrowings are presented in the Statement of profit and loss, within finance costs. All other foreign exchange gains and losses are presented in the Statement of profit and loss on a net basis within other income or other expenses.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.
(d) Revenue from contracts with customers
Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company has generally concluded that it is the principal in its revenue arrangements, except for the agency services below, because it typically controls the goods or services before transferring them to the customer.
Revenue from sale of components
Revenue from sale of components is recognised at the point in time when control of the asset is transferred to the customer, generally on delivery of the equipment.
The Company considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of equipment, the Company considers the effects of variable consideration, the existence of significant financing components, non-cash consideration, and consideration payable to the customer (if any).
If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Contracts for the sale of components provide customers with a customary right of return in case of defects, quality issues etc. The rights of return give rise to variable consideration.
The Company uses the expected value method to estimate the goods that will not be returned because this method best predicts the amount of variable consideration to which the Company will be entitled. The requirements in Ind AS 115 on constraining estimates of variable consideration are also applied in order to determine the amount of variable consideration that can be included in the transaction price. For goods that are expected to be returned, instead of revenue, the Company recognises a refund liability. A right of return asset (and corresponding adjustment to cost of sales) is also recognised for the right to recover products from a customer.
The Company typically provides warranties for general repairs of defects that existed at the time of sale, as required by law. These assurance-type warranties are accounted for under Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets.
Revenue from assembly of components
The Company has contracts with customers to assemble, on their behalf, customised components from various parts procured from suppliers identified by the customer. The Company is acting as an agent in these arrangements.
When another party is involved in providing goods or services to its customer, the Company determines whether it is a principal or an agent in these transactions by evaluating the nature of its promise to the customer. The Company is a principal and records revenue on a gross basis if it controls the promised goods or services before transferring them to the customer. However, if the Company''s role is only to arrange for another entity to provide the goods or services, then the Company is an agent and will need to record revenue at the net amount that it retains for its agency services.
Revenue from development of tools
The Company develops customised tooling for its customers and recognises its revenue over time using an input method to measure progress towards complete satisfaction of the tool development.
The Company recognises revenue from development of tools over time if it can reasonably measure its progress towards complete satisfaction of the performance obligation.
Where the Company cannot reasonably measure the outcome of a performance obligation, but the Company expects to recover the costs incurred in satisfying the performance obligation. In those circumstances, the Company recognises revenue only to the extent of the costs incurred until such time that it can reasonably measure the outcome of the performance obligation
Judgments applied in determining amount and timing of revenue
The Company applied the following judgements that significantly affect the determination of the amount and timing of revenue from contracts with customers:
(i) Determining the timing of satisfaction of tooling development
The Company concluded that revenue for development of tooling is to be recognised over time because the Company''s performance does not create asset with an alternative use to the Company since the tools are customised for each customer and the Company has a legally enforceable right to payment of fair value for performance completed to date.
The Company determined that the input method is the best method in measuring progress of the tooling development because there is a direct relationship between the Company''s effort (i.e., costs incurred) and the transfer of tooling to the customer. The Company recognises revenue on the basis of the total costs incurred relative to the total expected costs to complete the tool.
(ii) Principal versus agent considerations
The Company enters into contracts with its customers to assemble, on their behalf, customised components using various parts procured from suppliers identified by the customer. Under these contracts, the Company provides assembly services (i.e., coordinating the procurement of various parts from the identified suppliers and combining or assembling them into components as desired by the customer). The Company determined that it does not control the goods before they are transferred to customers, and it does not have the ability to direct the use of the component or obtain benefits from the component. The following factors indicate that the Company does not control the goods before they are being transferred to customers. Therefore, the Company determined that it is an agent in these contracts.
⢠The Company is not primarily responsible for fulfilling the promise to provide the specified equipment.
⢠The Company does not have inventory risk before or after the specified component has been transferred to the customer as it purchases various parts on just-in-time basis and only upon contract of the customer.
⢠The Company has no discretion in establishing the price for the specified component. The Company''s consideration in these contracts is only based on the difference between the maximum purchase price quoted by the customer and the cost of various parts purchased from the suppliers.
⢠In addition, the Company concluded that it transfers control over its services (i.e., assembling the component from various parts), at a point in time, upon receipt by the customer of the component, because this is when the customer benefits from the Company''s agency service.
(iii) Consideration of significant financing component in a contract
The Company develops customised tooling and secondary equipment''s for which the manufacturing lead time after signing the contract is usually more than one year. This type of contract includes two payment options for the customer, i.e., payment of the transaction price equal to the cash selling price upon delivery of the tooling or payment of the transaction price as part of the component''s selling price. The Company concluded that there is a significant financing component for those contracts where the customer elects to pay along with the component''s selling price considering the length of time between the transfer of tooling and secondary equipment and the recovery of transaction price from the customer, as well as the prevailing interest rates in the market, if any.
In determining the interest to be applied to the amount of consideration, the Company concluded that the interest rate implicit in the contract (i.e., the interest rate that discounts the cash selling price of the equipment to the amount paid in advance) is appropriate because this is commensurate with the rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception.
Fees earned for the provision of services are recognised over time or point in time as per contract with the customer. In case of contracts where the customer receives and consumes the benefits simultaneously, as the services are rendered, the revenue is recognised over the term of the contract.
In cases where the customer receives and consume the services at single point in time, revenue is recognised as and when the performance obligation is satisfied.
Fees earned for the provision of guarantees are recognised over time as the customer simultaneously receives and consumes the benefits, as the services are rendered. The revenue for such contracts is recognised over the term of the guarantee contract.
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within one year and therefore are all classified as current. Where the settlement is due after one year, they are classified as non-current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Company holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Trade receivables are disclosed in Note 45.
A contract asset is the entity''s right to consideration in exchange for goods or services that the entity has transferred to the customer. A contract asset becomes a receivable when the entity''s right to consideration is unconditional, which is the case when only the passage of time is required before payment of the consideration is due. The impairment of contract assets is measured, presented and disclosed on the same basis as trade receivables. The Company''s contract assets are disclosed in Note 45 as Unbilled Receivables.
A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract. Contract Liabilities are disclosed in Note 45 as Advances received from customers.
An impairment is recognised to the extent that the carrying amount of receivable or asset relating to contracts with customers (a) the remaining amount of consideration that the Company expects to receive in exchange for the goods or services to which such asset relates; less (b) the costs that relate directly to providing those goods or services and that have not been recognised as expenses.
Interest is recognised using the effective interest rate (EIR) method, as income for the period in which it occurs. EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument to the gross carrying amount of the financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses.
Rental income arising from investment properties given on leases is accounted for on a straight-line basis over the lease terms unless the receipts are structured to increase in line with expected general inflation to compensate for the lessor''s expected inflationary cost increases and is included in other income in the statement of profit and loss.
Dividend income is recognised when the right to receive payment is established, which is generally when shareholders approve the dividend.
Income from duty drawback and export incentives is recognized on an accrual basis.
Royalty income is recognized in Other operating income on an accrual basis in accordance with the substance of the relevant agreements.
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions.
Government grants relating to income are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate and presented within other income.
Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets and presented within other income.
When government grants relating to loans or similar assistance are provided by governments or related institutions, with an interest rate below the current applicable market rate, the effect of this favourable interest is regarded as a government grant. The loan or assistance is initially recognised and measured at fair value and the government grant is measured as the difference between the initial carrying value of the loan and the proceeds received. The loan is subsequently measured as per the accounting policy applicable to financial liabilities.
The income tax expense or credit for the period is the tax payable on the current period''s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in India. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the standalone financial statements. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for all deductible temporary differences only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
The Company may be entitled to claim special tax deductions for investments in qualifying assets or in relation to qualifying expenditure. The Company accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and current tax expense.
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange of consideration is considered as lease.
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
Right-of-use assets
The Company recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
The right-of-use assets are also subject to impairment. Refer to the accounting policies in section (i) Impairment of non-financial assets.
At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate.
Lease liabilities, which separately shown in the financial statement are measured initially at the present value of the lease payments. Subsequent measurement of a lease liability includes the increase of the carrying amount to reflect interest on the lease liability and reducing (while affecting other comprehensive income) the carrying amount to reflect the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments.
Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
Lease income from operating leases where the Company is a lessor is recognised in income on a straightline basis over the lease term unless the receipts are structured to increase in line with expected general
inflation to compensate the lessor for the expected inflationary cost increases. The respective leased assets are included in the balance sheet based on their respective nature.
(i) Impairment of non-financial assets
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset''s recoverable amount. An asset''s recoverable amount is the higher of an asset''s or cash-generating unit''s (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Company''s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. To estimate cash flow projections beyond periods covered by the most recent budgets/forecasts, the Company extrapolates cash flow projections in the budget using a steady or declining growth rate for subsequent years, unless an increasing rate can be justified. In any case, this growth rate does not exceed the long-term average growth rate for the products, industries, or country or countries in which the entity operates, or for the market in which the asset is used. Impairment losses including impairment on inventories, are recognised in the statement of profit and loss
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset''s or CGU''s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset''s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit and loss.
Intangible assets with indefinite useful lives are tested for impairment annually at the end of the financial year at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.
Cash and cash equivalent includes cash on hand, cash at banks and short term deposits with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
Raw materials, stores and spares, work in progress, stock in trade and finished goods are stated at the lower of cost and net realisable value.
Cost of raw material and traded goods comprise cost of purchase and is determined after rebate and discounts. Cost of work in progress and finished goods comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity.
Cost of inventories also includes all other cost incurred in bringing the inventories to their present location and condition. Costs are determined on weighted average cost basis.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
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 assetsInitial recognition and measurement
Financial assets are classified, at initial recognition and subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
With the exception of trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient, the Company initially measures financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price determined under Ind AS 115. Refer to the accounting policies in section (d) Revenue from contracts with customers.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ''solely payments of principal and interest (SPPI)'' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
For purposes of subsequent measurement, financial assets are classified in four categories:
⢠Debt instruments at amortised cost
⢠Debt instruments at fair value through other comprehensive income (FVTOCI)
⢠Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
⢠Equity instruments measured at fair value through other comprehensive income (FVTOCI)
Debt instruments at amortised cost
This category is the most relevant to the Company. A ''debt instrument'' is measured at the amortised cost if both the following conditions are met:
a. The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b. Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the profit or loss. The losses arising from impairment are recognised in the profit or loss. This category generally applies to trade and other receivables.
A ''debt instrument'' is classified as at the FVTOCI if both of the following criteria are met:
a. The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b. The asset''s contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI). However, the Company recognizes interest income, impairment losses & 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 from the equity to statement of profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income in statement of profit and loss using the EIR method.
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortized cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as ''accounting mismatch''). The Company has not designated any debt instrument as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the statement of profit and loss.
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS103 applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument-by-instrument basis. The classification is made on initial recognition and is irrevocable. The Company elected to classify irrevocably its non-listed equity investments under this category.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to P&L, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the P&L.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Company''s balance sheet) when:
⢠The rights to receive cash flows from the asset have expired, or
⢠The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ''pass-through'' arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Company''s continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
a. Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities, deposits, trade receivables and bank balance
b. Financial assets that are debt instruments and are measured as at FVTOCI
c. Lease receivables under Ind AS 116
d. Trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within the scope of Ind AS 115
e. Loan commitments which are not measured as at FVTPL
f. Financial guarantee contracts which are not measured as at FVTPL
The Company follows ''simplified approach'' for recognition of impairment loss allowance on:
⢠Trade receivables or contract revenue receivables; and
⢠All lease receivables resulting from transactions within the scope of Ind AS 116
The application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12-month ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12-month ECL is a portion of the lifetime ECL which results from default events that are possible within 12 months after the reporting date.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss (P&L). This amount is reflected under the head ''other expenses'' in the P&L. The balance sheet presentation for various financial instruments is described below:
⢠Financial assets measured as at amortised cost, contractual revenue receivables and lease receivables: ECL is presented as an allowance, i.e., as an integral part of the measurement of those assets in the balance sheet. The allowance reduces the net carrying amount. Until the asset meets write-off criteria, the Company does not reduce impairment allowance from the gross carrying amount.
⢠Loan commitments and financial guarantee contracts: ECL is presented as a provision in the balance sheet, i.e. as a liability. Debt instruments measured at FVTOCI: For debt instruments measured at FVOCI, the expected credit losses do not reduce the carrying amount in the balance sheet, which remains at fair value. Instead, an amount equal to the allowance that would arise if the asset was measured at amortised cost is recognised in other comprehensive income as the "accumulated impairment amountâ.
The Company does not have any purchased or originated credit-impaired (POCI) financial assets, i.e., financial assets which are credit impaired on purchase/ origination.
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company''s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments.
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains/ loss are not subsequently transferred to P&L. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the statement of profit or loss. The Company has not designated any financial liability as at fair value through profit and loss.
Loans and borrowings
This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit and loss.
This category generally applies to borrowings and other payables.
Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the amount of loss allowance determined as per impairment requirements of Ind AS 109 and the amount recognised less cumulative amortisation.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit and loss.
An embedded derivative is a component of a hybrid (combined) instrument that also includes a nonderivative host contract - with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract. Derivatives embedded in all other host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in statement of profit and loss, unless designated as effective hedging instruments.
Reclassification of financial assets
The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. The Company''s senior management determines change in the business model as a result of external or internal changes which are significant to the Company''s operations. Such changes are evident to external parties. A change in the business model occurs when the Company either begins or ceases to perform an activity that is significant to its operations. If the Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Company does not restate any previously recognised gains, losses (including impairment gains or losses) or interest.
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The following table shows various reclassification and how they are accounted for: |
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Original classification |
Revised classification |
Accounting treatment |
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Amortised cost |
FVTPL |
Fair value is measured at reclassification date. Difference between previous amortized cost and fair value is recognised in P&L. |
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FVTPL |
Amortised Cost |
Fair value at reclassification date becomes its new gross carrying amount. EIR is calculated based on the new gross carrying amount. |
|
Amortised cost |
FVTOCI |
Fair value is measured at reclassification date. Difference between previous amortised cost and fair value is recognised in OCI. No change in EIR due to reclassification. |
|
FVTOCI |
Amortised cost |
Fair value at reclassification date becomes its new amortised cost carrying amount. However, cumulative gain or loss in OCI is adjusted against fair value. Consequently, the asset is measured as if it had always been measured at amortised cost. |
|
FVTPL |
FVTOCI |
Fair value at reclassification date becomes its new carrying amount. No other adjustment is required. |
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FVTOCI |
FVTPL |
Assets continue to be measured at fair value. Cumulative gain or loss previously recognized in OCI is reclassified to P&L at the reclassification date. |
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
The Company measures financial instruments, such as, derivatives at fair value at each balance sheet date. 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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
⢠In the principal market for the asset or liability, or
⢠In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
⢠Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
⢠Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
⢠Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The Company determines the policies and procedures for both recurring fair value measurement, such as derivative instruments and unquoted financial assets measured at fair value, and for non-recurring measurement, such as assets held for distribution in discontinued operations.
External valuers are involved for valuation of significant assets and liabilities, if any. At each reporting date, the Company analyses the movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the Company''s accounting policies.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
This note summarises accounting policy for fair value. Other fair value related disclosures are given in the relevant notes.
⢠Disclosures for valuation methods, significant estimates and assumptions (note 2.2, 36 and 37)
⢠Quantitative disclosures of fair value measurement hierarchy (note 36)
⢠Investment properties (note 4)
⢠Financial instruments (including those carried at amortised cost) (note 6, 7, 8, 9, 13, 17, 18, 19, 36 and 37)
(n) Derivative financial instruments and hedge accountingInitial recognition and subsequent measurement
The Company uses derivative financial instruments, such as forward currency contracts, interest rate swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
The purchase contracts that meet the definition of a derivative under Ind AS 109 are recognised in the statement of profit and loss. Commodity contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Company''s expected purchase, sale or usage requirements are held at cost.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognised in OCI and later reclassified to statement of profit and loss when the hedge item affects profit and loss or treated as basis adjustment if a hedged forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability.
For the purpose of hedge accounting, hedges are classified as:
⢠Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment
⢠Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign curren
Mar 31, 2021
1. Corporate Information
Motherson Sumi Systems Limited (MSSL or ''the Company'') was incorporated on December 19, 1986 and domiciled in India and is engaged primarily in the manufacture and sale of components to automotive original equipment manufacturers. The address of its registered office is Unit 705, C Wing, ONE BKC, G Block, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra. The Company is a public limited company and is listed in the Bombay Stock Exchange and National Stock Exchange. The Company is a joint venture entity between Samvardhana Motherson International Limited (SAMIL) and Sumitomo Wiring Systems Limited, Japan.
The standalone financial statements were authorised for issue in accordance with a resolution of the Board of directors on June 02, 2021.
2.1 Significant accounting policies(a) Basis of preparation
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time) and presentation requirements of Division II of Schedule III to the Companies Act, 2013, (Ind AS compliant Schedule III), as applicable to the financial statement.
The financial statements have been prepared on a historical cost basis, except for the following assets and liabilities which have been measured at fair value or revalued amount:
⢠Derivative financial instruments, refer note 37
⢠Certain financial assets and liabilities measured at fair value (refer note l below for accounting policy regarding financial instruments)
⢠Defined benefit pension plans - plan assets measured at fair value, refer note 21
In addition, the carrying values of recognised assets and liabilities designated as hedged items in fair value hedges that would otherwise be carried at amortised cost are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective hedge relationships. The financial statements are presented in INR and all values are rounded to the nearest millions ('' 000,000), except when otherwise indicated.
(b) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification. An asset is treated as current when it is:
⢠Expected to be realised or intended to be sold or consumed in normal operating cycle
⢠Held primarily for the purpose of trading
⢠Expected to be realised within twelve months after the reporting period, or
⢠Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period
The Company classifies all other assets as non-current.
A liability is current when:
⢠It is expected to be settled in normal operating cycle
⢠It is held primarily for the purpose of trading
⢠It is due to be settled within twelve months after the reporting period, or
⢠There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has identified twelve months as its operating cycle.
(i) Functional and presentation currency
The Company''s functional currency is Indian Rupee (?) and the financial statements are presented in Indian Rupee ('').
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in other comprehensive income if they relate to qualifying cash flow hedges
Foreign exchange differences on foreign currency borrowings are presented in the Statement of profit and loss, within finance costs. All other foreign exchange gains and losses are presented in the Statement of profit and loss on a net basis within other income or other expenses.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.
(d) Revenue from contracts with customers
Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company has generally concluded that it is the principal in its revenue arrangements, except for the agency services below, because it typically controls the goods or services before transferring them to the customer.
Revenue from sale of components
Revenue from sale of components is recognised at the point in time when control of the asset is transferred to the customer, generally on delivery of the equipment.
The Company considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of equipment, the Company considers the effects of variable consideration, the existence of significant financing components, non-cash consideration, and consideration payable to the customer (if any).
Variable consideration
If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Contracts for the sale of components provide customers with a customary right of return in case of defects, quality issues etc. The rights of return give rise to variable consideration.
The Company uses the expected value method to estimate the goods that will not be returned because this method best predicts the amount of variable consideration to which the Company will be entitled. The requirements in Ind AS 115 on constraining estimates of variable consideration are also applied in order to determine the amount of variable consideration that can be included in the transaction price. For goods that are expected to be returned, instead of revenue, the Company recognises a refund liability. A right of return asset (and corresponding adjustment to cost of sales) is also recognised for the right to recover products from a customer.
The Company typically provides warranties for general repairs of defects that existed at the time of sale, as required by law. These assurance-type warranties are accounted for under Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets.
Revenue from assembly of components
The Company has contracts with customers to assemble, on their behalf, customised components from various parts procured from suppliers identified by the customer. The Company is acting as an agent in these arrangements.
When another party is involved in providing goods or services to its customer, the Company determines whether it is a principal or an agent in these transactions by evaluating the nature of its promise to the customer. The Company is a principal and records revenue on a gross basis if it controls the promised goods or services before transferring them to the customer. However, if the Company''s role is only to arrange for another entity to provide the goods or services, then the Company is an agent and will need to record revenue at the net amount that it retains for its agency services.
Revenue from development of tools
The Company develops customised tooling for its customers and recognises its revenue over time using an input method to measure progress towards complete satisfaction of the tool development.
The Company recognises revenue from development of tools over time if it can reasonably measure its progress towards complete satisfaction of the performance obligation.
Where the Company cannot reasonably measure the outcome of a performance obligation, but the Company expects to recover the costs incurred in satisfying the performance obligation. In those circumstances, the Company recognises revenue only to the extent of the costs incurred until such time that it can reasonably measure the outcome of the performance obligation
Judgments applied in determining amount and timing of revenue
The Company applied the following judgements that significantly affect the determination of the amount and timing of revenue from contracts with customers:
(i) Determining the timing of satisfaction of tooling development
The Company concluded that revenue for development of tooling is to be recognised over time because the Company''s performance does not create asset with an alternative use to the Company since the tools are customised for each customer and the Company has a legally enforceable right to payment of fair value for performance completed to date.
The Company determined that the input method is the best method in measuring progress of the tooling development because there is a direct relationship between the Company''s effort (i.e., costs incurred) and the transfer of tooling to the customer. The Company recognises revenue on the basis of the total costs incurred relative to the total expected costs to complete the tool.
(ii) Principal versus agent considerations
The Company enters into contracts with its customers to assemble, on their behalf, customised components using various parts procured from suppliers identified by the customer. Under these contracts, the Company provides assembly services (i.e., coordinating the procurement of various parts from the identified suppliers and combining or assembling them into components as desired by the customer). The Company determined that it does not control the goods before they are transferred to customers, and it does not have the ability to direct the use of the component or obtain benefits from the component. The following factors indicate that the Company does not control the goods before they are being transferred to customers. Therefore, the Company determined that it is an agent in these contracts.
⢠The Company is not primarily responsible for fulfilling the promise to provide the specified equipment.
⢠The Company does not have inventory risk before or after the specified component has been transferred to the customer as it purchases various parts on just-in-time basis and only upon contract of the customer.
⢠The Company has no discretion in establishing the price for the specified component. The Company''s consideration in these contracts is only based on the difference between the maximum purchase price quoted by the customer and the cost of various parts purchased from the suppliers.
⢠In addition, the Company concluded that it transfers control over its services (i.e., assembling the component from various parts), at a point in time, upon receipt by the customer of the component, because this is when the customer benefits from the Company''s agency service.
