Mar 31, 2018
1. CORPORATE INFORMATION
Munjal Showa Limited (âthe Companyâ) is a public company domiciled in India and has a registered office in Gurugram, India. The Company is incorporated under the provisions of the erstwhile Companies Act, 1956. The shares of the Company are listed on two stock exchanges in India i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). It was established in 1985 as a result of technical and financial collaboration between Hero Group and Showa Corporation, Japan.
The Company operates as an ancillary and manufactures auto components for the two-wheeler and four-wheeler industry, primary products being front forks, shock absorbers, struts, gas springs and window balancers for sale in domestic market. The Company has three manufacturing locations, two in the state of Haryana and one in the state of Uttarakhand. These units are located at Gurugram, Manesar and Haridwar.
The financial statements for the year ended March 31, 2018 were approved by the Board of Directors and authorised for issue on May 30, 2018.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
i) Basis of preparation of financial statements
a) Statement of compliance
The financial statements have been prepared in accordance with Ind ASs notified under the Companies (Indian Accounting Standards) Rules, 2015.
Upto the year ended March 31, 2017, the Company prepared its financial statements in accordance with the requirements of previous GAAP, which includes Standards notified under the Companies (Accounting Standards) Rules, 2006. These are Companyâs first Ind AS financial statements. The date of transition to Ind AS is April 1, 2016. Refer Note 40 for the details of first-time adoption exemptions availed by the Company.
b) Accounting convention
The financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
c) Operating cycle
Based on the nature of products/ activities of the Company and the normal time between acquisition of assets and their realization in cash or cash equivalents, the Company has determined its operating cycle as 12 months for the purpose of classification of its assets and liabilities as current and non-current.
ii) Foreign currencies
Functional and presentational currency
The Companyâs financial statements are presented in Indian Rupees (INR) which is also the Companyâs functional currency. Functional currency is the currency of the primary economic environment in which an entity operates and is normally the currency in which the entity primarily generates and expends cash. All the financial information presented in INR has been rounded to the nearest lacs (INR 00,000), except when otherwise stated.
Transactions and Balances
Transactions in foreign currencies are initially recorded by the Company at the functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Exchange differences arising on settlement or translation of monetary items are recognised in the Statement of Profit and Loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of nonmonetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or the Statement of Profit and Loss are also recognised in OCI or the Statement of Profit and Loss, respectively).
iii) Fair value measurement
The Company measures certain financial instruments at fair value at each balance sheet date. Fair value is the price that would be received from the sale 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 non-financial asset takes into account a market participantâs 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.
iv) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash in hand & cash at banks and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
For the purpose of the statement of cash flows, cash and cash equivalents, as defined above, net of outstanding bank overdrafts are considered an integral part of the Companyâs cash management.
v) Cash flow statement
Cash flows are reported using the indirect method, whereby profit/ (loss) before extraordinary items and tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information.
vi) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for rebates and other similar allowances.
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) 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
Sale of goods
Revenue from the sale of goods is recognised when the goods are dispatched and titles have passed, at which time all the following conditions are satisfied:
- the Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
- the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
- the amount of revenue can be measured reliably;
- it is probable that the economic benefits associated with the transaction will flow to the Company; and
- the costs incurred or to be incurred in respect of the transaction can be measured reliably
Dividend and interest income
Dividend income from investments is recognised when the shareholderâs right to receive payment has been established.
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on, time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assetâs net carrying amount on initial recognition.
vii) Inventories
Inventories comprise raw materials, components, work-in-progress, finished goods, stock in trade, and stores and spares which are carried at lower of cost or net realizable value, while scrap is carried at its realizable value.
Cost of inventories comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost of inventories, other than finished goods and work-in-progress, is determined on a moving weighted average basis. Cost of finished goods and work-in-progress include the cost of materials determined on a moving weighted average basis and an appropriate portion of fixed overheads based on normal capacity and variable overheads based on actual capacity.