(iii) Consideration of significant financing component in a contract
The Company develops customised tooling and secondary equipment''s for which the manufacturing lead time after signing the contract is usually more than one year. This type of contract includes two payment options for the customer, i.e., payment of the transaction price equal to the cash selling price upon delivery of the tooling or payment of the transaction price as part of the component''s selling price. The Company concluded that there is a significant financing component for those contracts where the customer elects to pay along with the component''s selling price considering the length of time between the transfer of tooling and secondary equipment and the recovery of transaction price from the customer, as well as the prevailing interest rates in the market, if any.
In determining the interest to be applied to the amount of consideration, the Company concluded that the interest rate implicit in the contract (i.e., the interest rate that discounts the cash selling price of the equipment to the amount paid in advance) is appropriate because this is commensurate with the rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception.
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within one year and therefore are all classified as current. Where the settlement is due after one year, they are classified as non-current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Company holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Trade receivables are disclosed in Note 45.
A contract asset is the entity''s right to consideration in exchange for goods or services that the entity has transferred to the customer. A contract asset becomes a receivable when the entity''s right to consideration is unconditional, which is the case when only the passage of time is required before payment of the consideration is due. The impairment of contract assets is measured, presented and disclosed on the same basis as trade receivables. The Company''s contract assets are disclosed in Note 45 as Unbilled Receivables.
A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract. Contract Liabilities are disclosed in Note 45 as Advances received from customers.
An impairment is recognised to the extent that the carrying amount of receivable or asset relating to contracts with customers (a) the remaining amount of consideration that the Company expects to receive in exchange for the goods or services to which such asset relates; less (b) the costs that relate directly to providing those goods or services and that have not been recognised as expenses.
Interest is recognised using the effective interest rate (EIR) method, as income for the period in which it occurs. EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument to the gross carrying amount of the financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses.
Rental Income
Rental income arising from investment properties given on leases is accounted for on a straight-line basis over the lease terms unless the receipts are structured to increase in line with expected general inflation to compensate for the lessor''s expected inflationary cost increases and is included in other income in the statement of profit and loss.
Dividend income is recognised when the right to receive payment is established, which is generally when shareholders approve the dividend.
Duty drawback and export incentives
Income from duty drawback and export incentives is recognized on an accrual basis.
Royalty income
Royalty income is recognized in Other operating income on an accrual basis in accordance with the substance of the relevant agreements.
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions.
Government grants relating to income are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate and presented within other income.
Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets and presented within other income.
When government grants relating to loans or similar assistance are provided by governments or related institutions, with an interest rate below the current applicable market rate, the effect of this favourable interest is regarded as a government grant. The loan or assistance is initially recognised and measured at fair value and the government grant is measured as the difference between the initial carrying value of the loan and the proceeds received. The loan is subsequently measured as per the accounting policy applicable to financial liabilities.
The income tax expense or credit for the period is the tax payable on the current period''s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in India. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the standalone financial statements. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for all deductible temporary differences only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Investment allowances and similar tax incentives:
The Company may be entitled to claim special tax deductions for investments in qualifying assets or in relation to qualifying expenditure. The Company accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and current tax expense.
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange of consideration is considered as lease.
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
The Company recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
The right-of-use assets are also subject to impairment. Refer to the accounting policies in section (i) Impairment of non-financial assets.
At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including insubstance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate.
Lease liabilities, which separately shown in the financial statement are measured initially at the present value of the lease payments. Subsequent measurement of a lease liability includes the increase of the carrying amount to reflect interest on the lease liability and reducing (while affecting other comprehensive income) the carrying amount to reflect the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments.
Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
Lease income from operating leases where the Company is a lessor is recognised in income on a straightline basis over the lease term unless the receipts are structured to increase in line with expected general inflation to compensate the lessor for the expected inflationary cost increases. The respective leased assets are included in the balance sheet based on their respective nature.
(i) Impairment of non-financial assets
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset''s recoverable amount. An asset''s recoverable amount is the higher of an asset''s or cash-generating unit''s (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Company''s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. To estimate cash flow projections beyond periods covered by the most recent budgets/forecasts, the Company extrapolates cash flow projections in the budget using a steady or declining growth rate for subsequent years, unless an increasing rate can be justified. In any case, this growth rate does not exceed the long-term average growth rate for the products, industries, or country or countries in which the entity operates, or for the market in which the asset is used. Impairment losses including impairment on inventories, are recognised in the statement of profit and loss.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset''s or CGU''s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset''s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit and loss.
Intangible assets with indefinite useful lives are tested for impairment annually at the end of the financial year at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.
Cash and cash equivalent includes cash on hand, cash at banks and short term deposits with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
(k) Inventories
Raw materials, stores and spares, work in progress, stock in trade and finished goods are stated at the lower of cost and net realisable value.
Cost of raw material and traded goods comprise cost of purchase and is determined after rebate and discounts. Cost of work in progress and finished goods comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity.
Cost of inventories also includes all other cost incurred in bringing the inventories to their present location and condition. Costs are determined on weighted average cost basis.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
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 assetsInitial recognition and measurement
Financial assets are classified, at initial recognition and subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
With the exception of trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient, the Company initially measures financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price determined under Ind AS 115. Refer to the accounting policies in section (d) Revenue from contracts with customers.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ''solely payments of principal and interest (SPPI)'' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
For purposes of subsequent measurement, financial assets are classified in four categories:
⢠Debt instruments at amortised cost
⢠Debt instruments at fair value through other comprehensive income (FVTOCI)
⢠Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
⢠Equity instruments measured at fair value through other comprehensive income (FVTOCI)
Debt instruments at amortised cost
This category is the most relevant to the Company. A ''debt instrument'' is measured at the amortised cost if both the following conditions are met:
a. The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b. Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the profit or loss. The losses arising from impairment are recognised in the profit or loss. This category generally applies to trade and other receivables.
A ''debt instrument'' is classified as at the FVTOCI if both of the following criteria are met:
a. The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b. The asset''s contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI). However, the Company recognizes interest income, impairment losses & 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 from the equity to statement of profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income in statement of profit and loss using the EIR method.
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortized cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as ''accounting mismatch''). The Company has not designated any debt instrument as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the statement of profit and loss.
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS103 applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument-by-instrument basis. The classification is made on initial recognition and is irrevocable. The Company elected to classify irrevocably its non-listed equity investments under this category.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to P&L, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the P&L.
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Company''s balance sheet) when:
⢠The rights to receive cash flows from the asset have expired, or
⢠The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ''pass-through'' arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Company''s continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
a. Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities, deposits, trade receivables and bank balance
b. Financial assets that are debt instruments and are measured as at FVTOCI
c. Lease receivables under Ind AS 116
d. Trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within the scope of Ind AS 115
e. Loan commitments which are not measured as at FVTPL
f. Financial guarantee contracts which are not measured as at FVTPL
The Company follows ''simplified approach'' for recognition of impairment loss allowance on:
⢠Trade receivables or contract revenue receivables; and
⢠All lease receivables resulting from transactions within the scope of Ind AS 116
The application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12-month ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12-month ECL is a portion of the lifetime ECL which results from default events that are possible within 12 months after the reporting date.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss (P&L). This amount is reflected under the head ''other expenses'' in the P&L. The balance sheet presentation for various financial instruments is described below:
⢠Financial assets measured as at amortised cost, contractual revenue receivables and lease receivables: ECL is presented as an allowance, i.e., as an integral part of the measurement of those assets in the balance sheet. The allowance reduces the net carrying amount. Until the asset meets write-off criteria, the Company does not reduce impairment allowance from the gross carrying amount.
⢠Loan commitments and financial guarantee contracts: ECL is presented as a provision in the balance sheet, i.e. as a liability. Debt instruments measured at FVTOCI: For debt instruments measured at FVOCI, the expected credit losses do not reduce the carrying amount in the balance sheet, which remains at fair value. Instead, an amount equal to the allowance that would arise if the asset was measured at amortised cost is recognised in other comprehensive income as the ''accumulated impairment amountâ
The Company does not have any purchased or originated credit-impaired (POCI) financial assets, i.e., financial assets which are credit impaired on purchase/ origination.
Financial liabilitiesInitial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company''s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments.
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains/ loss are not subsequently transferred to P&L. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the statement of profit or loss. The Company has not designated any financial liability as at fair value through profit and loss.
Loans and borrowings
This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit and loss.
This category generally applies to borrowings and other payables.
Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the amount of loss allowance determined as per impairment requirements of Ind AS 109 and the amount recognised less cumulative amortisation.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit and loss.
An embedded derivative is a component of a hybrid (combined) instrument that also includes a nonderivative host contract - with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract. Derivatives embedded in all other host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in statement of profit and loss, unless designated as effective hedging instruments.
Reclassification of financial assets
The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. The Company''s senior management determines change in the business model as a result of external or internal changes which are significant to the Company''s operations. Such changes are evident to external parties. A change in the business model occurs when the Company either begins or ceases to perform an activity that is significant to its operations. If the Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Company does not restate any previously recognised gains, losses (including impairment gains or losses) or interest.
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The following table shows various reclassification and how they are accounted for: |
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|
Original classification |
Revised classification |
Accounting treatment |
|
Amortised cost |
FVTPL |
Fair value is measured at reclassification date. Difference between previous amortized cost and fair value is recognised in P&L. |
|
FVTPL |
Amortised Cost |
Fair value at reclassification date becomes its new gross carrying amount. EIR is calculated based on the new gross carrying amount. |
|
Amortised cost |
FVTOCI |
Fair value is measured at reclassification date. Difference between previous amortised cost and fair value is recognised in OCI. No change in EIR due to reclassification. |
|
FVTOCI |
Amortised cost |
Fair value at reclassification date becomes its new amortised cost carrying amount. However, cumulative gain or loss in OCI is adjusted against fair value. Consequently, the asset is measured as if it had always been measured at amortised cost. |
|
FVTPL |
FVTOCI |
Fair value at reclassification date becomes its new carrying amount. No other adjustment is required. |
|
FVTOCI |
FVTPL |
Assets continue to be measured at fair value. Cumulative gain or loss previously recognized in OCI is reclassified to P&L at the reclassification date. |
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
The Company measures financial instruments, such as, derivatives at fair value at each balance sheet date. 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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
⢠In the principal market for the asset or liability, or
⢠In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
⢠Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
⢠Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
⢠Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The Company determines the policies and procedures for both recurring fair value measurement, such as derivative instruments and unquoted financial assets measured at fair value, and for non-recurring measurement, such as assets held for distribution in discontinued operations.
External valuers are involved for valuation of significant assets and liabilities, if any. At each reporting date, the Company analyses the movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the Company''s accounting policies.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
This note summarises accounting policy for fair value. Other fair value related disclosures are given in the relevant notes.
⢠Disclosures for valuation methods, significant estimates and assumptions (note 2.2, 36 and 37)
⢠Quantitative disclosures of fair value measurement hierarchy (note 36)
⢠Investment properties (note 4)
⢠Financial instruments (including those carried at amortised cost) (note 6, 7, 8, 9, 13, 17, 18, 19, 36 and 37)
(n) Derivative financial instruments and hedge accounting
Initial recognition and subsequent measurement
The Company uses derivative financial instruments, such as forward currency contracts, interest rate swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
The purchase contracts that meet the definition of a derivative under Ind AS 109 are recognised in the statement of profit and loss. Commodity contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Company''s expected purchase, sale or usage requirements are held at cost.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognised in OCI and later reclassified to statement of profit and loss when the hedge item affects profit and loss or treated as basis adjustment if a hedged forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability.
For the purpose of hedge accounting, hedges are classified as:
⢠Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment
⢠Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment
At inception of the hedge relationship, the Company documents the economic relationship between hedging instruments and hedged items including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The Company documents its risk management objective and strategy for undertaking its hedge transactions.
Hedges that meet the strict criteria for hedge accounting are accounted for, as described below:
(i) Fair value hedges
The change in the fair value of a hedging instrument is recognised in the statement of profit and loss as f
Mar 31, 2019
1. Corporate Information
Mothers on Sumi Systems Limited (MSSL or ''the Company'') was incorporated on December 19, 1986 and domiciled in India and is engaged primarily in the manufacture and sale of components to automotive original equipment manufacturers. The address of its registered office is Unit 705, C Wing, ONE BKC, G Block, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra. The Company is a public limited company and is listed in the Bombay Stock Exchange and National Stock Exchange. The Company is a joint venture entity between Samvardhana Mothers on International Limited (SAMIL) and Sumitomo Wiring Systems Limited, Japan.
The standalone financial statements were authorized for issue in accordance with a resolution of the Board of directors on May 27, 2019.
2.1 Significant accounting policies
(a) Basis of preparation
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time)and presentation requirements of Division II of Schedule III to the Companies Act, 2013, (Ind AS compliant Schedule III), as applicable to the financial statement.
The financial statements have been prepared on a historical cost basis, except for the following assets and liabilities which have been measured at fair value or revalued amount:
- Derivative financial instruments, refer note 37
- Certain financial assets and liabilities measured at fair value (refer note l below for accounting policy regarding financial instruments)
- Defined benefit pension plans - plan assets measured at fair value, refer note 21
In addition, the carrying values of recognized assets and liabilities designated as hedged items in fair value hedges that would otherwise be carried at amortized cost are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective hedge relationships. The financial statements are presented in '' and all values are rounded to the nearest millions ('' 000,000), except when otherwise indicated.
(b) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification. An asset is treated as current when it is:
- Expected to be realized or intended to be sold or consumed in normal operating cycle
- Held primarily for the purpose of trading
- Expected to be realized within twelve months after the reporting period, or
- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period
The Company classifies all other assets as non-current.
A liability is current when:
- It is expected to be settled in normal operating cycle
- It is held primarily for the purpose of trading
- It is due to be settled within twelve months after the reporting period, or
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has identified twelve months as its operating cycle.
(c) Foreign currencies
(i) Functional and presentation currency
The Company''s functional currency is Indian Rupee (Rs,) and the financial statements are presented in Indian Rupee (Rs,).
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in profit or loss. They are deferred in other comprehensive income if they relate to qualifying cash flow hedges
Foreign exchange differences on foreign currency borrowings are presented in the Statement of profit and loss, within finance costs. All other foreign exchange gains and losses are presented in the Statement of profit and loss on a net basis within other income or other expenses.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.
(d) Revenue from contracts with customers
Ind AS 115 Revenue from Contracts with Customers issued by Ministry of Corporate Affairs is applied by the Company as of April 01, 2018. The Company decided to apply the modified retrospective approach, whereby previous year''s standalone financial statements are not restated.
Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company has generally concluded that it is the principal in its revenue arrangements, except for the agency services below, because it typically controls the goods or services before transferring them to the customer.
Revenue from sale of components
Revenue from sale of components is recognized at the point in time when control of the asset is transferred to the customer, generally on delivery of the components.
The Company considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of equipment, the Company considers the effects of variable consideration, the existence of significant financing components, non-cash consideration, and consideration payable to the customer (if any).
Variable consideration
If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant
revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Contracts for the sale of components provide customers with a customary right of return in case of defects, quality issues etc. The rights of return give rise to variable consideration.
The Company uses the expected value method to estimate the goods that will not be returned because this method best predicts the amount of variable consideration to which the Company will be entitled. The requirements in Ind AS115 on constraining estimates of variable consideration are also applied in order to determine the amount of variable consideration that can be included in the transaction price. For goods that are expected to be returned, instead of revenue, the Company recognizes a refund liability. A right of return asset (and corresponding adjustment to cost of sales) is also recognized for the right to recover products from a customer.
Warranty obligations
The Company typically provides warranties for general repairs of defects that existed at the time of sale, as required by law. These assurance-type warranties are accounted for under Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets.
Revenue from assembly of components
The Company has contracts with customers to assemble, on their behalf, customized components from various parts procured from suppliers identified by the customer. The Company is acting as an agent in these arrangements.
When another party is involved in providing goods or services to its customer, the Company determines whether it is a principal or an agent in these transactions by evaluating the nature of its promise to the customer. The Company is a principal and records revenue on a gross basis if it controls the promised goods or services before transferring them to the customer. However, if the Company''s role is only to arrange for another entity to provide the goods or services, then the Company is an agent and will need to record revenue at the net amount that it retains for its agency services.
Revenue from development of tools
The Company develops customized tooling for its customers and recognizes its revenue over time using an input method to measure progress towards complete satisfaction of the tool development.
The Company recognizes revenue from development of tools over time if it can reasonably measure its progress towards complete satisfaction of the performance obligation.
Where the Company cannot reasonably measure the outcome of a performance obligation, but the Company expects to recover the costs incurred in satisfying the performance obligation. In those circumstances, the Company recognizes revenue only to the extent of the costs incurred until such time that it can reasonably measure the outcome of the performance obligation
Determining the timing of satisfaction of tooling development
The Company concluded that revenue for development of tooling is to be recognized over time because the Company''s performance does not create asset with an alternative use to the Company since the tools are customized for each customer and the Company has a legally enforceable right to payment of fair value for performance completed to date.
The Company determined that the input method is the best method in measuring progress of the tooling development because there is a direct relationship between the Company''s effort (i.e., costs incurred) and the transfer of tooling to the customer. The Company recognizes revenue on the basis of the total costs incurred relative to the total expected costs to complete the tool.
Principal versus agent considerations
The Company enters into contracts with its customers to assemble, on their behalf, customized components using various parts procured from suppliers identified by the customer. Under these contracts, the Company provides assembly services (i.e., coordinating the procurement of various parts from the identified suppliers and combining or assembling them into components as desired by the customer). The Company determined that it does not control the goods before they are transferred to customers, and it does not have the ability to direct the use of the component or obtain benefits from the component. The following factors indicate that the Company does not control the goods before they are being transferred to customers. Therefore, the Company determined that it is an agent in these contracts.
- The Company is not primarily responsible for fulfilling the promise to provide the specified components.
- The Company does not have inventory risk before or after the specified component has been transferred to the customer as it purchases various parts on just-in-time basis and only upon contract of the customer.
- The Company has no discretion in establishing the price for the specified component. The Company''s consideration in these contracts is only based on the difference between the maximum purchase price quoted by the customer and the cost of various parts purchased from the suppliers.
- In addition, the Company concluded that it transfers control over its services (i.e., assembling the component from various parts), at a point in time, upon receipt by the customer of the component, because this is when the customer benefits from the Company''s agency service.
Consideration of significant financing component in a contract
The Company develops customized tooling and secondary equipment''s for which the manufacturing lead time after signing the contract is usually more than one year. This type of contract includes two payment options for the customer, i.e., payment of the transaction price equal to the cash selling price upon delivery of the tooling or payment of the transaction price as part of the component''s selling price. The Company concluded that there is a significant financing component for those contracts where the customer elects to pay along with the component''s selling price considering the length of time between the transfer of tooling and secondary equipment and the recovery of transaction price from the customer, as well as the prevailing interest rates in the market, if any.
In determining the interest to be applied to the amount of consideration, the Company concluded that the interest rate implicit in the contract (i.e., the interest rate that discounts the cash selling price of the equipment to the amount paid in advance) is appropriate because this is commensurate with the rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception.
Trade Receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within one year and therefore are all classified as current. Where the settlement is due after one year, they are classified as non-current. Trade receivables are recognized initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognized at fair value. The Company holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortized cost using the effective interest method. Trade receivables are disclosed in Note 45.
Contract Assets
A contract asset is the entity''s right to consideration in exchange for goods or services that the entity has transferred to the customer. A contract asset becomes a receivable when the entity''s right to consideration is unconditional, which is the case when only the passage of time is required before payment of the consideration is due. The impairment of contract assets is measured, presented and disclosed on the same basis as trade receivables. The Company''s contract assets are disclosed in Note 45 as Unbilled Receivables.
Contract Liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognized when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognized as revenue when the Company performs under the contract. Contract Liabilities are disclosed in Note 45 as Advances received from customers.
Impairment
An impairment is recognized to the extent that the carrying amount of receivable or asset relating to contracts with customers (a) the remaining amount of consideration that the Company expects to receive in exchange for the goods or services to which such asset relates; less (b) the costs that relate directly to providing those goods or services and that have not been recognized as expenses.
(d) i Other income
Interest
Interest is recognized using the effective interest rate (EIR) method, as income for the period in which it occurs. EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument to the gross carrying amount of the financial asset or to the amortized cost of a financial liability. When calculating the effective interest rate, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses.
Rental Income
Rental income arising from investment properties given under operating leases is accounted for on a straight-line basis over the lease terms unless the receipts are structured to increase in line with expected general inflation to compensate for the less orâs expected inflationary cost increases and is included in other income in the statement of profit and loss.
Dividend
Dividend income is recognized when the right to receive payment is established, which is generally when shareholders approve the dividend.
Duty drawback and export incentives
Income from duty drawback and export incentives is recognized on an accrual basis.
Royalty income
Royalty income is recognized in Other operating income on an accrual basis in accordance with the substance of the relevant agreements.
(e) Government grants
Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions.
Government grants relating to income are deferred and recognized in the profit or loss over the period necessary to match them with the costs that they are intended to compensate and presented within other income.
Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets and presented within other income.
When government grants relating to loans or similar assistance are provided by governments or related institutions, with an interest rate below the current applicable market rate, the effect of this favorable interest is regarded as a government grant. The loan or assistance is initially recognized and measured at fair value and the government grant is measured as the difference between the initial carrying value of the loan and the proceeds received. The loan is subsequently measured as per the accounting policy applicable to financial liabilities.
(f) Income tax
The income tax expense or credit for the period is the tax payable on the current period''s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in India. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the standalone financial statements. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred tax assets are recognized for all deductible temporary differences only if it is probable that future taxable amounts will be available to utilize those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.
Investment allowances and similar tax incentives:
The Company may be entitled to claim special tax deductions for investments in qualifying assets or in relation to qualifying expenditure. The Company accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and current tax expense.
(g) Leases
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
As a Lessee
Leases of property, plant and equipment where the Company, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease''s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in borrowings or other financial liabilities, as appropriate. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Finance charges are recognized in finance costs in the statement of profit and loss, unless they are directly attributable to qualifying assets, The property, plant and equipment acquired under finance leases is depreciated over the asset''s useful life or over the shorter of the asset''s useful life and the lease term if there is no reasonable certainty that the Company will obtain ownership at the end of the lease term.
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 less or) 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 less orâs expected inflationary cost increases.
As a Less or
Lease income from operating leases where the Company is a less or is recognized in income on a straight-line basis over the lease term unless the receipts are structured to increase in line with expected general inflation to compensate the less or for the expected inflationary cost increases. The respective leased assets are included in the balance sheet based on their respective nature.
(h) Impairment of non-financial assets
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset''s recoverable amount. An asset''s recoverable amount is the higher of an asset''s or cash-generating unit''s (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Company''s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. To estimate cash flow projections beyond periods covered by the most recent budgets/forecasts, the Company extrapolates cash flow projections in the budget using a steady or declining growth rate for subsequent years, unless an increasing rate can be justified. In any case, this growth rate does not exceed the long-term average growth rate for the products, industries, or country or countries in which the entity operates, or for the market in which the asset is used. Impairment losses including impairment on inventories, are recognized in the statement of profit and loss
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset''s or CGU''s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset''s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit and loss.
Intangible assets with indefinite useful lives are tested for impairment annually at the end of the financial year at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.
(i) Cash and cash equivalents
Cash and cash equivalent includes cash on hand, cash at banks and short term deposits with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
(j) Inventories
Raw materials, stores and spares, work in progress, stock in trade and finished goods
Raw materials, stores and spares, work in progress, stock in trade and finished goods are stated at the lower of cost and net realizable value.
Cost of raw material and traded goods comprise cost of purchase and is determined after rebate and discounts. Cost of work in progress and finished goods comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity.
Cost of inventories also includes all other cost incurred in bringing the inventories to their present location and condition. Costs are determined on weighted average cost basis.
Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
(k) Financial instruments
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
Initial recognition and measurement
Financial assets are classified, at initial recognition and subsequently measured at amortized cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
With the exception of trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient, the Company initially measures financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price determined under Ind AS 115. Refer to the accounting policies in section (d) Revenue from contracts with customers.
In order for a financial asset to be classified and measured at amortized cost or fair value through OCI, it needs to give rise to cash flows that are ''solely payments of principal and interest (SPPI)'' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
- Debt instruments at amortized cost
- Debt instruments at fair value through other comprehensive income (FVTOCI)
- Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
- Equity instruments measured at fair value through other comprehensive income (FVTOCI)
Debt instruments at amortized cost
This category is the most relevant to the Company. A ''debt instrument'' is measured at the amortized cost if both the following conditions are met:
a. The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b. Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the profit or loss. The losses arising from impairment are recognized in the profit or loss. This category generally applies to trade and other receivables.
Debt instrument at FVTOCI
A ''debt instrument'' is classified as at the FVTOCI if both of the following criteria are met:
a. The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b. The asset''s contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI). However, the Company recognizes interest income, impairment losses & reversals and foreign exchange gain or loss in the statement of profit and loss. On derecognition of the asset, cumulative gain or loss previously recognized in OCI is reclassified from the equity to statement of profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income in statement of profit and loss using the EIR method.
Debt instrument at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortized cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as ''accounting mismatch''). The Company has not designated any debt instrument as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the statement of profit and loss.
Equity investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognized by an acquirer in a business combination to which Ind AS 103 applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument-by-instrument basis. The classification is made on initial recognition and is irrevocable. The Company elected to classify irrevocably its non-listed equity investments under this category.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to P&L, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the P&L.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e. removed from the Company''s balance sheet) when:
- The rights to receive cash flows from the asset have expired, or
- The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ''pass-through'' arrangement and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company''s continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
a. Financial assets that are debt instruments, and are measured at amortized cost e.g., loans, debt securities, deposits, trade receivables and bank balance
b. Financial assets that are debt instruments and are measured as at FVTOCI
c. Lease receivables under Ind AS 17
d. Trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within the scope of Ind AS 115
e. Loan commitments which are not measured as at FVTPL
f. Financial guarantee contracts which are not measured as at FVTPL
The Company follows ''simplified approach'' for recognition of impairment loss allowance on:
- Trade receivables or contract revenue receivables; and
- All lease receivables resulting from transactions within the scope of Ind AS 17
The application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognizes impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognizing impairment loss allowance based on 12-month ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12-month ECL is a portion of the lifetime ECL which results from default events that are possible within 12 months after the reporting date.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss (P&L). This amount is reflected under the head ''other expenses'' in the P&L. The balance sheet presentation for various financial instruments is described below:
- Financial assets measured as at amortized cost, contractual revenue receivables and lease receivables: ECL is presented as an allowance, i.e., as an integral part of the measurement of those assets in the balance sheet. The allowance reduces the net carrying amount. Until the asset meets write-off criteria, the Company does not reduce impairment allowance from the gross carrying amount.
- Loan commitments and financial guarantee contracts: ECL is presented as a provision in the balance sheet, i.e. as a liability. Debt instruments measured at FVTOCI: For debt instruments measured at FVOCI, the expected credit losses do not reduce the carrying amount in the balance sheet, which remains at fair value. Instead, an amount equal to the allowance that would arise if the asset was measured at amortized cost is recognized in other comprehensive income as the ''accumulated impairment amountâ
The Company does not have any purchased or originated credit-impaired (POCI) financial assets, i.e., financial assets which are credit impaired on purchase/ origination.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company''s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in the profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains/ loss are not subsequently transferred to P&L. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognized in the statement of profit or loss. The Company has not designated any financial liability as at fair value through profit and loss.
Loans and borrowings
This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
This category generally applies to borrowings and other payables.
Financial guarantee contracts
Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the amount of loss allowance determined as per impairment requirements of Ind AS 109 and the amount recognized less cumulative amortization.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit and loss.
Embedded derivatives
An embedded derivative is a component of a hybrid (combined) instrument that also includes a no derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a standalone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract. Derivatives embedded in all other host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in statement of profit and loss, unless designated as effective hedging instruments.
Reclassification of financial assets
The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. The Company''s senior management determines change in the business model as a result of external or internal changes which are significant to the Company''s operations. Such changes are evident to external parties. A change in the business model occurs when the Company either begins or ceases to perform an activity that is significant to its operations. If the Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Company does not restate any previously recognized gains, losses (including impairment gains or losses) or interest.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
(l) Fair value measurement
The Company measures financial instruments, such as, derivatives at fair value at each balance sheet date.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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability, or
- In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
- Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
- Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
- Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The Company determines the policies and procedures for both recurring fair value measurement, such as derivative instruments and unquoted financial assets measured at fair value, and for non-recurring measurement, such as assets held for distribution in discontinued operations.
External valuers are involved for valuation of significant assets and liabilities, if any. At each reporting date, the Company analyses the movements in the values of assets and liabilities which are required to be premeasured or re-assessed as per the Company''s accounting policies.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
This note summarizes accounting policy for fair value. Other fair value related disclosures are given in the relevant notes.
- Disclosures for valuation methods, significant estimates and assumptions (note 2.2, 36 and 37)
- Quantitative disclosures of fair value measurement hierarchy (note 36)
- Investment properties (note 4)
- Financial instruments (including those carried at amortized cost) (note 6, 7, 8, 9, 13, 17, 18, 19, 36 and 37) (m) Derivative financial instruments and hedge accounting
Initial recognition and subsequent measurement
The Company uses derivative financial instruments, such as forward currency contracts, interest rate swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
The purchase contracts that meet the definition of a derivative under Ind AS 109 are recognized in the statement of profit and loss. Commodity contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Company''s expected purchase, sale or usage requirements are held at cost.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognized in OCI and later reclassified to statement of profit and loss when the hedge item affects profit and loss or treated as basis adjustment if a hedged forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability.
For the purpose of hedge accounting, hedges are classified as:
- Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment
- Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment
At inception of the hedge relationship, the Company documents the economic relationship between hedging instruments and hedged items including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The Company documents its risk management objective and strategy for undertaking its hedge transactions.
Hedges that meet the strict criteria for hedge accounting are accounted for, as described below:
(i) Fair value hedges
The change in the fair value of a hedging instrument is recognized in the statement of profit and loss as finance costs. The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in the statement of profit and loss as finance costs.
For fair value hedges relating to items carried at amortized cost, any adjustment to carrying value is amortized through profit or loss over the remaining term of the hedge using the EIR method. EIR amortization may begin as soon as an adjustment exists and no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.
If the hedged item is derecognized, the unamortized fair value is recognized immediately in profit or loss. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in profit and loss.
The Company has an interest rate swap that is used as a hedge for the exposure of changes in the fair value. See Note 37 for more details.
(ii) Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognized in OCI in the cash flow hedge reserve, while any ineffective portion is recognized immediately in the statement of profit and loss.
The Company uses forward currency contracts as hedges of its exposure to foreign currency risk in forecast transactions and firm commitments, as well as forward commodity contracts for its exposure to volatility in the commodity prices. The ineffective portion relating to foreign currency contracts is recognized in finance costs and the ineffective portion relating to commodity contracts is recognized in other income or expenses.
Amounts recognized as OCI are transferred to profit or loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognized as OCI are transferred to the initial carrying amount of the non-financial asset or liability.
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover (as part of the hedging strategy), or if its designation as a hedge is revoked, or when the hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss previously recognized in OCI remains separately in equity until the forecast transaction occurs or the foreign currency firm commitment is met.
(n) Property, Plant and equipment
Property, Plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Capital work in progress are stated at cost, net of accumulated impairment losses, if any. Such cost includes expenditure that is directly attributable to the acquisition of the items and the cost of replacing part of the plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in profit or loss as incurred.
Subsequent costs are included in the asset''s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized.
On transition to Ind AS, the Company has elected to continue with the carrying value of all its property, plant and equipment recognized as at April 1, 2015 measured as per the previous GAAP and use that carrying value as the deemed cost of property, plant and equipment.
The cost of self-generated assets comprises of raw material, components, direct labour, other direct cost and related production overheads.
*Useful life of certain assets are different than the life prescribed under Schedule II to the Companies Act, 2013 and those has been determined based on technical evaluation by the management. The management believes that these estimated useful lives are realistic and reflect fair approximation of the period over which the assets are likely to be used.
An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit and loss when the asset is derecognized.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
(o) Investment properties
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and accumulated impairment loss, if any.
The cost includes the cost of replacing parts and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of the investment property are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. All other repair and maintenance costs are recognized in profit or loss as incurred.
The Company depreciates building component of investment property over 30 years and leasehold land over the period of lease.
Though the Company measures investment property using cost based measurement, the fair value of investment property is disclosed in the notes.
Investment properties are derecognized either when they have been disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period of derecognition.
(p) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses.
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of profit and loss unless such expenditure forms part of carrying value of another asset.
Gains or losses arising from derecognition of an intangible asset 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 or loss when the asset is derecognized.
Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are recognized as an intangible asset when the Company can demonstrate:
- The technical feasibility of completing the intangible asset so that the asset will be available for use or sale
- Its intention to complete and its ability and intention to use or sell the asset
- How the asset will generate future economic benefits
- The availability of resources to complete the asset
- The ability to measure reliably the expenditure during development
Cost incurred by the Company for Research and Development do not meet the recognition criteria and hence have been classified as research costs and are expensed of in the statement of profit and loss as and when these are incurred.
The amortization methods, the usual useful lives and the residual values of intangible assets are checked annually.
(q) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing cost also includes exchange differences to the extent regarded as an adjustment to the borrowing costs.
(r) Provisions and contingent liabilities Provisions
Provisions for legal claims, product warranties and other obligations are recognized when the C
Mar 31, 2018
1. Corporate Information
Motherson Sumi Systems Limited (MSSL or ''the Company'') was incorporated on December 19, 1986 and domiciled in India and is engaged primarily in the manufacture and sale of components to automotive original equipment manufacturers. The address of its registered office is Unit 705, C Wing, ONE BKC, G Block, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra. The Company is a public limited company and is listed in the Bombay Stock Exchange and National Stock Exchange. The Company is a joint venture entity between Samvardhana Motherson International Limited (SMIL) and Sumitomo Wiring Systems Limited, Japan.
The financial statements were authorized for issue in accordance with a resolution of the Board of directors on May 23, 2018.
2.1 Significant accounting policies
(a) Basis of preparation Compliance with Ind AS
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time).
The financial statements have been prepared on a historical cost basis, except for the following assets and liabilities which have been measured at fair value or revalued amount:
- Derivative financial instruments,
- Certain financial assets and liabilities measured at fair value (refer accounting policy regarding financial instruments) and
- Defined benefit pension plans - plan assets measured at fair value
In addition, the carrying values of recognized assets and liabilities designated as hedged items in fair value hedges that would otherwise be carried at amortized cost are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective hedge relationships. The financial statements are presented in '' and all values are rounded to the nearest millions ('' 000,000), except when otherwise indicated.
Application of new and revised standards
The Company has adopted with effect from April 1, 2017, the following new amendment and pronouncements.
- Ind AS 7 Statement of Cash Flows: narrow-scope amendments: The amendments introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities (Refer Note 13)
(b) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Maker "CODMâ of the Company. The CODM is responsible for allocating resources and assessing performance of the operating segments. The Company has monthly review and forecasting procedure in place and CODM reviews the operations of the Company as a whole.
(c) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification. An asset is treated as current when it is:
- Expected to be realized or intended to be sold or consumed in normal operating cycle
- Held primarily for the purpose of trading
- Expected to be realized within twelve months after the reporting period, or
- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period
All other assets are classified as non-current.
A liability is current when:
- It is expected to be settled in normal operating cycle
- It is held primarily for the purpose of trading
- It is due to be settled within twelve months after the reporting period, or
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The operating cycle is the time between the acquisition of assets for processing and their realization in cash and cash equivalents. The Company has identified twelve months as its operating cycle.
(d) Foreign currencies
(i) Functional and presentation currency
The Company''s functional currency is Indian Rupee (?) and the financial statements are presented in Indian Rupee ('').
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in profit or loss. They are deferred in other comprehensive income if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. A monetary item for which settlement is neither planned nor likely to occur in the foreseeable future is considered as a part of the entity''s net investment in that foreign operation.
Foreign exchange differences regarded as an adjustment to borrowing cost are presented in the Statement of profit and loss, within finance costs. All other foreign exchange gains and losses are presented in the Statement of profit and loss on a net basis within other income or other expenses.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equity investments (other than investment in subsidiaries, joint ventures and associates) classified as FVOCI are recognized in other comprehensive income.
(e) Revenue recognition and Other income
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties collected on behalf of the government. The Company has concluded that it is the principal in all of its revenue arrangements since it is the primary obligor in all the revenue arrangements as it has pricing latitude and is also exposed to inventory and credit risks.
Based on the Educational Material on Ind AS 18 issued by the ICAI, the Company has assumed that recovery of excise duty flows to the Company on its own account. This is for the reason that it is a liability of the manufacturer which forms part of the cost of production, irrespective of whether the goods are sold or not. Since the recovery of excise duty flows to the Company on its own account, revenue includes excise duty.
However, sales tax/ value added tax (VAT) / Goods and Service Tax (GST) is not received by the Company on its own account. Rather, it is tax collected on value added to the commodity by the seller on behalf of the government. Accordingly, it is excluded from revenue.
The specific recognition criteria described below must also be met before revenue is recognized.
Sale of goods:
Revenue is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Sales are recognized when the significant risks and rewards of ownership are transferred to the buyer as per the terms of contract.
Sale of services:
Revenues from the sale of services are recorded with respect to the stage of completion as of the reporting date in relation to the total service to be provided in the course of the transaction.
Tooling Revenue
The Company develops tooling for its customers. The Company uses the ''percentage-of-completion method'' to determine the appropriate amount to recognize in a given period. The Company determines the level of completion on the basis of milestones achieved to date.
When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognized over the period of the contract by reference to the stage of completion. Contract costs are recognized as expenses by reference to the stage of completion of the contract activity at the end of the reporting period. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately. Revenue is recognized only to the extent of contract costs incurred that is probable will be recoverable. The Company does not recognize profit on booking of such revenue ("Zero profit margin methodâ) since it is not possible to determine the level of completion reliably. The costs include all expenses incurred in direct relation to the specific projects and a proportion of the fixed and variable general costs incurred on the basis of normal capacity for the Company''s construction contracts. On the balance sheet, the Company reports the net contract position for each contract as either an asset or a liability. A contract represents an asset where costs incurred plus recognized profits (less recognized losses) exceed progress billings; a contract represents a liability where the opposite is the case.
Other income
Interest
Interest is recognized using the effective interest rate (EIR) method, as income for the period in which it occurs. EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument to the gross carrying amount of the financial asset or to the amortized cost of a financial liability. When calculating the effective interest rate, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses.
Rental Income
Rental income arising from investment properties given under operating leases is accounted for on a straight-line basis over the lease terms unless the receipts are structured to increase in line with expected general inflation to compensate for the less orâs expected inflationary cost increases and is included in other income in the statement of profit and loss.
Dividend
Dividend income is recognized when the right to receive payment is established, which is generally when shareholders approve the dividend.
Duty drawback and export incentives
Income from duty drawback and export incentives is recognized on an accrual basis.
(f) Government grants
Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions.
Government grants relating to income are deferred and recognized in the profit or loss over the period necessary to match them with the costs that they are intended to compensate and presented within other income.
Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets and presented within other income.
When government grants relating to loans or similar assistance are provided by governments or related institutions, with an interest rate below the current applicable market rate, the effect of this favorable interest is regarded as a government grant. The loan or assistance is initially recognized and measured at fair value and the government grant is measured as the difference between the initial carrying value of the loan and the proceeds received. The loan is subsequently measured as per the accounting policy applicable to financial liabilities.
(g) Income tax
The income tax expense or credit for the period is the tax payable on the current period''s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in India. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the standalone financial statements. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred tax assets are recognized for all deductible temporary differences only if it is probable that future taxable amounts will be available to utilize those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.
Investment allowances and similar tax incentives:
The Company may be entitled to claim special tax deductions for investments in qualifying assets or in relation to qualifying expenditure. The Company accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and current tax expense.
(h) Leases
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
As a Lessee
Leases of property, plant and equipment where the Company, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease''s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in borrowings or other financial liabilities, as appropriate. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset''s useful life or over the shorter of the asset''s useful life and the lease term if there is no reasonable certainty that the Company will obtain ownership at the end of the lease term.
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 less or) 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 less orâs expected inflationary cost increases.
As a Lesser
Lease income from operating leases where the Company is a less or is recognized in income on a straight-line basis over the lease term unless the receipts are structured to increase in line with expected general inflation to compensate the less or for the expected inflationary cost increases. The respective leased assets are included in the balance sheet based on their respective nature.
(i) Impairment of non-financial assets
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset''s recoverable amount. An asset''s recoverable amount is the higher of an asset''s or cash-generating unit''s (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Company''s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. To estimate cash flow projections beyond periods covered by the most recent budgets/forecasts, the Company extrapolates cash flow projections in the budget using a steady or declining growth rate for subsequent years, unless an increasing rate can be justified. In any case, this growth rate does not exceed the long-term average growth rate for the products, industries, or country or countries in which the entity operates, or for the market in which the asset is used. Impairment losses including impairment on inventories, are recognized in the statement of profit and loss.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset''s or CGU''s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset''s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit and loss.
Intangible assets with indefinite useful lives are tested for impairment annually at the end of the financial year at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.
(j) Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand short term deposits with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Company''s cash management.
(k) Inventories
Raw materials and stores, work in progress, traded and finished goods
Raw materials and stores, work in progress, traded and finished goods are stated at the lower of cost and net realizable value.
Cost of raw material and traded goods comprise cost of purchase and is determined after rebate and discounts. Cost of work in progress and finished goods comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity.
Cost of inventories also includes all other cost incurred in bringing the inventories to their present location and condition. Costs are determined on weighted average cost basis.
Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
(l) Financial instruments
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
Initial recognition and measurement
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
- Debt instruments at amortized cost
- Debt instruments at fair value through other comprehensive income (FVTOCI)
- Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
- Equity instruments measured at fair value through other comprehensive income (FVTOCI)
Debt instruments at amortized cost
A ''debt instrument'' is measured at the amortized cost if both the following conditions are met:
a. The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b. Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
This category is the most relevant to the Company. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the profit or loss. The losses arising from impairment are recognized in the profit or loss. This category generally applies to trade and other receivables.
Debt instrument at FVTOCI
A ''debt instrument'' is classified as at the FVTOCI if both of the following criteria are met:
a. The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b. The asset''s contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI). However, the Company recognizes interest income, impairment losses & reversals and foreign exchange gain or loss in the statement of profit and loss. On derecognition of the asset, cumulative gain or loss previously recognized in OCI is reclassified from the equity to statement of profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income in statement of profit and loss using the EIR method.
Debt instrument at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortized cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as ''accounting mismatch''). The Company has not designated any debt instrument as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the statement of profit and loss.
Equity investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognized by an acquirer in a business combination to which Ind AS 103 applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument-by-instrument basis. The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to P&L, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the P&L.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e. removed from the Company''s balance sheet) when:
- The rights to receive cash flows from the asset have expired, or
- The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ''pass-through'' arrangement and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company''s continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
a. Financial assets that are debt instruments, and are measured at amortized cost e.g., loans, debt securities, deposits, trade receivables and bank balance
b. Financial assets that are debt instruments and are measured as at FVTOCI
c. Lease receivables under Ind AS 17
d. Trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within the scope of Ind AS 11 and Ind AS 18
e. Loan commitments which are not measured as at FVTPL
f. Financial guarantee contracts which are not measured as at FVTPL
The Company follows ''simplified approach'' for recognition of impairment loss allowance on:
- Trade receivables or contract revenue receivables; and
- All lease receivables resulting from transactions within the scope of Ind AS 17
The application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognizes impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognizing impairment loss allowance based on 12-month ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12-month ECL is a portion of the lifetime ECL which results from default events that are possible within 12 months after the reporting date.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss (P&L). This amount is reflected under the head ''other expenses'' in the P&L. The balance sheet presentation for various financial instruments is described below:
- Financial assets measured as at amortized cost, contractual revenue receivables and lease receivables: ECL is presented as an allowance, i.e., as an integral part of the measurement of those assets in the balance sheet. The allowance reduces the net carrying amount. Until the asset meets write-off criteria, the Company does not reduce impairment allowance from the gross carrying amount.
- Loan commitments and financial guarantee contracts: ECL is presented as a provision in the balance sheet, i.e. as a liability. Debt instruments measured at FVTOCI: For debt instruments measured at FVOCI, the expected credit losses do not reduce the carrying amount in the balance sheet, which remains at fair value. Instead, an amount equal to the allowance that would arise if the asset was measured at amortized cost is recognized in other comprehensive income as the ''accumulated impairment amount''.