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. The net realisable value of work-in -progress is determined with reference to the selling prices of related finished products. Raw materials and other supplies held for use in the production of finished products are not written down below cost except in cases where material prices have declined and it is estimated that the cost of the finished products will exceed their net realisable value. The comparison of cost and net realisable value is made on an item-by item basis.
viii) Property, plant and equipment Recognition and Measurement
Items of Property, plant and equipment (including furniture, fixtures, vehicles, etc.) held for use in the production or supply of goods or services, or for administrative purposes are measured at cost of acquisition less accumulated depreciation and/or accumulated impairment loss, if any. Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognised impairment loss. Cost comprises purchase price, non-refundable taxes, duties or levies, any other directly attributable cost of bringing the asset to its working condition for its intended use and the estimated costs of dismantling and removing the items and restoring the site on which they are located. Any trade discounts and rebates are deducted in arriving at the purchase price.
An item of property, plant and equipment and any significant part initially recognised is de-recognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on de-recognition 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.
If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Subsequent Costs
The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item of property, plant and equipment, if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably with the carrying amount of the replaced part getting derecognised. The cost for day-to-day servicing of property, plant and equipment are recognised in Statement of Profit and Loss as and when incurred.
Depreciation
Depreciation is recognised so as to write off the cost of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Depreciation on property, plant and equipment is charged on a pro-rata basis at the straight-line method over estimated useful lives of its property, plant and equipment generally in accordance with that provided in Part C of Schedule II to the Act.
The identified components are depreciated separately over their useful lives; the remaining components are depreciated over the life of the principal asset. The Company has used the following rates to provide depreciation on its property, plant and equipment.
The management has estimated, supported by independent assessment by technical experts, professionals, the useful lives of the following classes of assets:
- The useful lives of certain plant and equipment is estimated as ranging between 2 to 15 years, which is lower than those indicated in schedule II
- Vehicles are depreciated over the estimated useful lives of 6 years, which is lower than those indicated in schedule II.
Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted prospectively, if appropriate.
ix) Intangible assets
Recognition and Measurement
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 amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development cost, are not capitalised and the related expenditure is reflected in profit and loss in the period in which the expenditure is incurred.
Amortisation and Useful lives
Intangible assets with finite lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation 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 amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the Statement of Profit and Loss unless such expenditure forms part of carrying value of another asset. Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value.
Amounts paid towards acquisition of designs and drawings is amortised on straight line basis over the period of expected future sales from the related product, which the management has determined to be 24 months based on past trends. Amortisation shall begin when the asset is available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in a manner intended by management.
Costs relating to software, which are acquired, are capitalised and amortised on a straight line basis over the managementâs estimated useful life of 48 months.
Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Statement of Profit and Loss within other income when the asset is de-recognised.
Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are recognised 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 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
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation expense is recognised in the Statement of Profit and Loss unless such expenditure forms part of carrying value of another asset. During the period of development, the asset is tested for impairment annually.
x) Borrowing cost
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 capitalised 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.
xi) 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 fulfilment 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 the arrangement.
For arrangement entered into prior to April 1, 2016, the Company has determined whether the arrangement contains lease on the basis of facts and circumstances existing on the date of transition.
Company as a lessee
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Rental expense from operating leases is generally recognised on a straight line basis over the term of relevant lease. Where the rentals are structured solely to increase in line with expected general inflation to compensate for the lessorâs expected inflationary cost increase, such increases are recognised in the year in which such benefits accrue. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
xii) Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.
Warranties
The estimated liability for product warranties is recorded when products are sold. These estimates are established using historical information on the nature, frequency and average cost of warranty claims and management estimates regarding possible future incidence based on corrective actions on product failures. The timing of outflows will vary as and when warranty claim will arise- being typically two to five years. The estimate of such warranty-related costs is revised annually.
xiii) 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.
xiv) Contingent assets
Contingent assets are disclosed in the financial statements only when an inflow of economic benefits is probable.
xv) Financial instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
a.) Financial assets
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets
Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition):
- the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
- the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding
Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive income (âFVTOCIâ) (except for debt instruments that are designated as at fair value through profit or loss on initial recognition):
- the asset is held within a business model whose objective is achieved both by collecting contractual cash
flows and selling financial assets; and
- the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Interest income is recognised in profit or loss for FVTOCI debt instruments.
All other financial assets are subsequently measured at fair value.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL. Interest income is recognised in profit or loss and is included in the âOther incomeâ line item.
Financial assets at fair value through profit or loss (FVTPL)
Investments in equity instruments are classified as at FVTPL, unless the Company irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for investments in equity instruments which are not held for trading.
Debt instruments that do not meet the amortised cost criteria or FVTOCI criteria are measured at FVTPL. In addition, debt instruments that meet the amortised cost criteria or the FVTOCI criteria but are designated as at FVTPL are measured at FVTPL.
A financial asset that meets the amortised cost criteria or debt instruments that meet the FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognising the gains and losses on them on diff
different bases. The Company has not designated any debt instrument as at FVTPL.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the âOther incomeâ line item. Dividend on financial assets at FVTPL is recognised when the companyâs right to receive the dividends is established, it is probable that the economic benefits associated with the dividend will flow to the entity, the dividend does not represent a recovery of part of cost of the investment and the amount of dividend can be measured reliably.
Impairment of financial assets
The Company applies the expected credit loss model for recognising impairment loss on financial assets measured at amortised cost, debt instruments at FVTOCI, trade receivables, other contractual rights to receive cash or other financial asset, and financial guarantees not designated as at FVTPL.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights.
De-recognition of financial assets
The Company de-recognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.
b.) Financial liabilities and equity instruments Classification as debt or equity
Debt and equity instruments issued by Company are classified as either financial liabilities or asâ equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Financial liabilities
Financial liabilities that are not held-for-trading and are not designated as at FVTPL are measured at amortised cost at the end of subsequent accounting periods. The carrying amounts of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method. Interest expense that is not capitalised as part of costs of an asset is included in the âFinance costsâ Line item.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability.
All financial liabilities are subsequently measured at amortised cost using the effective interest method or at FVTPL.
De-recognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the Companyâs obligations are discharged, cancelled or have expired.
c.) Derivative financial instruments
The Company enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including foreign exchange forward contracts, option contracts, etc.
Embedded derivatives
Derivatives embedded in non-derivative host contracts that are not financial assets within the scope of. Ind AS 109 are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.
xvi) Equity share capital
Equity shares are classified as equity. Incremental costs directly attributable to the issuance of new shares and share options are recognised as a deduction from equity, net of any tax effects
xvii) Impairment of non-financial assets
The carrying amounts of the Companyâs non-financial assets, other than deferred tax assets, are reviewed at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, then the assetâs recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit (âCGUâ) is the greater of its value in use or its fair value less costs to sell. 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 or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest Company of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets (âCGUâ).
The Companyâs corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.
An impairment loss is recognised, if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount and are recognised in Statement of Profit and Loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of goodwill, if any, allocated to the units and then to reduce the carrying amounts of the other assets in the unit (Company of units) on a pro rata basis.
Impairment losses recognised in prior periods are assessed at end of each reporting period for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assetâs carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
xviii) Employee benefits
Short Term Employee Benefits
All employee benefits expected to be settled wholly within twelve months of rendering the service are classified as short-term employee benefits. When an employee has rendered service to the Company during an accounting period, the Company recognises the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service as an expense unless another Ind AS requires or permits the inclusion of the benefits in the cost of an asset. Benefits such as salaries, wages and short-term compensated absences and bonus etc. are recognised in Statement of Profit and Loss in the period in which the employee renders the related service.
Defined Contribution Plan
Provident fund and superannuation fund
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no obligation to pay any further amounts. The Company makes specified monthly contributions towards provident fund and superannuation fund which are defined contribution plans. The Company has no obligation, other than the contribution payable to the funds. The Company recognises contribution payable to the fund scheme in the Statement of Profit and Loss, when an employee renders the related service. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognised as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the balance sheet date, then excess is recognised as an asset to the extent that the prepayment will lead to, for example, a reduction in future payment or a cash refund.
Long term Employee benefits
Defined Benefit Plan
Gratuity
The Companyâs gratuity benefit scheme is a defined benefit plan. The Companyâs net obligation in respect of defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; this benefit is discounted to determine its present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The calculation of the Companyâs obligation under this plan is performed annually by a qualified actuary using the projected unit credit method.