The Company does not have any purchased or originated credit-impaired (POCI) financial assets, i.e., financial assets which are credit impaired on purchase/ origination.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company''s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in the profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated Ind AS as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains/ loss are not subsequently transferred to P&L. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognized in the statement of profit or loss. The Company has not designated any financial liability as at fair value through profit and loss.
Loans and borrowings
This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
This category generally applies to borrowings and other payables.
Financial guarantee contracts
Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the amount of loss allowance determined as per impairment requirements of Ind AS 109 and the amount recognized less cumulative amortization.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit and loss.
Embedded derivatives
An embedded derivative is a component of a hybrid (combined) instrument that also includes a no derivative host contract - with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract. Derivatives embedded in all other host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in statement of profit and loss, unless designated as effective hedging instruments.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
(m) Fair value measurement
The Company measures financial instruments, such as, derivatives at fair value at each balance sheet date. 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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability, or
- In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
- Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
- Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
- Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The Company determines the policies and procedures for both recurring fair value measurement, such as derivative instruments and unquoted financial assets measured at fair value, and for non-recurring measurement, such as assets held for distribution in discontinued operations.
External valuers are involved for valuation of significant assets and liabilities, if any. At each reporting date, the Company analyses the movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the Company''s accounting policies.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
This note summarizes accounting policy for fair value. Other fair value related disclosures are given in the relevant notes.
- Disclosures for valuation methods, significant estimates and assumptions (note 2.2, 35 and 36)
- Quantitative disclosures of fair value measurement hierarchy (note 35)
- Investment properties (note 4)
- Financial instruments (including those carried at amortized cost) (note 6, 7, 8, 9, 13, 17, 18, 19, 35 and 36 ) (n) Derivative financial instruments and hedge accounting
Initial recognition and subsequent measurement
The Company uses derivative financial instruments, such as forward currency contracts, interest rate swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
The purchase contracts that meet the definition of a derivative under Ind AS 109 are recognized in the statement of profit and loss. Commodity contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Company''s expected purchase, sale or usage requirements are held at cost.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognized in OCI and later reclassified to statement of profit and loss when the hedge item affects profit and loss or treated as basis adjustment if a hedged forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability.
For the purpose of hedge accounting, hedges are classified as:
- Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment
- Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment
At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes the Company''s risk management objective and strategy for undertaking hedge, the hedging/ economic relationship, the hedged item or transaction, the nature of the risk being hedged, hedge ratio and how the entity will assess the effectiveness of changes in the hedging instrument''s fair value in offsetting the exposure to changes in the hedged item''s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
Hedges that meet the strict criteria for hedge accounting are accounted for, as described below:
(i) Fair value hedges
The change in the fair value of a hedging instrument is recognized in the statement of profit and loss as finance costs. The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in the statement of profit and loss as finance costs.
For fair value hedges relating to items carried at amortized cost, any adjustment to carrying value is amortized through profit or loss over the remaining term of the hedge using the EIR method. EIR amortization may begin as soon as an adjustment exists and no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.
If the hedged item is derecognized, the unamortized fair value is recognized immediately in profit or loss. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in profit and loss.
(ii) Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognized in OCI in the cash flow hedge reserve, while any ineffective portion is recognized immediately in the statement of profit and loss.
The Company uses forward currency contracts as hedges of its exposure to foreign currency risk in forecast transactions and firm commitments, as well as forward commodity contracts for its exposure to volatility in the commodity prices. The ineffective portion relating to foreign currency contracts is recognized in finance costs and the ineffective portion relating to commodity contracts is recognized in other income or expenses.
Amounts recognized as OCI are transferred to profit or loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognized as OCI are transferred to the initial carrying amount of the non-financial asset or liability.
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover (as part of the hedging strategy), or if its designation as a hedge is revoked, or when the hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss previously recognized in OCI remains separately in equity until the forecast transaction occurs or the foreign currency firm commitment is met.
(o) Property, Plant and equipment
Property, Plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Capital work in progress are stated at cost, net of accumulated impairment losses, if any. Such cost includes expenditure that is directly attributable to the acquisition of the items and the cost of replacing part of the plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in profit or loss as incurred.
On transition to Ind AS, the Company has elected to continue with the carrying value of all its property, plant and equipment recognized as at April 1, 2015 measured as per the previous GAAP and use that carrying value as the deemed cost of property, plant and equipment.
The cost of self-generated assets comprises of raw material, components, direct labour, other direct cost and related production overheads.
*Useful life of certain assets are different than the life prescribed under Schedule II to the Companies Act, 2013 and those has been determined based on technical evaluation by the management. The management believes that these estimated useful lives are realistic and reflect fair approximation of the period over which the assets are likely to be used.
An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit and loss when the asset is derecognized.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
(p) Investment properties
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and accumulated impairment loss, if any.
The cost includes the cost of replacing parts and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of the investment property are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. All other repair and maintenance costs are recognized in profit or loss as incurred.
The Company depreciates building component of investment property over 30 years and leasehold land over the period of lease.
Though the Company measures investment property using cost based measurement, the fair value of investment property is disclosed in the notes.
Investment properties are derecognized either when they have been disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period of derecognition.
(q) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses.
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of profit and loss unless such expenditure forms part of carrying value of another asset.
Gains or losses arising from derecognition of an intangible asset 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 or loss when the asset is derecognized.
Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are recognized as an intangible asset when the Company can demonstrate:
- The technical feasibility of completing the intangible asset so that the asset will be available for use or sale
- Its intention to complete and its ability and intention to use or sell the asset
- How the asset will generate future economic benefits
- The availability of resources to complete the asset
- The ability to measure reliably the expenditure during development
Cost incurred by the Company for Research and Development do not meet the recognition criteria and hence have been classified as research costs and are expensed of in the statement of profit and loss as and when these are incurred.
(r) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing cost also includes exchange differences to the extent regarded as an adjustment to the borrowing costs.
(s) Provisions and contingent liabilities
Provisions
Provisions for legal claims, product warranties and make good obligations are recognized when the Company has a present (legal or constructive) obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognized for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
When the Company expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit and loss net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
Contingent Liabilities
Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
(t) Employee benefits
Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognized in respect of employees'' services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet.
Provident Fund & Employee State Insurance
Contribution towards provident fund and employee state insurance for employees is made to the regulatory authorities, where the Company has no further obligations. Such benefits are classified as Defined Contribution Schemes as the Company does not carry any further obligations, apart from the contributions made on a monthly basis.
Superannuation fund
The Company has a superannuation plan for the benefit of its employees. Employees who are members of the defined benefit superannuation plan are entitled to benefits depending on the years of service and salary drawn. The Company contributes up to 12% of the eligible employees'' salary or 1,00,000/1,50,000 whichever is lower, every year. Such contributions are recognized as an expense as and when incurred. The Company does not have any further obligations beyond this contribution.
Gratuity
The Company provides for gratuity, a defined benefit plan (the "Gratuity Planâ) covering eligible employees in accordance with the Payment of Gratuity Act, 1972. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee''s salary and the tenure of employment. The gratuity plan in Company is funded through annual contributions to Life Insurance Corporation of India (LIC) under its Company''s Gratuity Scheme whereas others are not funded.
The liability or asset recognized in the balance sheet in respect of defined benefit gratuity plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The Company''s liability is actuarially determined (using the Projected Unit Credit method) at the end of each year. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds. Re-measurement gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. They are included in retained earnings in the statement of changes in equity and in the balance sheet. Past-service costs are recognized immediately in income.
Compensated Absences
Accumulated compensated absences, which are expected to be availed or encashed within 12 months from the end of the year end are treated as short term employee benefits. The obligation towards the same is measured at the expected cost of accumulating compensated absences as the additional amount expected to be paid as a result of the unused entitlement as at the year end.
Accumulated compensated absences, which are expected to be availed or encased beyond 12 months from the end of the year end are treated as other long term employee benefits. The Company''s liability is actuarially determined (using the Projected Unit Credit method) at the end of each year. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds. Re-measurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in statement of profit or loss in the period in which they arise. Past-service costs are recognized immediately in income.
(u) Dividends
Provision is made for the amount of any dividend declared, being appropriately authorized and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period.
(v) Earnings per share
() Basic earnings per share
Basic earnings per share is calculated by dividing the net profit or loss attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they are entitled to participate in dividends relative to a fully paid equity share during the reporting period.
The weighted average number of equity shares outstanding during the period is adjusted for events such as bonus issue that have changed the number of equity shares outstanding, without a corresponding change in resources.
() Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:
- the after income tax effect of interest and other financing costs associated with dilutive potential equity shares, and
- The weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential equity shares.
Mar 31, 2017
(a) Basis of preparation
(i) Compliance with Ind AS
The financial statements comply in all material aspects with the Indian Accounting Standards (Ind AS) notified under Section 133 of the the Companies Act, 2013 (the Act) [Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act.
The financial statements upto March 31, 2016 were prepared in accordance with the accounting standards notified in Companies (Accounting Standard) Rules, 2006 (as amended) and other relevant provisions of the Act.
These financial statements are the first financial statements of the Company under Ind AS. Refer note 48 For an explanation of how the transition from previous GAAP to Ind AS has affected the Companyâs financial position, financial performance and cash flows.
(ii) Historical cost convention
The financial statements have been prepared on a historical cost basis, except for the following:
- Certain financial assets and liabilities (including derivative instruments) measured at fair value
- Defined benefit pension plans - plan assets measured at fair value, and
(b) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Maker âCODMâ of the Company. The CODM is responsible for allocating resources and assessing performance of the operating segment. The Company has monthly review and forecasting procedure in place and CODM reviews the operations of the Company as a whole.
(c) Foreign currency translation
(i) Functional and presentation currency
The Companyâs functional currency is Indian Rupee (Rs.) and the financial statements are presented in Indian Rupee ( Rs.).
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. A monetary item for which settlement is neither planned nor likely to occur in the foreseeable future is considered as a part of the entityâs net investment in that foreign operation.
Foreign exchange differences regarded as an adjustment to borrowing cost are presented in the Statement of profit and loss, within finance costs. All other foreign exchange gains and losses are presented in the Statement of profit and loss on a net basis within other income or other expenses.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equity instruments (other than investment in subsidiaries, joint ventures and associates) held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equity investments (other than investment in subsidiaries, joint ventures and associates) classified as FVOCI are recognised in other comprehensive income.
(d) Revenue recognition and Other income Sale of goods:
Measurement of revenue: Revenue is measured at the fair value of the consideration received or receivable. Sales are recognised when the significant risks and rewards of ownership are transferred to the buyer as per the terms of contract and are recognised. Amounts disclosed as revenue are inclusive of excise duty and net of returns, trade allowances, rebates and amounts collected on behalf of third parties.
Timing of recognition: The Company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Companyâs activities. The Company bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
Sale of services:
Measurement of revenue: In contracts involving the rendering of services, revenue as per terms of the contracts is recognised net of service tax. Revenues from the sale of services are recorded with respect to the stage of completion as of the reporting date in relation to the total service to be provided in the course of the transaction.
Timing of recognition: Revenue from services is recognised in the accounting period in which the services are rendered.
Tooling Revenue
Timing of recognition: The Company develops tooling for its customers. The Company uses the âpercentage-of-completion methodâ to determine the appropriate amount to recognise in a given period. The Company determines the level of completion on the basis of milestones achieved to date.
Measurement of revenue: When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognised over the period of the contract by reference to the stage of completion. Contract costs are recognised as expenses by reference to the stage of completion of the contract activity at the end of the reporting period. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Revenue is recognised only to the extent of contract costs incurred that is probable will be recoverable. The Company does not recognize profit on booking of such revenue (âZero profit margin methodâ) since it is not possible to determine the level of completion reliably. The costs include all expenses incurred in direct relation to the specific projects and a proportion of the fixed and variable general costs incurred on the basis of normal capacity for the Companyâs construction contracts. On the balance sheet, the Company reports the net contract position for each contract as either an asset or a liability. A contract represents an asset where costs incurred plus recognised profits (less recognised losses) exceed progress billings; a contract represents a liability where the opposite is the case.
Rental Income
Measurement of revenue: Rental income arising from investment properties given under operating leases is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit and loss.
Timing of recognition: Rental income is recognised over the period for which the investment property is given on rent.
Other income Interest
Interest is recognised using the effective interest rate (EIR) method, as income for the period in which it occurs. EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument to the gross carrying amount of the financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses.
Dividend
Dividend income is recognised when the right to receive payment is established, which is generally when shareholders approve the dividend.
Duty drawback and export incentives
Income from duty drawback and export incentives is recognized on an accrual basis.
(e) Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions.
Government grants relating to income are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate and presented within other income.
Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets and presented within other income.
(f) Income tax
The income tax expense or credit for the period is the tax payable on the current periodâs taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in India. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the standalone financial statements. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for all deductible temporary differences only if it is probable that future taxable amounts will be available to utilise those temporary differences.
Deferred tax liabilities are not recognised for temporary differences between the carrying amount and tax bases of investments in subsidiaries, branches and associates and interest in joint arrangements where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.
Deferred tax assets are not recognised for temporary differences between the carrying amount and tax bases of investments in subsidiaries, branches and associates and interest in joint arrangements where it is not probable that the differences will reverse in the foreseeable future and taxable profit will not be available against which the temporary difference can be utilised.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Investment allowances and similar tax incentives
The Company may be entitled to claim special tax deductions for investments in qualifying assets or in relation to qualifying expenditure. The Company accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and current tax expense.
(g) Leases As a Lessee
Leases of property, plant and equipment where the Company, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the leaseâs inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in borrowings or other financial liabilities, as appropriate. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the assetâs useful life or over the shorter of the assetâs useful life and the lease term if there is no reasonable certainty that the Company will obtain ownership at the end of the lease term.
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 lessorâs expected inflationary cost increases.
As a Lessor
Lease income from operating leases where the Company is a lessor is recognised in income on a straight-line basis over the lease term unless the receipts are structured to increase in line with expected general inflation to compensate the lessor for the expected inflationary cost increases. The respective leased assets are included in the balance sheet based on their nature.
(h) Impairment of assets
Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assetâs carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assetâs fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
In case events which caused impairment initially ceases to exist, impairments are only reversed to the extent that increased carrying amount of the asset does not exceed the carrying amount that would have been in place had there no impairment been carried out in the first place, taking into account the normal depreciation/ amortization.
(i) Cash and cash equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
(j) Trade receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade receivables are initially recognised at fair value plus transaction costs. Trade receivables are measured at amortised cost using the effective interest method less any necessary write-downs.
(k) Inventories
Raw materials and stores, work in progress, traded and finished goods
Raw materials and stores, work in progress, traded and finished goods are stated at the lower of cost and net realisable value. Cost of raw material and traded goods comprise cost of purchase. Cost of work in progress and finished goods comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Cost of inventories also include all other cost incurred in bringing the inventories to their present location and condition. Cost includes the reclassification from equity of any gains or losses on qualifying cash flow hedges relating to purchases of raw material but excludes borrowing costs. Costs are assigned to individual items of inventory on the basis of weighted average costs. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
(l) Investments and other financial assets
(i) Classification
The Company classifies its financial assets in the following measurement categories:
- those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and
- those to be measured subsequently at amortised cost
The classification depends on the entityâs business model for managing the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held. For investments in equity instruments, this will depend on whether the company has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income.
(ii) Measurement
At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.
Equity instruments and Mutual Fund
The Company subsequently measures all equity investments at fair value. Where the companyâs management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss. Dividends from such investments continue to be recognised in profit or loss as other income when the companyâs right to receive payments is established.
Changes in the fair value of financial assets at fair value through profit or loss are recognised in other gain/ (losses) in the statement of profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.
Impairment of financial assets:
The Company assesses on a forward looking basis the expected credit losses associated with its assets carried at amortised cost and FVOCI debt instruments. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
For trade receivables only, the company applies the simplified approach permitted by Ind AS 109, which requires expected lifetime losses to be recognised from initial recognition of the receivables.
Derecognition of financial assets
A financial asset is derecognised only when
(i) The Company has transferred the rights to receive cash flows from the financial asset or
(ii) Retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients.
Where the entity has transferred an asset, the Company evaluates whether it has transferred substantially all risks and rewards of ownership of the financial asset. In such cases, the financial asset is derecognised. Where the entity has not transferred substantially all risks and rewards of ownership of the financial asset, the financial asset is not derecognised.
Where the entity has neither transferred a financial asset nor retains substantially all risks and rewards of ownership of the financial asset, the financial asset is derecognised if the Company has not retained control of the financial asset. Where the Company retains control of the financial asset, the asset is continued to be recognised to the extent of continuing involvement in the financial asset.
(m) Derivatives and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged and the type of hedge relationship designated.
The Company designates their derivatives as hedges of foreign exchange risk associated with the cash flows of highly probable forecast transactions (cash flow hedges).
The Company documents at the inception of the hedging transaction the economic relationship between hedging instruments and hedged items including whether the hedging instrument is expected to offset changes in cash flows of hedged items. The Company documents its risk management objective and strategy for undertaking various hedge transactions at the inception of each hedge relationship.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.
Hedge accounting
The Company designates fixed-to-fixed cross-currency interest-rate swaps as hedging instruments in cash flow hedges in respect of risk of variability, due to changes in foreign exchange rates, in cash flows on financial assets and financial liabilities denominated in foreign currency. The Company also designates foreign currency forward contracts as hedging instruments in respect of risk of variability of cash flows due to cash flows in currencies denomination in other than the functional currency of the entity. Such hedges of foreign exchange risk on highly probable forecast cash flows are accounted for as cash flow hedges.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in offsetting changes in fair values of the hedged item.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in âCash Flow Hedge Reserveâ. The gain or loss relating to the ineffective portion is recognised immediately in the income statement, and is included in the line âOther Income or Other Operating Expensesâ.
Amounts previously recognised in âCash Flow Hedge Reserveâ and accumulated in equity are reclassified to the income statement in the periods when the hedged item affects income statement in the relevant income/ expense head for which swap/ forward is taken. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets) the gains and losses previously deferred in equity are reclassified from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in profit or loss as cost of goods sold in the case of inventory, or as depreciation or impairment in the case of fixed assets.
Discontinuation of hedge accounting
Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or it no longer qualifies for hedge accounting. Any gain or loss accumulated in equity is reclassified from equity to income statement in the same period or periods during which the hedged forecast cash flows affect the income statement. If the underlying hedge transaction is no longer expected to occur, the amounts accumulated in equity are immediately reclassified in full to the income statement.
Derivatives that are not designated as hedge
The Company enters into certain derivative contracts to hedge risks which are not designated as hedges. Such contracts are accounted for at fair value through profit or loss and are included in other income/ expenses.
(n) Property, plant and equipment
Freehold land is stated at historical cost. All other items of property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. The cost of self-generated assets comprises of raw material, components, direct labour, other direct cost and related production overheads.
Subsequent costs are included in the assetâs carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.
Transition to Ind AS
On transition to Ind AS, the company has elected to continue with the carrying value of all its property, plant and equipment recognised as at April 01, 2015 measured as per the previous GAAP and use that carrying value as the deemed cost of property, plant and equipment.
Depreciation methods and useful lives
Depreciation is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives or, in the case of leasehold improvements, the shorter lease term as follows:
*Useful life of these assets are lower than the life prescribed under Schedule II to the Companies Act, 2013 and those has been determined based on technical evaluation by the management. The assets residual values and useful lives are reviewed and adjusted if appropriate, at the end of each reporting period.
An assetâs carrying value is written down immediately to its recoverable amount if the assetâs carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss.
(o) Investment properties
Investment properties, principally freehold office buildings, leasehold land and industrial properties are held for long-term rental yields or for capital appreciation or for both and are not occupied by the Company. Investment property is measured initially at its cost, including related transaction costs and where applicable borrowing costs. Subsequent expenditure is capitalised to the assetâs carrying amount only when it is probable that future economic benefits associated with expenditure will flow to the Company and cost of item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised.
Investment properties are depreciated using straight-line method over their estimated useful lives. Refer point 1(n) for depreciation rates used for building.
Transition to Ind AS
On transition to Ind AS, the Company has elected to continue with the carrying value of all its investment properties recognised as at April 1, 2015 measured as per the previous GAAP and use that carrying value as the deemed cost of investment properties .
(p) Intangible assets
(i) Software
Costs associated with maintaining software programmes are recognised as an expense as incurred. Separately acquired softwareâs are shown at transaction cost. They are subsequently carried at cost less accumulated amortisation.
(ii) Amortisation periods
On transition to Ind AS, the Company has elected to continue with the carrying value of all its intangible assets recognised as at April 1, 2015 measured as per the previous GAAP and use that carrying value as the deemed cost of intangible assets .
(q) Trade and other payables
These amounts represent liabilities for goods and services provided to the Company prior to the end of financial year which are unpaid. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.
(r) Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.
Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.
(s) Borrowing costs
General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
Other borrowing costs are expensed in the period in which they are incurred.
(t) Provisions and Contingent liabilities Provisions
Provisions for legal claims, product warranties and make good obligations are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Long-term provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money. Short term provisions are carried at their redemption value and are not offset against receivables from reimbursements.
Provisions are measured at the present value of managementâs best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.
Contingent Liabilities
Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
(u) Employee benefits Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employeesâ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet.
Provident Fund & Employee State Insurance
Contribution towards provident fund and employee state insurance for employees is made to the regulatory authorities, where the Company has no further obligations. Such benefits are classified as Defined Contribution Schemes as the Company does not carry any further obligations, apart from the contributions made on a monthly basis.
Superannuation fund
The Company have a superannuation plan for the benefit of its employees. Employees who are members of the defined benefit superannuation plan are entitled to benefits depending on the years of service and salary drawn. The Company contributes up to 12% of the eligible employeesâ salary or Rs.1,00,000, whichever is lower, every year. Such contributions are recognised as an expense as and when incurred. The Company does not have any further obligations beyond this contribution.
Gratuity
The Company provides for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees in accordance with the Payment of Gratuity Act, 1972. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employeeâs salary and the tenure of employment. The gratuity plan in Company is funded through annual contributions to Life Insurance Corporation of India (LIC) under its Companyâs Gratuity Scheme whereas others are not funded.
The liability or asset recognised in the balance sheet in respect of defined benefit gratuity plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of each year. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds. Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. They are included in retained earnings in the statement of changes in equity and in the balance sheet. Past-service costs are recognised immediately in profit or loss.