Re-measurements comprising of actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through other comprehensive income in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
All other expenses related to defined benefit plans are recognised in Statement of Profit and Loss as employee benefit expenses. Gains or losses on the curtailment or settlement of any defined benefit plan are recognised when the curtailment or settlement occurs. Curtailment gains and losses are accounted for as past service costs.
Compensated absences
The employees can carry forward a portion of the unutilized accrued compensated absences and utilise it in future service periods or receive cash compensation during termination of employment.
Compensated absence, which is expected to be utilized within the next 12 months, is treated as short-term employee benefit. The Company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date. The Company treats compensated absences expected to be carried forward beyond twelve months, as long-term employee benefit for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains/losses are immediately taken to the statement of profit and loss.
The Company presents the leave as a current liability in the balance sheet, to the extent it does not have an unconditional right to defer its settlement for 12 months after the reporting date. Where Company has the unconditional legal and contractual right to defer the settlement for a period beyond 12 months, the same is presented as non-current liability.
xix) Taxes
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before taxâ as reported in the statement of profit and loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Companyâs current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively.
xx) Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset.
When the Company receives grants of non-monetary assets, the asset and the grant are recorded at fair value amounts and released to profit or loss over the expected useful life in a pattern of consumption of the benefit of the underlying asset i.e. by equal annual instalments.
xxi) Earnings per share
Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.
For calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares.
xxii) Applicability of new Ind AS
a.) Ministry of Corporate affairs has notified Ind AS 115 âRevenue from Contracts with customersâ, which is effective from April 1, 2018. The new standard outlines a single comprehensive control-based model for revenue recognition and supersedes current revenue recognition guidance based on risks or rewards. The Company is evaluating the requirements of Ind AS 115 and its effect of the financial statements.
b.) Appendix B to Ind AS 21, Foreign currency transactions and advance consideration: On March 28, 2018, Ministry of Corporate Affairs (âMCAâ) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency. The amendment will come into force from April 1, 2018.
xxiii) First-time adoption - mandatory exceptions, optional exemptions
The Company has prepared the opening balance sheet as per Ind AS as at April 1, 2016 (the transition date) by recognising all assets and liabilities whose recognition is required by Ind AS, not recognising items of assets or liabilities which are not permitted by Ind AS, by reclassifying items from previous GAAP to Ind AS as required under Ind AS, and applying Ind AS in measurement of recognised assets and liabilities. However, this principle is subject to an optional exemption availed by the Company as detailed below:
a) Deemed cost for property, plant & equipment and intangible assets: The Company has elected to continue with the carrying value of all of its property, plant & equipment and intangible assets recognised as of April 1, 2016 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.
Trade receivables are non-interest bearing and are generally on terms of 25 to 60 days.
The Company has used a practical expedient by computing the expected loss allowance for trade receivables based on historical credit loss experience and adjustment for forward looking information.
The Company is not exposed to significant concentrations of credit risk as significant portion of its trade receivables is from creditworthy counterparties and Company doesnât have any past history of any losses on account of credit risk.
Mar 31, 2017
1 Corporate information
Munjal Showa Limited (âthe Companyâ) is a Public Company domiciled in India and incorporated under the provisions of the erstwhile Companies Act, 1956. It was established in 1985 as a result of technical and financial collaboration between Hero Group and Showa Corporation, Japan. The Company operates as an ancillary and manufactures auto components for the two-wheeler and four-wheeler industry, primary products being front forks, shock absorbers, struts, gas springs and window balancers for sale in domestic market. The Company has three manufacturing locations, two in the state of Haryana and one in the state of Uttarakhand. These units are located at Gurgaon, Manesar and Haridwar.
2 Basis of preparation
The financial statements of the Company have been prepared in accordance with the generally accepted accounting principles in India (Indian GAAP). The Company has prepared these financial statements to comply in all material respects with the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014 and Companies (Accounting standards) Amendment Rules, 2016. The financial statements have been prepared on an accrual basis and under the historical cost convention except for derivative financial instrument which have been measured at fair value. The accounting policies adopted in the preparation of financial statements are consistent with those of previous year, except for the change in accounting policy explained below.
2.1 Summary of significant accounting policies
Change in accounting policy
Accounting for Proposed Dividend
As per the requirements of pre-revised AS 4, the Company used to create a liability for dividend proposed/ declared after the balance sheet date if dividend related to periods covered by the financial statements. Going forward, as per AS 4(R), the Company cannot create provision for dividend proposed/ declared after the balance sheet date unless a statute requires otherwise. Rather, Company will need to disclose the same in notes to the financial statements. Accordingly, the Company has disclosed dividend proposed by board of directors after the balance sheet date in the notes. Had the Company continued with creation of provision for proposed dividend, its surplus in the statement of profit and loss would have been lower by Rs. 192,548,164 and current provision would have been higher by Rs. 192,548,164 (including dividend distribution tax of Rs. 32,568,164).
a) Use of estimates
The preparation of financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. Although these estimates are based on the managementâs best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods.
b) Property, Plant and Equipment
Property, plant and equipment and capital work in progress are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discounts and rebates are deducted in arriving at the purchase price. Such cost includes the cost of replacing part of the plant and equipment. 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.
Item such as spare parts, stand by equipment & servicing equipment are recognized as property, plant & equipment when they meet the definition of property, plant & equipment. Otherwise, such items are classified as inventory.
If significant parts of an item of plant & equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant & equipment. Likewise, on initial recognition of expenditure to be incurred towards major inspections and overhauls are identified as a separate components and depreciated over the expected period till the next overhaul expenditure.
Subsequent expenditure related to an item of property, plant and equipment is added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard of performance. All other expenses on existing property, plant and equipment, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred.
Gains or losses arising from derecognition of property, plant and equipment are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
The Company identifies and determines cost of asset significant to the total cost of the asset having useful life that is materially different from that of remaining life.
c) Depreciation on property, plant and equipment
Depreciation on property, plant and equipment is calculated on a straight-line basis using the rates arrived at based on the useful lives estimated by the management. The Company has used the following rates to provide depreciation on its property, plant and equipment.
The management has estimated, supported by independent assessment by technical experts, the useful lives of the following classes of assets :
The useful lives of certain plant and equipment is estimated as ranging between 2 to 25 years, which is different than those indicated in schedule II.
Vehicles are depreciated over the estimated useful lives of 6 years, which is lower than those indicated in schedule II.
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.
d) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the statement of profit and loss in the year in which the expenditure is incurred.
Intangible assets are amortized on a straight line basis over the estimated useful economic life. The Company uses 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. If the persuasive evidence exists to the affect that useful life of an intangible asset exceeds ten years, the Company amortizes the intangible asset over the best estimate of its useful life. Such intangible assets and intangible assets not yet available for use are tested for impairment annually, either individually or at the cash-generating unit level. All other intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired.
The amortization period and the amortization 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 amortization period is changed accordingly. If there has been a significant change in the expected pattern of economic benefits from the asset, the amortization method is changed to reflect the changed pattern. Such changes are accounted for in accordance with AS 5- âNet Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policiesâ.
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 and loss when the asset is derecognized.
Research costs are expensed as incurred. Development expenditure incurred on an individual project is recognized as an intangible asset when the Company can demonstrate all the following:
1. The technical feasibility of completing the intangible asset so that it will be available for use or sale
2. Its intention to complete the asset
3. Its ability to use or sell the asset
4. How the asset will generate future economic benefits
5. The availability of adequate resources to complete the development and to use or sell the asset
6. The ability to measure reliably the expenditure attributable to the intangible asset during development.
Designs and Drawings
Amounts paid towards acquisition of designs and drawings for specifically identified products, is carried forward based on assessment of benefits arising from such expenditure. Such expenditure is amortized on straight line basis over the period of expected future sales from the related product, which the management has determined to be 24 months based on past trends, commencing from the month of commencement of commercial production.
Computer Software
Costs relating to software, which are acquired, are capitalized and amortized on a straight line basis over the managementâs estimated useful life of four years.
e) Leases
Where the Company is lessee
Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.
f) Borrowing costs
Borrowing cost includes interest, amortization of ancillary costs incurred in connection with the arrangement of borrowings.
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 respective asset. All other borrowing costs are expensed in the period they occur.
g) Impairment of property, plant and equipment and intangibles
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 assetâs recoverable amount. An assetâs recoverable amount is the higher of an assetâs or cash-generating unitâs (CGU) net selling price and its value in use. 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. Where 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 net selling price, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used.