Compensated Absences
Accumulated compensated absences, which are expected to be availed or encashed within 12 months from the end of the year end are treated as short term employee benefits. The obligation towards the same is measured at the expected cost of accumulating compensated absences as the additional amount expected to be paid as a result of the unused entitlement as at the year end.
Accumulated compensated absences, which are expected to be availed or encashed beyond 12 months from the end of the year end are treated as other long term employee benefits. The Companyâs liability is actuarially determined (using the Projected Unit Credit method) at the end of each year. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in profit or loss in the period in which they arise. Past-service costs are recognised immediately in profit or loss.
(v) Contributed equity
Equity shares are classified as equity.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
(w) Dividends
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period.
(x) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
- the profit attributable to owners of the company, excluding any costs of servicing equity other than ordinary shares
- by the weighted average number of equity shares outstanding during the financial year, adjusted for bonus elements in equity shares issued during the year
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:
- the after income tax effect of interest and other financing costs associated with dilutive potential equity shares, and
- the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential equity shares.
(y) Rounding of amounts
All amounts disclosed in the financial statements and notes have been rounded off to the nearest millions unless otherwise stated.
Mar 31, 2016
1.1 Basis of preparation
These financial statements have been prepared in accordance with the
generally accepted accounting principles in India under the historical
cost convention on accrual basis, except for certain tangible assets
which are being carried at revalued amounts. Pursuant to section 133 of
the Companies Act, 2013 read with rule 7 of the Companies (Accounts)
Rules, 2014, till the standard of accounting or any addendum thereto
are prescribed by Central Government in consultation and recommendation
of the National Financial Reporting Authority, the existing accounting
standards notified under the Companies Act, 1956 shall continue to
apply.
Consequently, these financial statements have been prepared to comply
in all material aspects with the accounting standards notified under
Section 211(3C) [Companies (Accounting Standards) Rules, 2006, as
amended] of the Companies Act, 1956 and the other relevant provisions
of the Companies Act, 2013.
All assets and liabilities have been classified as current or
non-current as per the Company''s operating cycle and other criteria set
out in the Schedule III to the Companies Act, 2013. Based on the nature
of products and the time between the acquisition of assets for
processing and their realisation in cash and cash equivalents, the
Company has ascertained its operating cycle as 12 months for the
purpose of current - non-current classification of assets and
liabilities.
1.2 Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in India requires the management to make
estimates and assumptions that affect the reported amount of asset and
liabilities as at Balance Sheet date, reported amount of revenue and
expenses for the year and disclosures of contingent liabilities as at
the Balance Sheet date. The estimates and assumptions used in the
accompanying financial statement are based upon management''s evaluation
of relevant facts and circumstances as at the date of the financial
statements. Actual results could differ from estimates.
1.3 Tangible Assets
Tangible Assets are stated at acquisition cost, net of accumulated
depreciation and accumulated impairment losses, if any, except in case
of tangible assets of the Component Division of erstwhile Motherson
Auto Components Engineering Limited (MACE) and erstwhile India Nails
Manufacturing Limited (formerly India Nails Manufacturing Private
Limited, subsidiary which has been merged with the Company w.e.f April
1, 2011) which have been revalued on December 31, 1998 and on March 31,
2005 respectively and except assets costing less than Rs.5,000 each
charged to expense, which could otherwise have been included as
tangible asset, in accordance with Accounting Standard 10 -''Accounting
for Fixed Assets'', because the amount is not material.
Revaluation in respect of certain tangible assets of the Component
Division of erstwhile Motherson Auto Components Engineering Limited
(MACE) and erstwhile India Nails Manufacturing Limited (INML) was done
as under:
a) Land at the prevailing market rates as certified by approved
valuation experts as on the date of revaluation.
b) Building, plant and machinery and other assets of MACE at their
replacement values as certified by approved valuation expert.
The cost of self-generated assets comprises of raw material,
components, direct labour, other direct cost and related production
overheads.
Subsequent expenditure related to an item of fixed asset is added to
its book value only if it increases the future benefits from the
existing asset beyond its previously assessed standard of performance.
Items of fixed assets that have been retired from active use and are
held for disposal are stated at the lower of their net book value and
net realisable value and are shown separately in the financial
statements under current assets. Any expected loss is recognised
immediately in the Statement of Profit and Loss.
Losses arising from the retirement of, and gains or losses arising from
disposal of fixed assets which are carried at cost are recognised in
the Statement of Profit and Loss.
Depreciation is provided on a pro-rata basis on the straight-line
method over the estimated useful lives of the assets, based on the
technical evaluation done by the management and is as below:
* Useful life of these assets are lower than the life prescribed under
Schedule II to the Companies Act, 2013 and reflect actual usage of
these assets.
1.4 Intangible Assets
Intangible assets are stated at acquisition cost, net of accumulated
amortization and accumulated impairment losses, if any. Intangible
assets are amortised on a straight line basis over their estimated
useful lives. A rebuttable presumption that the useful life of an
intangible asset will not exceed ten years from the date when the asset
is available for use is considered by the management. The amortisation
period and the amortisation method are reviewed at least at each
financial year end. If the expected useful life of the asset is
significantly different from previous estimates, the amortisation
period is changed accordingly. Gains or losses arising from the
retirement or disposal of an intangible asset are determined as the
difference between the net disposal proceeds and the carrying amount of
the asset and recognised as income or expense in the Statement of
Profit and Loss. The estimated useful lives of the intangible assets
are as below:
1.5 Borrowing Costs
Borrowing costs include interest, other costs incurred in connection
with borrowing and exchange differences arising from foreign currency
borrowings to the extent that they are regarded as an adjustment to the
interest cost. General and specific borrowing costs directly
attributable to the acquisition, construction or production of
qualifying assets, which are assets that necessarily take a substantial
period of time to get ready for their intended use or sale, are added
to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale. All other borrowing
costs are recognised in Statement of Profit and Loss in the period in
which they are incurred.
1.6 Impairment of Assets
Assessment is done at each balance sheet date as to whether there is
any indication that an asset (tangible and intangible) may be impaired.
If any such indication exists, an estimate of the recoverable amount of
the asset/cash generating unit is made. Recoverable amount is higher of
an asset''s or cash generating unit''s net selling price and its value in
use. Value in use is the present value of estimated future cash flows
expected to arise from the continuing use of an asset and from its
disposal at the end of its useful life. For the purpose of assessing
impairment, the recoverable amount is determined for an individual
asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets. The
smallest identifiable group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows from
other assets or groups of assets, is considered as a cash generating
unit (CGU). An asset or CGU whose carrying value exceeds its
recoverable amount is considered impaired and is written down to its
recoverable amount. Assessment is also done at each balance sheet date
as to whether there is any indication that an impairment loss
recognised for an asset in prior accounting periods may no longer exist
or may have decreased. An impairment loss is reversed to the extent
that the asset''s carrying amount does not exceed the carrying amount
that would have been determined if no impairment loss had previously
been recognized.
1.7 Investments
Investments that are readily realisable and are intended to be held for
not more than one year from the date, on which such investments are
made, are classified as current investments. All other investments are
classified as long term investments. Current investments are carried at
cost or fair value, whichever is lower. Long- term investments are
carried at cost. However, provision for diminution is made to recognise
a decline, other than temporary, in the value of long term investments,
such reduction being determined and made for each investment
individually.
Investment Property
Investment in land & buildings that are not intended to be occupied
substantially for use by, or in the operations of the Company, have
been classified as investment property. Investment properties are
carried at cost less accumulated depreciation. Refer note 2.3 for
depreciation rates used for buildings.
1.8 Inventories
Inventories are stated at lower of cost and net realisable value. Cost
is determined using the weighted average method. The cost of finished
goods and work in progress comprises raw materials, direct labour,
other direct costs and related production overheads. Net realizable
value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and the estimated
costs necessary to make the sale.
1.9 Foreign Currency Translations and Derivative Instruments Initial
Recognition
On initial recognition, all foreign currency transactions are recorded
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
Subsequent Recognition
As at the reporting date, non-monetary items which are carried in terms
of historical cost denominated in a foreign currency are reported using
the exchange rate at the date of the transaction. All non-monetary
items which are carried at fair value or other similar valuation
denominated in a foreign currency are reported using the exchange rates
that existed when the values were determined.
All monetary assets and liabilities in foreign currency are restated at
the end of accounting period.
A monetary asset or liability is termed as a long-term foreign currency
monetary item, if the asset or liability is expressed in a foreign
currency and has a term of 12 months or more at the date of origination
of the asset or liability.
Exchange differences on restatement of all other monetary items are
recognised in the Statement of Profit and Loss.
Forward Exchange Contracts
The premium or discount arising at the inception of forward exchange
contracts entered into to hedge an existing asset / liability, is
amortised as expense or income over the life of the contract. Exchange
differences on such a contract are recognised in the Statement of
Profit and Loss in the reporting period in which the exchange rates
change. Any profit or loss arising on cancellation or renewal of such a
forward exchange contract are recognised as income or as expense for
the period.
Derivative Instruments
The Company has early adopted Accounting Standard-30 "Financial
Instruments: Recognition and Measurement" issued by the Institute of
Chartered Accountants of India to the extent the adoption does not
contradict with the accounting standards notified under Section
211(3C)) of the Companies Act, 1956 [Companies (Accounting Standards)
Rules, 2006, as amended] and other regulatory requirements. All
derivative contracts (except for forward foreign exchange contracts
where Accounting Standard 11 - Accounting for the effects of changes in
foreign exchange rates applies) are fair valued at each reporting date.
Accordingly, these contracts are marked to market and corresponding
gain or loss is accounted for in the Statement of Profit and Loss.
1.10 Revenue Recognition Sale of goods
Sales are recognised when the significant risks and rewards of
ownership in the goods are transferred to the buyer as per the terms of
the contract and are recognized net of trade discounts, rebates, sales
taxes and excise duties.
Sale of Services
In contracts involving the rendering of services, revenue is recognised
as per terms of the contracts and are recognised net of service tax.
1.11 Other Income Interest
Interest income is recognised on a time proportion basis taking into
account the amount outstanding and the rate applicable.
Duty Drawback and export incentives
Income from duty drawback and export incentives is recognised on an
accrual basis.
Dividend
Dividend income is recognised when the right to receive dividend is
established.
1.12 Employee Benefits Provident Fund & Employee State Insurance
Contribution towards provident fund and employee state insurance for
employees is made to the regulatory authorities, where the Company has
no further obligations. Such benefits are classified as Defined
Contribution Schemes as the Company does not carry any further
obligations, apart from the contributions made on a monthly basis.
Gratuity
The Company provides for gratuity, a defined benefit plan (the
"Gratuity Plan") covering eligible employees in accordance with the
Payment of Gratuity Act, 1972. The Gratuity Plan provides a lump sum
payment to vested employees at retirement, death, incapacitation or
termination of employment, of an amount based on the respective
employee''s salary and the tenure of employment. The Company funds the
benefits through annual contributions to Life Insurance Corporation of
India (LIC) under its Group''s Gratuity Scheme. The Company''s liability
are actuarially determined (using the Projected Unit Credit method) at
the end of each year. Actuarial losses/ gains are recognised in the
Statement of Profit and Loss in the year in which they arise.
Compensated Absences
Accumulated compensated absences, which are expected to be availed or
encashed within 12 months from the end of the year end are treated as
short term employee benefits. The obligation towards the same is
measured at the expected cost of accumulating compensated absences as
the additional amount expected to be paid as a result of the unused
entitlement as at the year end.
Accumulated compensated absences, which are expected to be availed or
encashed beyond 12 months from the end of the year end are treated as
other long term employee benefits. The Company''s liability are
actuarially determined (using the Projected Unit Credit method) at the
end of each year. Actuarial losses/ gains are recognised in the
Statement of Profit and Loss in the year in which they arise.
1.13 Government Grants
Government grants are recognized when it is reasonable to expect that
the grants will be received and that all related conditions will be
met. Government grants in respect of capital expenditure are credited
to the acquisition costs of the respective fixed asset and thus are
released as income over the expected useful lives of the relevant
assets. Grants of a revenue nature are credited to income so as to
match them with the expenditure to which they relate. Government grants
that are given with reference to total capital outlay are credited to
capital reserve and treated as a part of shareholders'' funds.
1.14 Current and Deferred Tax
Tax expense for the year, comprising current tax and deferred tax, are
included in the determination of the net profit for the year.
Current tax is measured at the amount expected to be paid to the tax
authorities in accordance with the taxation laws prevailing in the
respective jurisdictions.
Deferred tax is recognised for all the timing differences, subject to
the consideration of prudence in respect of deferred tax assets.
Deferred tax assets are recognised and carried forward only to the
extent that there is a reasonable certainty that sufficient future
taxable income will be available against which such deferred tax assets
can be realised. Deferred tax assets and liabilities are measured using
the tax rates and tax laws that have been enacted or substantively
enacted by the Balance Sheet date. In situations, where the Company has
unabsorbed depreciation or carry forward losses under tax laws, all
deferred tax assets are recognised only to the extent that there is
virtual certainty supported by convincing evidence that they can be
realised against future taxable profits. At each Balance Sheet date,
the Company re-assesses unrecognized deferred tax assets, if any.
Current tax assets and current tax liabilities are offset when there is
a legally enforceable right to set off the recognised amounts and there
is an intention to settle the asset and the liability on a net basis.
Deferred tax assets and deferred tax liabilities are offset when there
is a legally enforceable right to set off assets against liabilities
representing current tax and where the deferred tax assets and the
deferred tax liabilities relate to taxes on income levied by the same
governing taxation laws.
1.15 Provisions and Contingent Liabilities Provisions
Provisions are recognised when there is a present obligation as a
result of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation
and there is a reliable estimate of the amount of the obligation.
Provisions are measured at the best estimate of the expenditure
required to settle the present obligation at the Balance sheet date and
are not discounted to its present value.
Contingent Liabilities
Contingent liabilities are disclosed when there is a possible
obligation arising from past events, the existence of which will be
confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the Company or
a present obligation that arises from past events where it is either
not probable that an outflow of resources will be required to settle or
a reliable estimate of the amount cannot be made.
1.16 Leases As a lessee
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the
Statement of Profit and Loss on a straight-line basis over the period
of the lease.
The Company leases certain tangible assets and such leases where the
Company has substantially all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalized at the
inception of the lease at the lower of the fair value of the leased
asset and the present value of the minimum lease payments.
Each lease payment is apportioned between the finance charge and the
reduction of the outstanding liability.
The outstanding liability is included in other long-term borrowings.
The finance charge is charged to the Statement of Profit and Loss over
the lease period so as to produce a constant periodic rate of interest
on the remaining balance of the liability for each period.
As a lessor
The Company has leased certain tangible assets and such leases where
the Company has substantially retained all the risks and rewards of
ownership are classified as operating leases. Lease income on such
operating leases are recognised in the Statement of Profit and Loss on
a straight line basis over the lease term which is representative of
the time pattern in which benefit derived from the use of the leased
asset is diminished. Initial direct costs are recognised as an expense
in the Statement of Profit and Loss in the period in which they are
incurred.
1.17 Segment Reporting
The accounting policies adopted for segment reporting are in conformity
with the accounting policies adopted by the Company. Further,
inter-segment revenue have been accounted for based on the transaction
price agreed to between segments which is primarily market based.
Revenue and expenses have been identified to segments on the basis of
their relationship to the operating activities of the segment. Revenue
and expenses, which relate to the Company as a whole and are not
allocable to segments on a reasonable basis, have been included under
"Unallocated corporate expenses".
1.18 Cash and Cash Equivalents
In the cash flow statement, cash and cash equivalents include cash in
hand, demand deposits with banks, other short term highly liquid
investments with original maturities of three months or less.
1.19 Earnings Per Share (EPS)
Basic earnings per share is calculated by dividing the net profit or
loss for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period. Earnings
considered in ascertaining the Company''s earnings per share is the net
profit for the period after deducting preference dividends and any
attributable tax thereto for the period. The weighted average number of
equity shares outstanding during the period and for all periods
presented is adjusted for events, such as bonus shares, other than the
conversion of potential equity shares, which have changed the number of
equity shares outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period is
adjusted for the effects of all dilutive potential equity shares.
Mar 31, 2015
1.1 Basis of preparation
These financial statements have been prepared in accordance with the
generally accepted accounting principles in India under the historical
cost convention on accrual basis, except for certain tangible assets
which are being carried at revalued amounts. Pursuant to section 133 of
the Companies Act, 2013 read with rule 7 of the Companies (Accounts)
Rules, 2014, till the standard of accounting or any addendum thereto
are prescribed by Central Government in consultation and recommendation
of the National Financial Reporting Authority, the existing accounting
standards notified under the Companies Act, 1956 shall continue to
apply.
Consequently, these financial statements have been prepared to comply
in all material aspects with the accounting standards notified under
Section 211(3C) [Companies (Accounting Standards) Rules, 2006, as
amended] of the Companies Act, 1956 and the other relevant provisions
of the Companies Act, 2013.
All assets and liabilities have been classified as current or
non-current as per the Company''s normal operating cycle and other
criteria set out in the Schedule III to the Companies Act, 2013. Based
on the nature of products and the time between the acquisition of
assets for processing and their realization in cash and cash
equivalents, the Company has ascertained its operating cycle as 12
months for the purpose of current - non-current classification of
assets and liabilities.
2.2 Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in India requires the management to makes
estimates and assumptions that affect the reported amount of asset and
liabilities as at Balance Sheet date, reported amount of revenue and
expenses for the year and disclosures of contingent liabilities as at
the Balance Sheet date. The estimates and assumptions used in the
accompanying financial statement are based upon management''s evaluation
of relevant facts and circumstances as at the date of the financial
statements. Actual results could differ from estimates.
2.3 Tangible Assets
Tangible Assets are stated at acquisition cost, net of accumulated
depreciation and accumulated impairment losses, if any, except tangible
assets of the Component Division of erstwhile Motherson Auto Components
Engineering Limited (MACE) and erstwhile India Nails Manufacturing
Limited (formerly India Nails Manufacturing Private Limited, subsidiary
which has been merged with the Company w.e.f April 1, 2011) which have
been revalued on December 31, 1998 and on March 31, 2005 respectively
and except assets costing less than Rs. 5,000 each charged to expense,
which could otherwise have been included as tangible asset, in
accordance with Accounting Standard 10 -''Accounting for Fixed Assets'',
because the amount is not material.
Revaluation in respect of certain tangible assets of the Component
Division of erstwhile Motherson Auto Components Engineering Limited
(MACE) and erstwhile India Nails Manufacturing Limited (INML) was done
as under:
a) Land at the prevailing market rates as certified by approved
valuation experts as on the date of revaluation.
b) Building, plant and machinery and other assets of MACE at their
replacement values as certified by approved valuation expert.
The cost of self-generated assets comprises of raw material,
components, direct labour, other direct cost and related production
overheads.
Subsequent expenditure related to an item of fixed asset is added to
its book value only if it increases the future benefits from the
existing asset beyond its previously assessed standard of performance.
Items of fixed assets that have been retired from active use and are
held for disposal are stated at the lower of their net book value and
net realisable value and are shown separately in the financial
statements. Any expected loss is recognised immediately in the
Statement of Profit and Loss.
Losses arising from the retirement of and gains or losses arising from
disposal of fixed assets which are carried at cost are recognised in
the Statement of Profit and Loss.
2.4 Intangible Assets
Intangible assets are stated at acquisition cost, net of accumulated
amortization and accumulated impairment losses, if any. Intangible
assets are amortised on a straight line basis over their estimated
useful lives. A rebuttable presumption that the useful life of an
intangible asset will not exceed ten years from the date when the asset
is available for use is considered by the management. The amortisation
period and the amortisation method are reviewed at least at each
financial year end. If the expected useful life of the asset is
significantly different from previous estimates, the amortisation
period is changed accordingly. Gains or losses arising from the
retirement or disposal of an intangible asset are determined as the
difference between the net disposal proceeds and the carrying amount of
the asset and recognized as income or expense in the Statement of
Profit and Loss. The useful life of the intangible assets is as below:
2.5 Borrowing Costs
General and specific borrowing costs directly attributable to the
acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready
for their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale. All other borrowing costs are recognised in
Statement of Profit and Loss in the period in which they are incurred.
2.6 Impairment of Assets
Assessment is done at each Balance Sheet date as to whether there is
any indication that an asset (tangible and intangible) may be impaired.
For the purpose of assessing impairment, the smallest identifiable
group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows from other assets or groups
of assets, is considered as a cash generating unit. If any such
indication exists, an estimate of the recoverable amount of the
asset/cash generating unit is made. Assets whose carrying value exceeds
their recoverable amount are written down to the recoverable amount.
Recoverable amount is higher of an asset''s or cash generating unit''s
net selling price and its value in use. Value in use is the present
value of estimated future cash flows expected to arise from the
continuing use of an asset and from its disposal at the end of its
useful life. Assessment is also done at each Balance Sheet date as to
whether there is any indication that an impairment loss recognised for
an asset in prior accounting periods may no longer exist or may have
decreased.
2.7 Investments
Investments that are readily realisable and are intended to be held for
not more than one year from the date, on which such investments are
made, are classified as current investments. All other investments are
classified as long term investments. Current investments are carried at
cost or fair value, whichever is lower. Long-term investments are
carried at cost. However, provision for diminution is made to recognize
a decline, other than temporary, in the value of the investments, such
reduction being determined and made for each investment individually.
Investment Property
Investment in land & buildings that are not intended to be occupied
substantially for use by, or in the operations of the Company, have
been classified as investment property. Investment properties are
carried at cost less accumulated depreciation. Refer note 2.3 for
depreciation rates used for buildings.
2.8 Inventories
Inventories are stated at lower of cost and net realisable value. Cost
is determined using the weighted average method. The cost of finished
goods and work in progress comprises raw materials, direct labour,
other direct costs and related production overheads. Net realizable
value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and the estimated
costs necessary to make the sale.
2.9 Foreign Currency Translations and Derivative Instruments Initial
Recognition
On initial recognition, all foreign currency transactions are recorded
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the time of the
transaction.
Subsequent Recognition
As at the reporting date, non-monetary items which are carried in terms
of historical cost denominated in a foreign currency are reported using
the exchange rate at the date of the transaction. All non-monetary
items which are carried at fair value or other similar valuation
denominated in a foreign currency are reported using the exchange rates
that existed when the values were determined.
All monetary assets and liabilities in foreign currency are restated at
the end of accounting period.