The Company bases its impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of the Companyâs cash-generating units to which the individual assets are allocated. These budgets and forecast calculations are generally covering 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.
Impairment losses, including impairment on inventories, are recognized in the statement of profit and loss.
After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.
An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the assetâs or cash-generating unitâs recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the assetâs 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.
h) Investments
Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as long-term investments.
On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties.
Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Long-term investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments.
On disposal of an investment, the difference between its carrying amount and net disposal proceeds is charged or credited to the statement of profit and loss.
i) Inventories
Inventories are valued as follows:
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
j) Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:
Sale of goods
Revenue from sale of goods is recognized when all the significant risks and rewards of ownership of the goods have been passed to the buyer, usually on delivery of the goods. The Company collects sales taxes and value added taxes (VAT) on behalf of the government and, therefore, these are not economic benefits flowing to the Company. Hence, they are excluded from revenue. Excise duty deducted from revenue (gross) is the amount that is included in the revenue (gross) and not the entire amount of liability arising during the year.
Interest
Interest income is recognized on a time proportion basis taking into account the amount outstanding and the applicable interest rate. Interest income is included under the head âother incomeâ in the statement of profit and loss.
k) Foreign currency translation Initial Recognition
Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.
Conversion
Foreign currency monetary items are retranslated using the exchange rate prevailing at the reporting date. Nonmonetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. Non-monetary items, which are measured at fair value or other similar valuation denominated in a foreign currency, are translated using the exchange rate at the date when such value was determined.
Exchange differences
The Company accounts for exchange differences arising on translation/ settlement of foreign currency monetary items as below:
1. Exchange differences arising on long-term foreign currency monetary items related to acquisition of a property, plant and equipment and intangibles are capitalized and depreciated over the remaining useful life of the asset.
2. Exchange differences arising on other long-term foreign currency monetary items are accumulated in the âForeign Currency Monetary Item Translation Difference Accountâ and amortized over the remaining life of the concerned monetary item.
3. All other exchange differences are recognized as income or as expenses in the period in which they arise.
For the purpose of 1 and 2 above, the Company treats a foreign monetary item as âlong-term foreign currency monetary itemâ, if it has a term of 12 months or more at the date of its origination. In accordance with MCA circular dated 09 August 2012, exchange differences for this purpose, are total differences arising on long-term foreign currency monetary items for the period.
Forward exchange contracts entered into to hedge foreign currency risk of an existing asset/ liability
The premium or discount arising at the inception of forward exchange contract is amortized and recognized as an expense/ income over the life of the contract. Exchange differences on such contracts, except the contracts which are long-term foreign currency monetary items, are recognized in the statement of profit and loss in the period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of such forward exchange contract is also recognized as income or as expense for the period. Any gain/ loss arising on forward contracts which are long-term foreign currency monetary items is recognized in accordance with paragraph 1 and 2 above.
l) Retirement and other employee benefits
Retirement benefit in the form of provident fund and superannuation fund (maintained as per the scheme of Life Insurance Corporation) is a defined contribution scheme. The Company has no obligation, other than the contribution payable to the funds. The Company recognizes contribution payable to the fund scheme as an expenditure, when an employee renders the related service. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognized as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the balance sheet date, then excess is recognized as an asset to the extent that the pre payment will lead to, for example, a reduction in future payment or a cash refund.
The Company operates a defined benefit plan for its employees, viz., gratuity. The costs of providing benefits under this plan are determined on the basis of actuarial valuation at each year-end. Actuarial valuation is carried out for the plan using the projected unit credit method. Actuarial gains and losses for the defined benefit plan are recognized in full in the period in which they occur in the statement of profit and loss.
Accumulated leave, which is expected to be utilized within the next 12 months, is treated as short-term employee benefit. The Company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date.
The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefit for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains/losses are immediately taken to the statement of profit and loss and are not deferred. The Company presents the leave as a current liability in the balance sheet, to the extent it does not have an unconditional right to defer its settlement for 12 months after the reporting date. Where Company has the unconditional legal and contractual right to defer the settlement for a period beyond 12 months, the same is presented as non-current liability.
m) Income taxes
Tax expense comprises of current tax and deferred tax. Current income tax is measured at the amount expected to be paid to the income tax authorities in accordance with the Income-tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date.
Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and reversal of timing differences for the earlier years. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted at the reporting date.
Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the Company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that such deferred tax assets can be realized against future taxable profits.
In the situation where the Company is entitled to a tax holiday under the Income Tax Act, 1961 enacted in India, no deferred tax (asset or liability) is recognized in respect of timing differences which reverse during the tax holiday period, to the extent the Companyâs gross total income is subject to the deduction during the tax holiday period. Deferred tax in respect of timing differences which reverse after the tax holiday period is recognized in the year in which the timing differences originate. However, the Company restricts recognition of deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realized. For recognition of deferred taxes, the timing differences which originate first are considered to reverse first.
At each reporting date, the Company re-assesses unrecognized deferred tax assets. It recognizes unrecognized deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realized.
The carrying amount of deferred tax assets are reviewed at each reporting date. The Company writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxable entity and the same taxation authority.
n) Government grants and subsidies
Grants and subsidies from the government are recognized when there is reasonable assurance that (i) the Company will comply with the conditions attached to them, and (ii) the grant/subsidy will be received. When the grant or subsidy relates to revenue, it is recognized as income on a systematic basis in the statement of profit and loss over the periods necessary to match them with the related costs, which they are intended to compensate. Where the grant relates to an asset, it is recognized as deferred income and released to income in equal amounts over the expected useful life of the related asset. Where the company receives non-monetary grants, the asset is accounted for on the basis of its acquisition cost. In case a non-monetary asset is given free of cost, it is recognized at a nominal value.
Government grants of the nature of promotersâ contribution are credited to capital reserve and treated as a part of the shareholdersâ funds.
o) Segment reporting
Identification of segments
The Companyâs operating businesses are organized and managed separately according to the nature of products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. The analysis of geographical segments is based on the areas in which major operating divisions of the Company operate.
Inter-segment transfers
The Company generally accounts for intersegment sales and transfers at cost plus appropriate margins.
Allocation of common costs
Common allocable costs are allocated to each segment according to the relative contribution of each segment to the total common costs. Unallocated items include general corporate income and expense items which are not allocated to any business segment.
Segment accounting policies
The Company prepares its segment information in conformity with the accounting policies adopted for preparing and presenting the financial statements of the Company as a whole.
p) Earnings per share
Basic earning per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares.
q) Provisions
A provision is recognized when the Company has a present obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.
Warranty provisions
Provisions for warranty-related costs are recognized when the product is sold. Provision is based on historical experience. The estimate of such warranty-related costs is revised annually.
r) Contingent liabilities
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non- occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the financial statements.
s) Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement comprise cash at bank and in hand and short-term investments with an original maturity of three months or less.
t) Derivative instruments
In accordance with the ICAI announcement, derivative contracts, other than foreign currency forward contracts covered under AS 11, are marked to market on a portfolio basis, and the net loss, if any, after considering the offsetting effect of gain on the underlying hedged item, is charged to the statement of profit and loss. Net gain, if any, after considering the offsetting effect of loss on the underlying hedged item, is ignored.
Mar 31, 2016
1. Corporate information
Munjal Showa Limited (âthe Companyâ) is a Public Company domiciled in India and incorporated under the provisions of the Companies Act, 1956. It was established in 1985 as a result of technical and financial collaboration between Hero Group and Showa Corporation, Japan. The Company operates as an ancillary and manufactures auto components for the two-wheeler and four-wheeler industry, primary products being front forks, shock absorbers, struts, gas springs and window balancers for sale in domestic market. The Company has three manufacturing locations, two in the state of Haryana and one in the state of Uttarakhand. These units are located at Gurgaon, Manesar and Haridwar.
2. Basis of preparation
The financial statements of the company have been prepared in accordance with the generally accepted accounting principles in India (Indian GAAP). The Company has prepared these financial statements to comply in all material respects with the accounting standards notified under section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014. The financial statements have been prepared on an accrual basis and under the historical cost convention except for derivative financial instrument which have been measured at fair value.