A monetary asset or liability is termed as a long-term foreign currency
monetary item, if the asset or liability is expressed in a foreign
currency and has a term of 12 months or more at the date of origination
of the asset or liability. Exchange differences on restatement of all
other monetary items are recognised in the Statement of Profit and
Loss. Forward Exchange Contracts
The premium or discount arising at the inception of forward exchange
contracts entered into to hedge an existing asset / liability, is
amortized as expense or income over the life of the contract. Exchange
differences on such a contract are recognized in the Statement of
Profit and Loss in the reporting period in which the exchange rates
change. Any profits or losses arising on cancellation or renewal of
such a forward exchange contract are recognized as income or as expense
for the period.
Derivative Instruments
Effective April 01, 2012, the Company adopted Accounting Standard-30
"Financial Instruments: Recognition and Measurement" issued by The
Institute of Chartered Accountants of India to the extent the adoption
does not contradict with the accounting standards notified under
Section 211(3C) [Companies (Accounting Standards) Rules, 2006, as
amended] of the Companies Act, 1956 and other regulatory requirements.
All derivative contracts (except for forward foreign exchange contracts
where Accounting Standard 11 - Accounting for the effects of changes in
foreign exchange rates applies) are fair valued at each reporting date.
Accordingly, these contracts are marked to market and corresponding
gain or loss is accounted for in the Statement of Profit and Loss.
2.10 Revenue Recognition Sale of goods
Sales are recognised when the significant risks and rewards of
ownership in the goods are transferred to the buyer as per the terms of
the contract and are recognized net of trade discounts, rebates, sales
taxes and excise duties. Sale of Services
In contracts involving the rendering of services, revenue is recognized
as per terms of the contracts.
2.11 Other Income Interest
Interest income is recognised on a time proportion basis taking into
account the amount outstanding and the rate applicable.
Duty Drawback and export incentives
Income from duty drawback and export incentives is recognized on an
accrual basis.
Dividend
Dividend income is recognised when the right to receive dividend is
established.
2.12 Employee Benefits
Provident Fund & Employee State Insurance
Contribution towards provident fund and employee state insurance for
employees is made to the regulatory authorities, where the Company has
no further obligations. Such benefits are classified as Defined
Contribution Schemes as the Company does not carry any further
obligations, apart from the contributions made on a monthly basis.
Gratuity
The Company provides for gratuity, a defined benefit plan (the
"Gratuity Plan") covering eligible employees in accordance with the
Payment of Gratuity Act, 1972. The Gratuity Plan provides a lump sum
payment to vested employees at retirement, death, incapacitation or
termination of employment, of an amount based on the respective
employee''s salary and the tenure of employment. The Company funds the
benefits through annual contributions to Life Insurance Corporation of
India (LIC) under its Group''s Gratuity Scheme. The Company''s liability
are actuarially determined (using the Projected Unit Credit method) at
the end of each year. Actuarial losses/ gains are recognised in the
Statement of Profit and Loss in the year in which they arise.
Compensated Absences
Accumulated compensated absences, which are expected to be availed or
encashed within 12 months from the end of the year end are treated as
short term employee benefits. The obligation towards the same is
measured at the expected cost of accumulating compensated absences as
the additional amount expected to be paid as a result of the unused
entitlement as at the year end.
Accumulated compensated absences, which are expected to be availed or
encashed beyond 12 months from the end of the year end are treated as
other long term employee benefits. The Company''s liability is
actuarially determined (using the Projected Unit Credit method) at the
end of each year. Actuarial losses/ gains are recognised in the
Statement of Profit and Loss in the year in which they arise.
2.13 Government Grants
Government grants are recognized when it is reasonable to expect that
the grants will be received and that all related conditions will be
met. Government grants in respect of capital expenditure are credited
to the acquisition costs of the respective fixed asset and thus are
released as income over the expected useful lives of the relevant
assets. Grants of a revenue nature are credited to income so as to
match them with the expenditure to which they relate. Government
grants that are given with reference to total capital outlay are
credited to capital reserve and treated as a part of shareholders''
funds.
2.14 Current and Deferred Tax
Tax expense for the year, comprising current tax and deferred tax, are
included in the determination of the net profit for the year.
Current tax is measured at the amount expected to be paid to the tax
authorities in accordance with the taxation laws prevailing in the
respective jurisdictions.
Deferred tax is recognised for all the timing differences, subject to
the consideration of prudence in respect of deferred tax assets.
Deferred tax assets are recognised and carried forward only to the
extent that there is a reasonable certainty that sufficient future
taxable income will be available against which such deferred tax assets
can be realised. Deferred tax assets and liabilities are measured using
the tax rates and tax laws that have been enacted or substantively
enacted by the Balance Sheet date. At each Balance Sheet date, the
group reassesses unrecognized deferred tax assets, if any.
Current tax assets and current tax liabilities are offset when there is
a legally enforceable right to set off the recognised amounts and there
is an intention to settle the asset and the liability on a net basis.
Deferred tax assets and deferred tax liabilities are offset when there
is a legally enforceable right to set off assets against liabilities
representing current tax and where the deferred tax assets and the
deferred tax liabilities relate to taxes on income levied by the same
governing taxation laws.
2.15 Provisions and Contingent Liabilities Provisions
Provisions are recognised when there is a present obligation as a
result of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation
and there is a reliable estimate of the amount of the obligation.
Provisions are measured at the best estimate of the expenditure
required to settle the present obligation at the Balance sheet date and
are not discounted to its present value.
Contingent Liabilities
Contingent liabilities are disclosed when there is a possible
obligation arising from past events, the existence of which will be
confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the Company or
a present obligation that arises from past events where it is either
not probable that an outflow of resources will be required to settle or
a reliable estimate of the amount cannot be made.
2.16 Leases
As a lessee
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the
Statement of Profit and Loss on a straight-line basis over the period
of the lease.
The Company leases certain tangible assets and such leases where the
Company has substantially all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalized at the
inception of the lease at the lower of the fair value of the leased
asset and the present value of the minimum lease payments.
Each lease payment is apportioned between the finance charge and the
reduction of the outstanding liability. The outstanding liability is
included in other long-term borrowings. The finance charge is charged
to the Statement of Profit and Loss over the lease period so as to
produce a constant periodic rate of interest on the remaining balance
of the liability for each period.
As a lessor
The Company has leased certain tangible assets and such leases where
the Company has substantially retained all the risks and rewards of
ownership are classified as operating leases. Lease income on such
operating leases are recognised in the Statement of Profit and Loss on
a straight line basis over the lease term which is representative of
the time pattern in which benefit derived from the use of the leased
asset is diminished. Initial direct costs are recognized as an expense
in the Statement of Profit and Loss in the period in which they are
incurred.
2.17 Segment Reporting
The accounting policies adopted for segment reporting are in conformity
with the accounting policies adopted by the Company. Further,
inter-segment revenue have been accounted for based on the transaction
price agreed to between segments which is primarily market based.
Revenue and expenses have been identified to segments on the basis of
their relationship to the operating activities of the segment. Revenue
and expenses, which relate to the Company as a whole and are not
allocable to segments on a reasonable basis, have been included under
"Unallocated corporate expenses".
2.18 Cash and Cash Equivalents
In the cash flow statement, cash and cash equivalents include cash in
hand, demand deposits with banks, other short term highly liquid
investments with original maturities of three months or less.
2.19 Earnings Per Share (EPS)
Basic earnings per share is calculated by dividing the net profit or
loss for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period. Earnings
considered in ascertaining the Company''s earnings per share is the net
profit for the period after deducting preference dividends and any
attributable tax thereto for the period. The weighted average number of
equity shares outstanding during the period and for all periods
presented is adjusted for events, such as bonus shares, other than the
conversion of potential equity shares, which have changed the number of
equity shares outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period is
adjusted for the effects of all dilutive potential equity shares.
3. Share Capital
b. Rights, preferences and restrictions attached to Shares
Equity Shares : The Company currently has only one class of equity
shares having a par value of Re 1/- per share. Each shareholder is
eligible to one vote per share held. The Company declares and pays
dividends in Indian rupees. The dividend, if proposed by the Board of
Directors, is subject to the approval of the shareholders in the Annual
General Meeting, except in case of interim dividend.
In the event of liquidation of the Company, the equity shareholders are
eligible to receive the remaining assets of the Company, after
distribution of all preferential amounts. The distribution will be in
proportion to the number of equity shares held by the shareholders.
A) Defined Contribution Schemes
The Company deposits an amount determined at a fixed percentage of
basic pay every month to the State administered Provident Fund and
Employee State Insurance authority (ESI) for the benefit of the
employees.
(B) Defined Benefit Schemes
(1) Gratuity: The Company operates a gratuity plan administered through
Life Insurance Corporation of India (LIC) under its Group Gratuity
Scheme. Every employee is entitled to a benefit equivalent to fifteen
days'' salary last drawn for each completed year of service in line with
the Payment of Gratuity Act, 1972. The same is payable at the time of
separation from the Company or retirement, whichever is earlier. The
benefits vest after five years of continuous service. The Company pays
contribution to Life Insurance Corporation of India to fund its plan.
(2) Compensated Absences
The employees are entitled for leave for each year of service and part
thereof and subject to the limits specified, the un- availed portion of
such leaves can be accumulated or encashed during/ at the end of the
service period. The plan is not funded.
The reconciliation of opening and closing balances of the present value
of the defined benefit obligations are as below:
Mar 31, 2014
1.1 Basis of preparation
These fi nancial statements have been prepared in accordance with the
generally accepted accounting principles in India under the historical
cost convention on accrual basis, except for certain tangible assets
which are being carried at revalued amounts. Pursuant to circular
15/2013 dated 13.09.2013 read with circular 08/2014 dated 04.04.2014
till the standards of accounting or any addendum thereto are prescribed
by the Central Government in consultation and recommendation of
National Financial Reporting Authority, the existing accounting
standards notified under the Companies Act, 1956 shall continue to
apply. Consequently, these financial statements have been prepared to
comply in all material aspects with the accounting standards notifi ed
under section 211 (3C) [Companies (Accounting Standards) Rules, 2006,
as amended] and other relevant provisions of the Companies Act, 1956.
All assets and liabilities have been classified as current or
non-current as per the Company''s normal operating cycle and other
criteria set out in the Schedule VI to the Companies Act, 1956. Based
on the nature of products and the time between the acquisition of
assets for processing and their realization in cash and cash
equivalents, the Company has ascertained its operating cycle as 12
months for the purpose of current and non-current classification of
assets and liabilities.
2.2 Tangible Assets
Tangible Assets are stated at acquisition cost, net of accumulated
depreciation and accumulated impairment losses, if any, except tangible
assets of the Component Division of erstwhile Motherson Auto Components
Engineering Limited (MACE) and erstwhile India Nails Manufacturing
Limited (formerly India Nails Manufacturing Private Limited, subsidiary
which has been merged with the Company w.e.f April 1, 2011) which have
been revalued on December 31, 1998 and on March 31, 2005 respectively
and except assets costing less than Rs. 5,000 each charged to expense,
which could otherwise have been included as tangible asset, in
accordance with Accounting Standard 10 -''Accounting for Fixed Assets'',
because the amount is not material.
Revaluation in respect of certain tangible assets of the Component
Division of erstwhile Motherson Auto Components Engineering Limited
(MACE) and erstwhile India Nails Manufacturing Limited (INML) was done
as under:
a) Land at the prevailing market rates as certifi ed by approved
valuation experts as on the date of revaluation.
b) Building, plant and machinery and other assets of MACE at their
replacement values as certified by approved valuation expert
The cost of self-generated assets comprises of raw material,
components, direct labour, other direct cost and related production
overheads.
Subsequent expenditure related to an item of fi xed asset is added to
its book value only if it increases the future benefi ts from the
existing asset beyond its previously assessed standard of performance.
Items of fi xed assets that have been retired from active use and are
held for disposal are stated at the lower of their net book value and
net realisable value and are shown separately in the fi nancial
statements. Any expected loss is recognised immediately in the
Statement of Profit and Loss.
Losses arising from the retirement of, and gains or losses arising from
disposal of fi xed assets which are carried at cost are recognised in
the Statement of Profit and Loss.
Depreciation is provided on a pro-rata basis on the straight-line
method over the estimated useful lives of the assets or the rates
prescribed under Schedule XIV to the Companies Act, 1956, whichever is
higher, as follows:
2.3 Intangible Assets
Intangible Assets are stated at acquisition cost, net of accumulated
amortization and accumulated impairment losses, if any. Intangible
assets are amortised on a straight line basis over their estimated
useful lives. A rebuttable presumption that the useful life of an
intangible asset will not exceed ten years from the date when the asset
is available for use is considered by the management. The amortisation
period and the amortisation method are reviewed at least at each fi
nancial year end. If the expected useful life of the asset is signifi
cantly different from previous estimates, the amortisation period is
changed accordingly. Gains or losses arising from the retirement or
disposal of an intangible asset are determined as the difference
between the net disposal proceeds and the carrying amount of the asset
and recognized as income or expense in the Statement of Profit and
Loss. The amortization rates used are:
2.4 Borrowing Costs
General and specifi c borrowing costs directly attributable to the
acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready
for their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale. All other borrowing costs are recognised in
Statement of Profit and Loss in the period in which they are incurred.
2.5 Impairment of Assets
Assessment is done at each Balance Sheet date as to whether there is
any indication that an asset (tangible and intangible) may be impaired.
For the purpose of assessing impairment, the smallest identifi able
group of assets that generates cash infl ows from continuing use that
are largely independent of the cash infl ows from other assets or
groups of assets, is considered as a cash generating unit. If any such
indication exists, an estimate of the recoverable amount of the asset/
cash generating unit is made. Assets whose carrying value exceeds their
recoverable amount are written down to the recoverable amount.
Recoverable amount is higher of an asset''s or cash generating unit''s
net selling price and its value in use. Value in use is the present
value of estimated future cash fl ows expected to arise from the
continuing use of an asset and from its disposal at the end of its
useful life. Assessment is also done at each Balance Sheet date as to
whether there is any indication that an impairment loss recognised for
an asset in prior accounting periods may no longer exist or may have
decreased.
2.6 Investments
Investments that are readily realisable and are intended to be held for
not more than one year from the date, on which such investments are
made, are classifi ed as current investments. All other investments are
classifi ed as long term investments. Current investments are carried
at cost or fair value, whichever is lower. Long-term investments are
carried at cost. However, provision for diminution is made to recognize
a decline, other than temporary, in the value of the investments, such
reduction being determined and made for each investment individually.
Investment Property
Investment in Land & Buildings that are not intended to be occupied
immediately for use by, or in the operations of the Company, have been
classifi ed as investment property. Investment properties are carried
at cost less accumulated depreciation. Refer note 2.2 for depreciation
rates used for buildings.
2.7 Inventories
Inventories are stated at lower of cost and net realisable value. Cost
is determined using the fi rst-in, fi rst-out (FIFO) method. The cost
of fi nished goods and work in progress comprises raw materials,
components, direct labour, other direct costs and related production
overheads. Net realizable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and
the estimated costs necessary to make the sale.
2.8 Foreign Currency Translations and Derivative Instruments
Initial Recognition
On initial recognition, all foreign currency transactions are recorded
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
Subsequent Recognition
As at the reporting date, non-monetary items which are carried in terms
of historical cost denominated in a foreign currency are reported using
the exchange rate at the date of the transaction. All non-monetary
items which are carried at fair value or other similar valuation
denominated in a foreign currency are reported using the exchange rates
that existed when the values were determined.
All monetary assets and liabilities in foreign currency are restated at
the end of accounting period.
A monetary asset or liability is termed as a long-term foreign currency
monetary item, if the asset or liability is expressed in a foreign
currency and has a term of 12 months or more at the date of origination
of the asset or liability.
Exchange differences on restatement of all other monetary items are
recognised in the Statement of Profit and Loss.
Forward Exchange Contracts
In the case of forward foreign exchange contracts where an underlying
assets or liability exists, the difference between the forward rate and
the exchange rate at the inception of the contract is recognized as
income or expense over the life of the contracts. Profit and loss
arising on cancellation or renewal of a forward contract is recognized
as income or expense in the year in which such cancellation or renewal
is made.
Derivative Instruments
Effective April 01, 2012, the Company adopted Accounting Standard-30
"Financial Instruments: Recognition and Measurement" issued by The
Institute of Chartered Accountants of India to the extent the adoption
does not contradict with the accounting standards notifi ed under
section 211 (3C) of the Companies Act, 1956 and other regulatory
requirements. All derivative contracts (except for forward foreign
exchange contracts where Accounting Standard 11 Â Accounting for the
effects of changes in foreign exchange rates applies) are fair valued
at each reporting date.
Accordingly, these contracts are marked to market and corresponding
gain or loss is accounted for in the Statement of Profit and Loss.
2.9 Revenue Recognition
Sale of goods
Sales are recognised when the substantial risks and rewards of
ownership in the goods are transferred to the buyer as per the terms of
the contract and are recognized net of trade discounts, rebates, sales
taxes and excise duties.
Sale of Services
In contracts involving the rendering of services, revenue is recognized
once the related services are completed as per the terms of the
Contract.
2.10 Other Income Interest
Interest income is recognised on a time proportion basis taking into
account the amount outstanding and the rate applicable. Income from
duty drawback and export incentives is recognized on an accrual basis.
Dividend
Dividend income is recognised when the right to receive dividend is
established.
2.11 Employee Benefits
Provident Fund & Employee State Insurance
Contribution towards provident fund and employee state insurance for
employees is made to the regulatory authorities, where the Company has
no further obligations. Such benefi ts are classifi ed as Defi ned
Contribution Schemes as the Company does not carry any further
obligations, apart from the contributions made on a monthly basis.
Gratuity
The Company provides for gratuity, a defined benefit plan (the
"Gratuity Plan") covering eligible employees in accordance with the
Payment of Gratuity Act, 1972. The Gratuity Plan provides a lump sum
payment to vested employees at retirement, death, incapacitation or
termination of employment, of an amount based on the respective
employee''s salary and the tenure of employment. The Company funds the
benefi ts through annual contributions to Life Insurance Corporation of
India (LIC) under its Group''s Gratuity Scheme. The Company''s liability
are actuarially determined (using the Projected Unit Credit method) at
the end of each year. Actuarial losses/ gains are recognised in the
Statement of Profit and Loss in the year in which they arise.
Compensated Absences
Accumulated compensated absences, which are expected to be availed or
encashed within 12 months from the end of the year end are treated as
short term employee benefi ts. The obligation towards the same is
measured at the expected cost of accumulating compensated absences as
the additional amount expected to be paid as a result of the unused
entitlement as at the year end.
Accumulated compensated absences, which are expected to be availed or
encashed beyond 12 months from the end of the year end are treated as
other long term employee benefi ts. The Company''s liability is
actuarially determined (using the Projected Unit Credit method) at the
end of each year. Actuarial losses/ gains are recognised in the
Statement of Profit and Loss in the year in which they arise.
2.12 Government grants
Government grants are recognized when it is reasonable to expect that
the grants will be received and that all related conditions will be
met. Government grants in respect of capital expenditure are credited
to the acquisition costs of the respective fi xed asset and thus are
released as income over the expected useful lives of the relevant
assets. Grants of a revenue nature are credited to income so as to
match them with the expenditure to which they relate. Government grants
that are given with reference to total capital outlay are credited to
capital reserve and treated as a part of shareholders'' funds.
2.13 Current and Deferred tax
Tax expense for the year, comprising current tax and deferred tax, are
included in the determination of the net Profit or loss for the year.
Current tax is measured at the amount expected to be paid to the tax
authorities in accordance with the taxation laws prevailing in the
respective jurisdictions.
Deferred tax is recognised for all the timing differences, subject to
the consideration of prudence in respect of deferred tax assets.
Deferred tax assets are recognised and carried forward only to the
extent that there is a reasonable certainty that suffi cient future
taxable income will be available against which such deferred tax assets
can be realised. Deferred tax assets and liabilities are measured using
the tax rates and tax laws that have been enacted or substantively
enacted by the Balance Sheet date. At each Balance Sheet date, the
group reassesses unrecognized deferred tax assets, if any.
Current tax assets and current tax liabilities are offset when there is
a legally enforceable right to set off the recognised amounts and there
is an intention to settle the asset and the liability on a net basis.
Deferred tax assets and deferred tax liabilities are offset when there
is a legally enforceable right to set off assets against liabilities
representing current tax and where the deferred tax assets and the
deferred tax liabilities relate to taxes on income levied by the same
governing taxation laws.
Minimum Alternative Tax credit is recognised as an asset only when and
to the extent there is convincing evidence that the company will pay
normal income tax during the specifi ed period. Such asset is reviewed
at each Balance Sheet date and the carrying amount of the MAT credit
asset is written down to the extent there is no longer a convincing
evidence to the effect that the Company will pay normal income tax
during the specifi ed period.
2.14 Provisions and Contingent Liabilities
Provisions
Provisions are recognised when there is a present obligation as a
result of a past event, it is probable that an outfl ow of resources
embodying economic benefi ts will be required to settle the obligation
and there is a reliable estimate of the amount of the obligation.
Provisions are measured at the best estimate of the expenditure
required to settle the present obligation at the Balance sheet date and
are not discounted to its present value.
Contingent Liabilities
Contingent liabilities are disclosed when there is a possible
obligation arising from past events, the existence of which will be
confi rmed 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 outfl ow of resources will be required to settle
or a reliable estimate of the amount cannot be made.
2.15 Leases
As a lessee
Leases in which a Significant portion of the risks and rewards of
ownership are retained by the lessor are classifi ed as operating
leases. Payments made under operating leases are charged to the
Statement of Profit and Loss on a straight-line basis over the period
of the lease.
The Company leases certain tangible assets and such leases where the
Company has substantially all the risks and rewards of ownership are
classifi ed as fi nance leases. Finance leases are capitalized at the
inception of the lease at the lower of the fair value of the leased
asset and the present value of the minimum lease payments.
Each lease payment is apportioned between the finance charge and the
reduction of the outstanding liability. The outstanding liability is
included in other long-term borrowings. The finance charge is charged
to the Statement of Profit and Loss over the lease period so as to
produce a constant periodic rate of interest on the remaining balance
of the liability for each period.
As a lessor
The Company has leased certain tangible assets and such leases where
the Company has substantially retained all the risks and rewards of
ownership are classifi ed as operating leases. Lease income on such
operating leases are recognised in the Statement of Profit and Loss on
a straight line basis over the lease term which is representative of
the time pattern in which benefi t derived from the use of the leased
asset is diminished. Initial direct costs are recognized as an expense
in the Statement of Profit and Loss in the period in which they are
incurred.
2.16 Segment Reporting
The accounting policies adopted for segment reporting are in conformity
with the accounting policies adopted for the Company. Further,
inter-segment revenue have been accounted for based on the transaction
price agreed to between segments which is primarily market based.
Revenue and expenses have been identified to segments on the basis of
their relationship to the operating activities of the segment. Revenue
and expenses, which relate to the Company as a whole and are not
allocable to segments on a reasonable basis, have been included under
"Unallocated corporate expenses".
2.17 Cash and Cash Equivalents
In the cash flow statement, cash and cash equivalents include cash in
hand, demand deposits with banks, other short term highly liquid
investments with original maturities of three months or less.
2.18 Earnings Per Share (EPS)
Basic earnings per share is calculated by dividing the net Profit or
loss for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period. Earnings
considered in ascertaining the Company''s earnings per share is the net
Profit for the period after deducting preference dividends and any
attributable tax thereto for the period. The weighted average number of
equity shares outstanding during the period and for all periods
presented is adjusted for events, such as bonus shares, other than the
conversion of potential equity shares, which have changed the number of
equity shares outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earnings per share, the net
Profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period is
adjusted for the effects of all dilutive potential equity shares.
A) Defi ned Contribution Schemes
The Company deposits an amount determined at a fixed percentage of
basic pay every month to the State administered Provident Fund and
Employee State Insurance (ESI) for the benefit of the employees.
(B) Defi ned Benefi t Schemes
(1) Gratuity: The Company operates a gratuity plan administered through
Life Insurance Corporation of India (LIC) under its Group Gratuity
Scheme. Every employee is entitled to a benefit equivalent to fifteen
days'' salary last drawn for each completed year of service in line with
the Payment of Gratuity Act, 1972. The same is payable at the time of
separation from the Company or retirement, whichever is earlier. The
benefi ts vest after fi ve years of continuous service. The Company
pays contribution to Life Insurance Corporation of India to fund its
plan.
(2) Compensated Absences
The employees are entitled for leave for each year of service and part
thereof and subject to the limits specified, the un-availed portion of
such leaves can be accumulated or encashed during/ at the end of the
service period. The plan is not funded.
Mar 31, 2013
1.1 Basis of preparation
These financial statements have been prepared in accordance with the
generally accepted accounting principles in India under the historical
cost convention on accrual basis, except for certain tangible assets
which are being carried at revalued amounts. These financial statements
have been prepared to comply in all material aspects with the
accounting standards notified under Section 211(3C) [Companies
(Accounting Standards) Rules, 2006, as amended] and the other relevant
provisions of the Companies Act, 1956.
All assets and liabilities have been classified as current or
non-current as per the Company''s normal operating cycle and other
criteria set out in the Schedule VI to the Companies Act, 1956. Based
on the nature of products and the time between the acquisition of
assets for processing and their realization in cash and cash
equivalents, the Company has ascertained its operating cycle as 12
months for the purpose of current - non-current classification of
assets and liabilities.
1.2 Early adoption of Accounting Standard 30 from this year
During the year, the Company has adopted the principles of Accounting
Standard 30, Financial Instruments: Measurement and Recognition, in
respect of accounting for derivative contracts at fair value in the
Statement of Profit and Loss to the extent they do not conflict with
the requirements of the existing accounting standards notified under
u/s 211(3C) of the Companies Act, 1956 and/ or other regulatory
requirements.
Consequently, in respect of the various swap contracts entered by the
Company to hedge its liability in respect of outstanding foreign
currency loans, the Company has decided during the year to discontinue
with the existing policy of recognising the foreign currency loan at
the swap rate and change the policy to account for the exchange
differences on foreign currency loan under Accounting Standard 11 and
Mark to Market (MTM) the swap contracts in accordance with Accounting
Standard 30, Financial Instruments: Measurement and Recognition, which
allows recognition of both mark to market gain and losses.
Had the Company followed the accounting policy, hitherto followed in
relation to loan and swap contracts, profit before tax for the year
ended March 31, 2013, current assets and consequently the balance in
the profit and loss account as at March 31, 2013 would have been lower
by Rs.49 Mn.
1.3 Tangible Assets
Tangible Assets are stated at acquisition cost, net of accumulated
depreciation and accumulated impairment losses, if any, except tangible
assets of the Component Division of erstwhile Motherson Auto Components
Engineering Limited (MACE) and erstwhile India Nails Manufacturing
Limited (formerly India Nails Manufacturing Private Limited, subsidiary
which has been merged with the Company w.e.f April 1, 2011) which have
been revalued on December 31, 1998 and on March 31, 2005 respectively
and except assets costing less than Rs. 5,000 each charged to expense,
which could otherwise have been included as tangible asset, in
accordance with Accounting Standard 10 -''Accounting for Fixed Assets'',
because the amount is not material.
Revaluation in respect of certain tangible assets of the Component
Division of erstwhile Motherson Auto Components Engineering Limited
(MACE) and erstwhile India Nails Manufacturing Limited (INML) was done
as under:
a) Land at the prevailing market rates as certified by approved
valuation experts as on the date of revaluation.
b) Building ,plant and machinery and other assets of MACE at their
replacement values as certified by approved valuation expert
Subsequent expenditure related to an item of fixed asset is added to
its book value only if it increases the future benefits from the
existing asset beyond its previously assessed standard of performance.
Items of fixed assets that have been retired from active use and are
held for disposal are stated at the lower of their net book value and
net realisable value and are shown separately in the financial
statements.
Any expected loss is recognised immediately in the Statement of Profit
and Loss.
Losses arising from the retirement of, and gains or losses arising from
disposal of fixed assets which are carried at cost are recognised in
the Statement of Profit and Loss.
Depreciation is provided on a pro-rata basis on the straight-line
method over the estimated useful lives of the assets or the rates
prescribed under Schedule XIV to the Companies Act, 1956, whichever is
higher, as follows:
1.4 Intangible Assets
Intangible Assets are stated at acquisition cost, net of accumulated
amortization and accumulated impairment losses, if any. Intangible
assets are amortised on a straight line basis over their estimated
useful lives. A rebuttable presumption that the useful life of an
intangible asset will not exceed ten years from the date when the asset
is available for use is considered by the management. The amortisation
period and the amortisation method are reviewed at least at each
financial year end. If the expected useful life of the asset is
significantly different from previous estimates, the amortisation
period is changed accordingly. Gains or losses arising from the
retirement or disposal of an intangible asset are determined as the
difference between the net disposal proceeds and the carrying amount of
the asset and recognized as income or expense in the Statement of
Profit and Loss. The amortization rates used are:
1.5 Borrowing Costs
General and specific borrowing costs directly attributable to the
acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready
for their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale. All other borrowing costs are recognised in
Statement of Profit and Loss in the period in which they are incurred
1.6 Impairment of Assets
Assessment is done at each Balance Sheet date as to whether there is
any indication that an asset (tangible and intangible) may be impaired.
For the purpose of assessing impairment, the smallest identifiable
group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows from other assets or groups
of assets, is considered as a cash generating unit. If any such
indication exists, an estimate of the recoverable amount of the
asset/cash generating unit is made. Assets whose carrying value exceeds
their recoverable amount are written down to the recoverable amount.
Recoverable amount is higher of an asset''s or cash generating unit''s
net selling price and its value in use. Value in use is the present
value of estimated future cash flows expected to arise from the
continuing use of an asset and from its disposal at the end of its
useful life. Assessment is also done at each Balance Sheet date as to
whether there is any indication that an impairment loss recognised for
an asset in prior accounting periods may no longer exist or may have
decreased.
1.7 Investments
Investments that are readily realisable and are intended to be held for
not more than one year from the date, on which such investments are
made, are classified as current investments. All other investments are
classified as long term investments. Current investments are carried at
cost or fair value, whichever is lower. Long-term investments are
carried at cost. However, provision for diminution is made to recognise
a decline, other than temporary, in the value of the investments, such
reduction being determined and made for each investment individually.
Investment Property
Investment in Land & Buildings that are not intended to be occupied
immediately for use by, or in the operations of the Company, have been
classified as investment property. Investment properties are carried at
cost less accumulated depreciation. Refer note 2.3 for depreciation
rates used for buildings.
1.8 Inventories
Inventories are stated at lower of cost and net realisable value. Cost
is determined using the first-in, first-out (FIFO) method. The cost of
finished goods and work in progress comprises raw materials,
components, direct labour, other direct costs and related production
overheads. Net realizable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and
the estimated costs necessary to make the sale. Tools are valued at
cost less amortization based on useful life of the items ascertained on
a technical estimate by the management.
1.9 Foreign Exchange Transactions Initial Recognition
On initial recognition, all foreign currency transactions are recorded
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
Subsequent Recognition
As at the reporting date, non-monetary items which are carried in terms
of historical cost denominated in a foreign currency are reported using
the exchange rate at the date of the transaction. All non-monetary
items which are carried at fair value or other similar valuation
denominated in a foreign currency are reported using the exchange rates
that existed when the values were determined.
All monetary assets and liabilities in foreign currency are restated at
the end of accounting period.
A monetary asset or liability is termed as a long-term foreign currency
monetary item, if the asset or liability is expressed in a foreign
currency and has a term of 12 months or more at the date of origination
of the asset or liability.
Exchange differences on restatement of all other monetary items are
recognised in the Statement of Profit and Loss.
Forward Exchange Contracts
The premium or discount arising at the inception of forward exchange
contracts entered into to hedge an existing asset/liability, is
amortised as expense or income over the life of the contract. Exchange
differences on such a contract are recognised in the Statement of
Profit and Loss in the reporting period in which the exchange rates
change. Any profits or losses arising on cancellation or renewal of
such a forward exchange contract are recognised as income or as expense
for the period.
1.10 Derivative Transactions
The Company has adopted the principles of Accounting Standard 30,
Financial Instruments: Measurement and Recognition, in respect of
accounting for derivative contracts at fair value in the Statement of
Profit and Loss to the extent they do not conflict with the
requirements of the existing accounting standards notified under
section 211(3C) of the Companies Act, 1956 and/or other regulatory
requirements. Accordingly, these contracts are marked to market and
corresponding gain or loss is accounted for in the Statement of Profit
and Loss.
1.11 Revenue Recognition Sale of goods
Sales are recognised when the substantial risks and rewards of
ownership in the goods are transferred to the buyer as per the terms of
the contract and are recognized net of trade discounts, rebates, sales
taxes and excise duties.
Sale of Services
In contracts involving the rendering of services, revenue is measured
using the proportionate completion method and are recognised net of
service tax.
1.12 Other Income Interest
Interest income is recognised on a time proportion basis taking into
account the amount outstanding and the rate applicable. Income from
duty drawback and premium of sale of import licences is recognized on
an accrual basis.
Dividend
Dividend income is recognised when the right to receive dividend is
established.
1.13 Employee Benefits
Provident Fund & Employee State Insurance
Contribution towards provident fund and employee state insurance for
employees is made to the regulatory authorities, where the Company has
no further obligations. Such benefits are classified as Defined
Contribution Schemes as the Company does not carry any further
obligations, apart from the contributions made on a monthly basis.
Gratuity
The Company provides for gratuity, a defined benefit plan (the
"Gratuity Plan") covering eligible employees in accordance with the
Payment of Gratuity Act, 1972. The Gratuity Plan provides a lump sum
payment to vested employees at retirement, death, incapacitation or
termination of employment, of an amount based on the respective
employee''s salary and the tenure of employment. The Company funds the
benefits through annual contributions to Life Insurance Corporation of
India (LIC) under its Group''s Gratuity Scheme. The Company''s liability
are actuarially determined (using the Projected Unit Credit method) at
the end of each year. Actuarial losses/ gains are recognised in the
Statement of Profit and Loss in the year in which they arise.
Compensated Absences
Accumulated compensated absences, which are expected to be availed or
encashed within 12 months from the end of the year end are treated as
short term employee benefits. The obligation towards the same is
measured at the expected cost of accumulating compensated absences as
the additional amount expected to be paid as a result of the unused
entitlement as at the year end.
Accumulated compensated absences, which are expected to be availed or
encashed beyond 12 months from the end of the year end are treated as
other long term employee benefits. The Company''s liability is
actuarially determined (using the Projected Unit Credit method) at the
end of each year. Actuarial losses/ gains are recognised in the
Statement of Profit and Loss in the year in which they arise.
1.14 Government grants
Government grants are recognized when it is reasonable to expect that
the grants will be received and that all related conditions will be
met. Government grants in respect of capital expenditure are credited
to the acquisition costs of the respective fixed asset and thus are
released as income over the expected useful lives of the relevant
assets. Grants of a revenue nature are credited to income so as to
match them with the expenditure to which they relate. Government grants
that are given with reference to total capital outlay are credited to
capital reserve and treated as a part of shareholders'' funds.
1.15 Current and Deferred tax
Tax expense for the period, comprising current tax and deferred tax,
are included in the determination of the net profit or loss for the
period.
Current tax is measured at the amount expected to be paid to the tax
authorities in accordance with the taxation laws prevailing in the
respective jurisdictions.
Deferred tax is recognised for all the timing differences, subject to
the consideration of prudence in respect of deferred tax assets.
Deferred tax assets are recognised and carried forward only to the
extent that there is a reasonable certainty that sufficient future
taxable income will be available against which such deferred tax assets
can be realised. Deferred tax assets and liabilities are measured using
the tax rates and tax laws that have been enacted or substantively
enacted by the Balance Sheet date. At each Balance Sheet date, the
group reassesses unrecognised deferred tax assets, if any.
Current tax assets and current tax liabilities are offset when there is
a legally enforceable right to set off the recognised amounts and there
is an intention to settle the asset and the liability on a net basis.
Deferred tax assets and deferred tax liabilities are offset when there
is a legally enforceable right to set off assets against liabilities
representing current tax and where the deferred tax assets and the
deferred tax liabilities relate to taxes on income levied by the same
governing taxation laws.
Minimum Alternative Tax credit is recognised as an asset only when and
to the extent there is convincing evidence that the company will pay
normal income tax during the specified period. Such asset is reviewed
at each Balance Sheet date and the carrying amount of the MAT credit
asset is written down to the extent there is no longer a convincing
evidence to the effect that the Company will pay normal income tax
during the specified period.
1.16 Provisions and Contingent Liabilities Provisions
Provisions are recognised when there is a present obligation as a
result of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation
and there is a reliable estimate of the amount of the obligation.
Provisions are measured at the best estimate of the expenditure
required to settle the present obligation at the Balance sheet date and
are not discounted to its present value.
Contingent Liabilities
Contingent liabilities are disclosed when there is a possible
obligation arising from past events, the existence of which will be
confirmed only by the occurrence or non occurrence of one or more
uncertain future events not wholly within the control of the Company or
a present obligation that arises from past events where it is either
not probable that an outflow of resources will be required to settle or
a reliable estimate of the amount cannot be made, is termed as a
contingent liability.
1.17 Leases
As a lessee
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the
Statement of Profit and Loss on a straight-line basis over the period
of the lease.
The Company leases certain tangible assets and such leases where the
Company has substantially all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalised at the
inception of the lease at the lower of the fair value of the leased
asset and the present value of the minimum lease payments.
Each lease payment is apportioned between the finance charge and the
reduction of the outstanding liability. The outstanding liability is
included in other long-term borrowings. The finance charge is charged
to the Statement of Profit and Loss over the lease period so as to
produce a constant periodic rate of interest on the remaining balance
of the liability for each period.
As a lessor
The Company has leased certain tangible assets and such leases where
the Company has substantially retained all the risks and rewards of
ownership are classified as operating leases. Lease income on such
operating leases are recognised in the Statement of Profit and Loss on
a straight line basis over the lease term which is representative of
the time pattern in which benefit derived from the use of the leased
asset is diminished. Initial direct costs are recognized as an expense
in the Statement of Profit and Loss in the period in which they are
incurred.
1.18 Segment Reporting
The accounting policies adopted for segment reporting are in conformity
with the accounting policies adopted for the Company. Further,
inter-segment revenue have been accounted for based on the transaction
price agreed to between segments which is primarily market based.
Revenue and expenses have been identified to segments on the basis of
their relationship to the operating activities of the segment. Revenue
and expenses, which relate to the Company as a whole and are not
allocable to segments on a reasonable basis, have been included under
"Unallocated corporate expenses".
1.19 Cash and Cash Equivalents
In the cash flow statement, cash and cash equivalents include cash in
hand, demand deposits with banks, other short term highly liquid
investments with original maturities of three months or less.
1.20 Earnings Per Share (EPS)
Basic earnings per share is calculated by dividing the net profit or
loss for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period. Earnings
considered in ascertaining the Company''s earnings per share is the net
profit for the period after deducting preference dividends and any
attributable tax thereto for the period. The weighted average number of
equity shares outstanding during the period and for all periods
presented is adjusted for events, such as bonus shares, other than the
conversion of potential equity shares, which have changed the number of
equity shares outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period is
adjusted for the effects of all dilutive potential equity shares.
Mar 31, 2012
1.1 Basis of preparation
These financial statements have been prepared in accordance with the
generally accepted accounting principles in India under the historical
cost convention on accrual basis, except for certain tangible assets
which are being carried at revalued amounts. These financial statements
have been prepared to comply in all material aspects with the
accounting standards notified under Section 211(3C) [Companies
(Accounting Standards) Rules, 2006, as amended] and the other relevant
provisions of the Companies Act, 1956.
All assets and liabilities have been classified as current or
non-current as per the Company's normal operating cycle and other
criteria set out in the Schedule VI to the Companies Act, 1956. Based
on the nature of products and the time between the acquisition of
assets for processing and their realization in cash and cash
equivalents, the Company has ascertained its operating cycle as 12
months for the purpose of current - non-current classification of
assets and liabilities.
1.2 Tangible Assets
Tangible Assets are stated at acquisition cost, net of accumulated
depreciation and accumulated impairment losses, if any, except tangible
assets of the Component Division of erstwhile Motherson Auto Components
Engineering Limited (MACE) and erstwhile India Nails Manufacturing
Limited (formerly India Nails Manufacturing Private Limited, subsidiary
which has been merged with the Company w.e.f April 1, 2011) which have
been revalued on December 31, 1998 and on March 31, 2005 respectively
and except assets costing less than Rs. 5,000 each charged to expense,
which could otherwise have been included as tangible asset, in
accordance with Accounting Standard 10 -'Accounting for Fixed Assets',
because the amount is not material.
Revaluation in respect of certain tangible assets of the Component
Division of erstwhile Motherson Auto Components Engineering Limited
(MACE) and erstwhile India Nails Manufacturing Limited (INML) was done
as under:
a) Land at the prevailing market rates as certified by approved
valuation experts as on the date of revaluation.
b) Building ,plant and machinery and other assets of MACE at their
replacement values as certified by approved valuation expert Subsequent
expenditures related to an item of fixed asset are added to its book
value only if they increase the future benefits from the existing asset
beyond its previously assessed standard of performance.
Items of fixed assets that have been retired from active use and are
held for disposal are stated at the lower of their net book value and
net realisable value and are shown separately in the financial
statements.
Any expected loss is recognised immediately in the Statement of Profit
and Loss.
Losses arising from the retirement of, and gains or losses arising from
disposal of fixed assets which are carried at cost are recognised in
the Statement of Profit and Loss.
Depreciation is provided on a pro-rata basis on the straight-line
method over the estimated useful lives of the assets or the rates
prescribed under Schedule XIV to the Companies Act, 1956, whichever is
higher, as follows:
1.3 Intangible Assets
Intangible Assets are stated at acquisition cost, net of accumulated
amortization and accumulated impairment losses, if any. Intangible
assets are amortised on a straight line basis over their estimated
useful lives. A rebuttable presumption that the useful life of an
intangible asset will not exceed ten years from the date when the asset
is available for use is considered by the management. The amortisation
period and the amortisation method are reviewed at least at each
financial year end. If the expected useful life of the asset is
significantly diff erent from previous estimates, the amortisation
period is changed accordingly. Gains or losses arising from the
retirement or disposal of an intangible asset are determined as the
diff erence between the net disposal proceeds and the carrying amount
of the asset and recognized as income or expense in the Statement of
Profit and Loss. The amortization rates used are:
1.4 Borrowing Costs
General and specific borrowing costs directly attributable to the
acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready
for their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale. All other borrowing costs are recognised in
Statement of Profit and Loss in the period in which they are incurred.
1.5 Impairment of Assets
Assessment is done at each Balance Sheet date as to whether there is
any indication that an asset (tangible and intangible) may be impaired.
For the purpose of assessing impairment, the smallest identifiable
group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows from other assets or
groups of assets, is considered as a cash generating unit. If any such
indication exists, an estimate of the recoverable amount of the
asset/cash generating unit is made. Assets whose carrying value exceeds
their recoverable amount are written down to the recoverable amount.
Recoverable amount is higher of an asset's or cash generating unit's
net selling price and its value in use. Value in use is the present
value of estimated future cash flows expected to arise from the
continuing use of an asset and from its disposal at the end of its
useful life. Assessment is also done at each Balance Sheet date as to
whether there is any indication that an impairment loss recognised for
an asset in prior accounting periods may no longer exist or may have
decreased.
1.6 Investments
Investments that are readily realisable and are intended to be held for
not more than one year from the date, on which such investments are
made, are classified as current investments. All other investments are
classified as long term investments. Current investments are carried at
cost or fair value, whichever is lower. Long-term investments are
carried at cost. However, provision for diminution is made to recognise
a decline, other than temporary, in the value of the investments, such
reduction being determined and made for each investment individually.
Investment Property
Investment in buildings that are not intended to be occupied
substantially for use by, or in the operations of the Company, have
been classified as investment property. Investment properties are
carried at cost less accumulated depreciation. Refer note 2.2 for
depreciation rates used for buildings.
1.7 Inventories
Inventories are stated at lower of cost and net realisable value. Cost
is determined using the first-in,first-out (FIFO) method. The cost of
finished goods and work in progress comprises raw materials,
components, direct labour, other direct costs and related production
overheads. Net realizable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and
the estimated costs necessary to make the sale. Tools are valued at
cost less amortization based on useful life of the items ascertained on
a technical estimate by the management.
1.8 Foreign Exchange Transactions
Initial Recognition
On initial recognition, all foreign currency transactions are recorded
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
Subsequent Recognition
As at the reporting date, non-monetary items which are carried in terms
of historical cost denominated in a foreign currency are reported using
the exchange rate at the date of the transaction. All non-monetary
items which are carried at fair value or other similar valuation
denominated in a foreign currency are reported using the exchange rates
that existed when the values were determined.
All monetary assets and liabilities in foreign currency are restated at
the end of accounting period.
A monetary asset or liability is termed as a long-term foreign currency
monetary item, if the asset or liability is expressed in a foreign
currency and has a term of 12 months or more at the date of origination
of the asset or liability.
Exchange differences on restatement of all other monetary items are
recognised in the Statement of Profit and Loss.
Forward Exchange Contracts
The premium or discount arising at the inception of forward exchange
contracts entered into to hedge an existing asset/liability, is
amortised as expense or income over the life of the contract. Exchange
diff erences on such a contract are recognised in the Statement of
Profit and Loss in the reporting period in which the exchange rates
change. Any profits or losses arising on cancellation or renewal of
such a forward exchange contract are recognised as income or as expense
for the period.
1.9 Derivative Transactions
Forward exchange contracts outstanding as at the year end on account of
firm commitment /highly probable forecast transactions and commodity
hedging transactions that are settled net are marked to market and the
losses, if any, are recognised in the Statement of Profit and Loss and
gains are ignored in accordance with the Announcement of Institute of
Chartered Accountants of India on 'Accounting for Derivatives' issued
in March 2008.
1.10 Revenue Recognition
Sale of goods
Sales are recognised when the substantial risks and rewards of
ownership in the goods are transferred to the buyer as per the terms of
the contract and are recognized net of trade discounts, rebates, sales
taxes and excise duties.
Sale of Services
In contracts involving the rendering of services, revenue is measured
using the proportionate completion method and are recognised net of
service tax.
1.11 Other Income Interest
Interest income is recognised on a time proportion basis taking into
account the amount outstanding and the rate applicable.
Income from duty drawback and premium of sale of import licences is
recognized on an accrual basis.
Dividend
Dividend income is recognised when the right to receive dividend is
established.
1.12 Employee Benefits
Provident Fund & Employee State Insurance
Contribution towards provident fund and employee state insurance for
employees is made to the regulatory authorities, where the Company has
no further obligations. Such benefits are classified as Defined
Contribution Schemes as the Company does not carry any further
obligations, apart from the contributions made on a monthly basis.
Gratuity
The Company provides for gratuity, a defined benefit plan (the
"Gratuity Plan") covering eligible employees in accordance with the
Payment of Gratuity Act, 1972. The Gratuity Plan provides a lump sum
payment to vested employees at retirement, death, incapacitation or
termination of employment, of an amount based on the respective
employee's salary and the tenure of employment. The Company funds the
benefits through annual contributions to Life Insurance Corporation of
India (LIC) under its Group's Gratuity Scheme. The Company's liability
are actuarially determined (using the Projected Unit Credit method) at
the end of each year. Actuarial losses/ gains are recognised in the
Statement of Profit and Loss in the year in which they arise.
Compensated Absences
Accumulated compensated absences, which are expected to be availed or
encashed within 12 months from the end of the year are treated as short
term employee benefits. The obligation towards the same is measured at
the expected cost of accumulating compensated absences as the
additional amount expected to be paid as a result of the unused
entitlement as at the year end.
Accumulated compensated absences, which are expected to be availed or
encashed beyond 12 months from the end of the year are treated as other
long term employee benefits. The Company's liability is actuarially
determined (using the Projected Unit Credit method) at the end of each
year. Actuarial losses/ gains are recognised in the Statement of Profit
and Loss in the year in which they arise.
1.13 Current and Deferred tax
Tax expense for the period, comprising current tax and deferred tax,
are included in the determination of the net profit or loss for the
period.
Current tax is measured at the amount expected to be paid to the tax
authorities in accordance with the taxation laws prevailing in the
respective jurisdictions.
Deferred tax is recognised for all the timing diff erences, subject to
the consideration of prudence in respect of deferred tax assets.
Deferred tax assets are recognised and carried forward only to the
extent that there is a reasonable certainty that sufficient future
taxable income will be available against which such deferred tax assets
can be realised. Deferred tax assets and liabilities are measured using
the tax rates and tax laws that have been enacted or substantively
enacted by the Balance Sheet date. At each Balance Sheet date, the
Company reassesses unrecognised deferred tax assets, if any.
Current tax assets and current tax liabilities are offset when there is
a legally enforceable right to set offthe recognised amounts and there
is an intention to settle the asset and the liability on a net basis.
Deferred tax assets and deferred tax liabilities are offset when there
is a legally enforceable right to set offassets against liabilities
representing current tax and where the deferred tax assets and the
deferred tax liabilities relate to taxes on income levied by the same
governing taxation laws.
Minimum Alternative Tax credit is recognised as an asset only when and
to the extent there is convincing evidence that the company will pay
normal income tax during the specified period. Such asset is reviewed
at each Balance Sheet date and the carrying amount of the MAT credit
asset is written down to the extent there is no longer a convincing
evidence to the effect that the Company will pay normal income tax
during the specified period.
1.14 Provisions and Contingent Liabilities
Provisions
Provisions are recognised when there is a present obligation as a
result of a past event, it is probable that an outfl ow of resources
embodying economic benefits will be required to settle the obligation
and there is a reliable estimate of the amount of the obligation.
Provisions are measured at the best estimate of the expenditure
required to settle the present obligation at the Balance Sheet date and
are not discounted to its present value.
Contingent Liabilities
Contingent liabilities are disclosed when there is a possible
obligation arising from past events, the existence of which will be
confirmed only by the occurrence or non occurrence of one or more
uncertain future events not wholly within the control of the company or
a present obligation that arises from past events where it is either
not probable that an outflow of resources will be required to settle
or a reliable estimate of the amount cannot be made, is termed as a
contingent liability.
1.15 Leases
As a lessee
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the
Statement of Profit and Loss on a straight-line basis over the period
of the lease.
The Company leases certain tangible assets and such leases where the
Company has substantially all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalised at the
inception of the lease at the lower of the fair value of the leased
asset and the present value of the minimum lease payments.
Each lease payment is apportioned between the finance charge and the
reduction of the outstanding liability. The outstanding liability is
included in other long-term borrowings. The finance charge is charged
to the Statement of Profit and Loss over the lease period so as to
produce a constant periodic rate of interest on the remaining balance
of the liability for each period.
As a lessor
The Company has leased certain tangible assets and such leases where
the Company has substantially retained all the risks and rewards of
ownership are classified as operating leases. Lease income on such
operating leases are recognised in the Statement of Profit and Loss on
a straight line basis over the lease term which is representative of
the time pattern in which benefit derived from the use of the leased
asset is diminished. Initial direct costs are recognized as an expense
in the Statement of Profit and Loss in the period in which they are
incurred.
1.16 Segment Reporting
The accounting policies adopted for segment reporting are in conformity
with the accounting policies adopted for the Company. Further,
inter-segment revenue have been accounted for based on the transaction
price agreed to between segments which is primarily market based.
Revenue and expenses have been identified to segments on the basis of
their relationship to the operating activities of the segment. Revenue
and expenses, which relate to the Company as a whole and are not
allocable to segments on a reasonable basis, have been included under
"Unallocated corporate expenses".
1.17 Cash and Cash Equivalents
In the cash flow statement, cash and cash equivalents include cash in
hand, demand deposits with banks, other short term highly liquid
investments with original maturities of three months or less.
1.18 Earnings Per Share (EPS)
Basic earnings per share is calculated by dividing the net profit or
loss for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period. Earnings
considered in ascertaining the Company's earnings per share is the net
profit for the period after deducting preference dividends and any
attributable tax thereto for the period. The weighted average number of
equity shares outstanding during the period and for all periods
presented is adjusted for events, such as bonus shares, other than the
conversion of potential equity shares, which have changed the number of
equity shares outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period is
adjusted for the effects of all dilutive potential equity shares.
1.19 Amalgamation in the Nature of Merger
The Company accounts for all amalgamations in nature of merger using
the 'pooling of interest method' as prescribed in AS 14: Accounting for
Amalgamations. Assets and liabilities acquired of the transferor
company have been recognised at their respective book value. The
difference between the amount recorded as share capital issued (plus any
additional consideration in the form of cash or other assets) and the
amount of share capital of the transferor company is adjusted in
reserves.
Mar 31, 2011
1. CONVENTION
The Financial Statements are prepared to comply in all material aspects
with all the applicable accounting principles in India, the applicable
accounting standards notified under section 211(3C) of the Companies
Act, 1956 and the relevant provisions of the Companies Act,1956. The
Company follows the mercantile system of accounting and recognizes
income and expenditure on accrual basis.
2. FIXED ASSETS AND DEPRECIATION
FIXED ASSETS
i) The fixed assets except as stated in (ii) below are stated at cost
less accumulated depreciation. Cost of acquisition or construction is
inclusive of inward freight, duties and taxes and other incidental
expenses.
ii) The fixed assets of the Component Division of erstwhile Motherson
Auto Components Engineering Limited (MACE) have been stated at an
amount inclusive of appreciation arising on revaluation of the assets
by an approved valuer on December 31, 1998. The method adopted for
revaluation of the assets are as under:
a) Land: Prevailing market rate of land as on the date of revaluation.
b) Buildings, Indigenous Plant and Machinery, Furniture and Fixtures,
Moulds and Dies: Replacement value.
The Company charges assets costing less than Rs.5,000 each to expense,
which could otherwise have been included as Fixed Asset, because the
amount is not material in accordance with Accounting Standard 10
-ÃAccounting for Fixed Assets'.
DEPRECIATION
i) Depreciation on fixed assets, except as stated in (ii) below, is
provided from the month the asset is ready for commercial production,
on a pro-rata basis at the SLM rates prescribed in schedule XIV to the
Companies Act, 1956 or based on useful life, whichever is higher.
3. INVESTMENTS
Investments are classified into long term and current investments.
Long-term investments are stated at cost. A provision for diminution is
made to recognize a decline, other than temporary, in the value of long
term investments.
Current investments are carried at lower of cost and fair value. Fair
value in the case of quoted investments refers to the market value of
the investments arrived at on the basis of last traded prices as at the
year-end.
4. INVENTORIES
Stores and spares, loose tools are valued at cost or net realizable
value, whichever is lower.
Raw materials, components, finished goods and work in progress are
valued at cost or net realizable value, whichever is lower. The basis
of determining cost for various categories of inventories is as
follows:
i) Stores and Spares, Raw Materials and Components First in First Out
(FIFO) method
ii) Work in Progress and Finished Goods Material cost plus appropriate
share of labour and production overheads.
iii) Tools Cost less amortization based on useful life of the items
ascertained on a technical estimate by the management
5. EMPLOYEE BENEFITS
The Company makes regular contributions to the State administered
Provident Fund which is charged against revenue. The Company provides
for long term defined benefit schemes of gratuity and compensated
absences on the basis of actuarial valuation on the balance sheet date
based on the Projected Unit Credit Method. In respect of gratuity, the
Company funds the benefits through annual contributions to Life
Insurance Corporation of India (LIC) under its Group Gratuity Scheme.
The actuarial valuation of the liability towards the defined benefits of
the employees is made on the basis of assumptions with respect to the
variable elements affecting the computations including estimation of
interest rate of earnings on contributions to LIC. The Company
recognizes the actuarial gains and losses in the profit and loss
account in the period in which they occur.
6. REVENUE RECOGNITION
Sales are recognised upon the transfer of significant risks and rewards
of ownership to the customers.
Revenue from services is recognized as per the terms of the agreement,
as the services are rendered and no significant uncertainty exists
regarding the amount of consideration.
Interest Income is recognized on a proportion of time basis taking into
account the principal outstanding and the rate applicable.
7. foreign exchange transactions
Transactions involving foreign currencies are recorded at the exchange
rate prevailing on the transaction date. Foreign currency monetary
items are translated at the exchange rate prevailing at the balance
sheet date and the gain/loss arising on such translation is charged to
the profit and loss account. Premium or discount arising at the
inception of a forward exchange contract is amortized as expense or
income over the life of contract.
8. borrowing costs
The borrowing costs on funds other than those directly attributable to
the acquisition of a qualifying asset i.e. an asset that necessarily
takes a substantial period of time to get ready for its intended use,
is charged to revenue in the period in which they are incurred.
The borrowing costs that are directly attributable to the acquisition,
construction or production of qualifying assets are capitalized as part
of the cost of that asset.
9. Leases
Lease rental in respect of operating lease arrangements are charged to
expense when due as per the terms of the related agreement on a
straight-line basis over the lease period.
Lease rentals in respect of finance lease transactions entered into
prior to March 31, 2001 are charged to expense when due as per the
terms of the related agreement. Finance lease transactions entered into
after this date are considered as financing arrangements and the leased
asset is capitalized at an amount equal to the present value of future
lease payments and a corresponding amount is recognized as a liability.
The lease payments made are apportioned between finance charge and
reduction of outstanding liability in relation to leased asset.
10. taxation
current tax
Current tax is provided on the basis of tax payable on estimated
taxable income computed in accordance with the applicable provisions of
Income tax Act, 1961 after considering the benefits available under the
said Act.
deferred taxes
In accordance with Accounting Standard 22 - Accounting for Taxes on
Income, issued by the Institute of Chartered Accountants of India, the
deferred tax for timing differences between the book and tax profits
for the year is accounted for using the tax rates and laws that have
been enacted or substantively enacted as of the balance sheet date.
Deferred tax assets are recognized only to the extent there is
reasonable certainty that the assets can be realized in the future;
however, where there is unabsorbed depreciation or carried forward loss
under taxation laws, deferred tax assets are recognized only if there
is virtual certainty of realization of such assets.
11. earnings per share (eps)
The earnings considered in ascertaining the Company's EPS comprises the
net profit after tax (and includes the post tax effect of any extra
ordinary items) attributable to equity shareholders. The number of
shares used in computing Basic EPS is the weighted average number of
shares outstanding during the year. The diluted EPS is calculated on
the same basis as basic EPS, after adjusting for the effect of potential
dilutive equity shares.
12. Impairment of assets
Impairment loss, if any, is provided to the extent, the carrying amount
of assets exceeds their recoverable amount. Recoverable amount is
higher of an asset's net selling price, and its value in use. Value in
use is the present value of estimated future cash flows expected to
arise from the continuing use of an asset and from its disposal at the
end of its useful life.
13. Provisions and contingent Liabilities
A provision is recognized when there is a present obligation as a
result of a past event, it is probable that an outflow of resources
will be required to settle the obligation and in respect of which
reliable estimate can be made. A disclosure of 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. Where
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.
14. use of estimates
In the preparation of the financial statements, the management of the
Company makes estimates and assumptions in conformity with the
applicable accounting principles in India that affect the reported
balances of assets and liabilities and disclosures relating to
contingent assets and liabilities as at the date of the financial
statements and reported amounts of income and expenses during the
period. Examples of such estimates include provisions for doubtful
debts, future obligations under employee retirement benefit plans,
income taxes, the useful lives of fixed assets and intangible assets and
estimates for recognizing impairment losses.
These estimates could change from period to period and also the actual
results could vary from the estimates. Appropriate changes are made to
the estimates as the management becomes aware of changes in
circumstances surrounding these estimates. The changes in estimates are
reffected in the financial statements in the period in which changes are
made and, if material, their effects are disclosed in the notes to the
financial statements.
Mar 31, 2010
1. CONVENTION
The Financial Statements are prepared to comply in all material aspects
with all the applicable accounting principles in India, the applicable
accounting standards notified under section 211 (3C) of the Companies
Act, 1956 and the relevant provisions of the Companies Act,1956. The
Company follows the mercantile system of accounting and recognises
income and expenditure on accrual basis.
2. FIXED ASSETS AND DEPRECIATION
FIXED ASSETS
i) The fixed assets except as stated in (ii) below are stated at cost
less accumulated depreciation. Cost of acquisition or construction is
inclusive of inward freight, duties and taxes and other incidental
expenses.
ii) The fixed assets of the Component Division of erstwhile Motherson
Auto Components Engineering Limited (MACE) have been stated at an
amount inclusive of appreciation arising on revaluation of the assets
by an approved valuer on December 31, 1998. The method adopted for
revaluation of the assets are as under:
a) Land: Prevailing market rate of land as on the date of revaluation.
b) Buildings, Indigenous Plant and Machinery, Furniture and Fixtures,
Moulds and Dies: Replacement value.
The Company charges assets costing less than Rs 5,000 each to expense,
which could otherwise have been included as Fixed Asset, because the
amount is not material in accordance with Accounting Standard 10
-Accounting for Fixed Assets.
3. INVESTMENTS
Investments are classified into long term and current investments.
Long-term investments are stated at cost. A provision for diminution is
made to recognise a decline, other than temporary, in the value of long
term investments.
Current investments are carried at lower of cost and fair value. Fair
value in the case of quoted investments refers to the market value of
the investments arrived at on the basis of last traded prices as at the
year-end.
4. INVENTORIES
Stores and spares, loose tools are valued at cost or net realisable
value, whichever is lower.
Raw materials, components, finished goods and work in progress are
valued at cost or net realizable value, whichever is lower. The basis
of determining cost for various categories of inventories is as
follows:
i) Stores and Spares,
Raw Materials and Components First in First Out (FIFO) method
ii) Work in Progress and
Finished Goods Material cost plus appropriate share of
labour and production overheads
iii) Tools Cost less amortization based on useful
life of the items ascertained on a
technical estimate by the management
5. EMPLOYEE BENEFITS
The Company makes regular contributions to the State administered
Provident Fund which is charged against revenue. The Company provides
for long term defined benefit schemes of gratuity and compensated
absences on the basis of actuarial valuation on the balance sheet date
based on the Projected Unit Credit Method. In respect of gratuity, the
Company funds the benefits through annual contributions to Life
Insurance Corporation of India (LIC) under its Group Gratuity Scheme.
The actuarial valuation of the liability towards the defined benefits
of the employees is made on the basis of assumptions with respect to
the variable elements affecting the computations including estimation
of interest rate of earnings on contributions to LIC. The Company
recognises the actuarial gains and losses in the profit and loss
account in the period in which they occur.
6. REVENUE RECOGNITION
Sales are recognised upon the transfer of significant risks and rewards
of ownership to the customers.
Revenue from services is recognised as per the terms of the agreement,
as the services are rendered and no significant uncertainty exists
regarding the amount of consideration.
Interest Income is recognised on a proportion of time basis taking into
account the principal outstanding and the rate applicable.
7. FOREIGN EXCHANGE TRANSACTIONS
Transactions involving foreign currencies are recorded at the exchange
rate prevailing on the transaction date. Foreign currency monetary
items are translated at the exchange rate prevailing at the balance
sheet date and the gain/loss arising on such translation is charged to
the profit and loss account. Premium or discount arising at the
inception of a forward exchange contract is amortized as expense or
income over the life of contract.
8. BORROWING COSTS
The borrowing costs on funds other than those directly attributable to
the acquisition of a qualifying asset i.e. an asset that necessarily
takes a substantial period of time to get ready for its intended use,
is charged to revenue in the period in which they are incurred.
The borrowing costs that are directly attributable to the acquisition,
construction or production of qualifying assets are capitalised as part
of the cost of that asset.
9. LEASES
Lease rentals in respect of operating lease arrangements are charged to
expense when due as per the terms of the related agreement on a
straight-line basis over the lease period.
Lease rentals in respect of finance lease transactions entered into
prior to March 31, 2001 are charged to expense when due as per the
terms of the related agreement. Finance lease transactions entered into
after this date are considered as financing arrangements and the leased
asset is capitalised at an amount equal to the present value of future
lease payments and a corresponding amount is recognised as a liability.
The lease payments made are apportioned between finance charge and
reduction of outstanding liability in relation to leased asset.
10. TAXATION
Current Tax
Current tax is provided on the basis of tax payable on estimated
taxable income computed in accordance with the applicable provisions of
Income tax Act, 1961 after considering the benefits available under the
said Act.
Deferred Taxes
In accordance with Accounting Standard 22 - Accounting for Taxes on
Income, issued by the Institute of Chartered Accountants of India, the
deferred tax for timing differences between the book and tax profits
for the year is accounted for using the tax rates and laws that
havebeen enacted or substantively enacted as of the balance sheet date.
Deferred tax assets are recognised only to the extent there is
reasonable certainty that the assets can be realised in the future;
however, where there is unabsorbed depreciation or carried forward loss
under taxation laws, deferred tax assets are recognised only if there
is virtual certainty of realisation of such assets.
11. EARNINGS PER SHARE (EPS)
The earnings considered in ascertaining the Companys EPS comprises the
net profit after tax (and includes the post tax effect of any extra
ordinary items) attributable to equity shareholders. The number of
shares used in computing Basic EPS is the weighted average number of
shares outstanding during the year. The diluted EPS is calculated on
the same basis as basic EPS, after adjusting for the effect of
potential dilutive equity shares.
12. IMPAIRMENT OF ASSETS
Impairment loss, if any, is provided to the extent, the carrying amount
of assets exceeds their recoverable amount. Recoverable amount is
higher of an assets net selling price, and its value in use. Value in
use is the present value of estimated future cash flows expected to
arise from the continuing use of an asset and from its disposal at the
end of its useful life.
13. PROVISIONS AND CONTINGENT LIABILITIES
A provision is recognised when there is a present obligation as a
result of a past event, it is probable that an outflow of resources
will be required to settle the obligation and in respect of which
reliable estimate can be made. A disclosure of 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.
Where 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.
14. USE OF ESTIMATES
In the preparation of the financial statements, the management of the
Company makes estimates and assumptions in conformity with the
applicable accounting principles in India that affect the reported
balances of assets and liabilities and disclosures relating to
contingent assets and liabilities as at the date of the financial
statements and reported amounts of income and expenses during the
period. Examples of such estimates include provisions for doubtful
debts, future obligations under employee retirement benefit plans,
income taxes, the useful lives of fixed assets and intangible assets
and estimates for recognising impairment losses.
These estimates could change from period to period and also the actual
results could vary from the estimates. Appropriate changes are made to
the estimates as the management becomes aware of changes in
circumstances surrounding these estimates. The changes in estimates are
reflected in the financial statements in the period in which changes
are made and, if material, their effects are disclosed in the notes to
the financial statements.
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Samvardhana Motherson International Ltd. Tools
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Samvardhana Motherson International Ltd. Company Details
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Company History
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Samvardhana Motherson International Ltd. Key Financial Ratios
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Samvardhana Motherson International Ltd. Results
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Samvardhana Motherson International Ltd. Financial Data
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Samvardhana Motherson International Ltd. Reports
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- Auditors Report
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Samvardhana Motherson International Ltd. Corporate Announcements
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