The accounting policies adopted in the preparation of financial statements are consistent with those of previous year except for the change in accounting policy explained below.
2.1 Summary of significant accounting policies
a) Change in accounting policy
Component Accounting
The Company has adopted component accounting as required under Schedule II to the Companies Act, 2013, from 1 April 2015. The Company was previously not identifying components of property, plant and equipment separately for depreciation purposes; rather, a single useful life/ depreciation rate was used to depreciate each item of property, plant and equipment.
Due to application of Schedule II to the Companies Act, 2013, the Company has changed the manner of depreciation for its property, plant and equipment. Now, the company identifies and determines cost of each component/ part of the asset separately, if the component/ part has a cost which is significant to the total cost of the asset and has useful life that is materially different from that of the remaining asset. These components are depreciated separately over their useful lives; the remaining components are depreciated over the life of the principal asset. The Company has used transitional provisions of Schedule II to adjust the impact of component accounting arising on its first application. If a component has zero remaining useful life on the date of component accounting becoming effective, i.e., April 01, 2015, its carrying amount, after retaining any residual value, is charged to the statement of profit and loss. The carrying amount of other components, i.e., components whose remaining useful life is not nil on April 01, 2015, is depreciated over their remaining useful lives.
The Company has also changed its policy on recognition of cost of major inspection/ overhaul. Earlier company used to charge such cost of major inspection/ overhaul directly to statement of profit and loss, as incurred. On application of component accounting, the major inspection/ overhaul is identified as a separate component of the asset at the time of purchase of new asset and subsequently, the cost of such major inspection/ overhaul is depreciated separately over the period till next major inspection/ overhaul. Upon next major inspection/ overhaul, the costs of new major inspection/ overhaul are added to the asset''s cost and any amount remaining from the previous inspection/ overhaul is derecognized.
The above said change has no significant impact on the depreciation charge, repair and maintenance expense and the resultant profit for the current year and the carrying value of fixed assets as at March 31, 2016.
On the date of component accounting becoming applicable, i.e., April 01, 2015, there was no component having zero remaining useful life. Hence, no amount has been directly adjusted against retained earnings.
b) Use of estimates
The preparation of financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. Although these estimates are based on the managementâs best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods.
c) Tangible fixed assets
Fixed assets are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discounts and rebates are deducted in arriving at the purchase price.
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. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred.
Gains or losses arising from derecognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
The company identifies and determines cost of asset significant to the total cost of the asset having useful life that is materially different from that of the remaining life.
d) Depreciation on tangible fixed assets
Depreciation on fixed assets is calculated on a straight-line basis using the rates arrived at based on the useful lives estimated by the management. The identified components are depreciated over their useful lives; the remaining asset is depreciated over the life of the principal asset. The Company has used the following rates to provide depreciation on its fixed assets.
The management has estimated, supported by assessment by technical experts, the useful lives of the following classes of assets:
- The useful lives of certain plant and equipment is estimated as ranging between 2 to 15 years, which is lower than those indicated in schedule II.
- Vehicles are depreciated over the estimated useful lives of 6 years, which is lower than those indicated in schedule II.
e) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the statement of profit and loss in the year in which the expenditure is incurred.
Intangible assets are amortized on a straight line basis over the estimated useful economic life. The Company uses 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. If the persuasive evidence exists to the affect that useful life of an intangible asset exceeds ten years, the Company amortizes the intangible asset over the best estimate of its useful life. Such intangible assets and intangible assets not yet available for use are tested for impairment annually, either individually or at the cash-generating unit level. All other intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired.
The amortization period and the amortization 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 amortization period is changed accordingly. If there has been a significant change in the expected pattern of economic benefits from the asset, the amortization method is changed to reflect the changed pattern. Such changes are accounted for in accordance with AS 5- "Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies".
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 and loss when the asset is derecognized.
Research costs are expensed as incurred. Development expenditure incurred on an individual project is recognized as an intangible asset when the company can demonstrate all the following:
1. The technical feasibility of completing the intangible asset so that it will be available for use or sale
2. Its intention to complete the asset
3. Its ability to use or sell the asset
4. How the asset will generate future economic benefits
5. The availability of adequate resources to complete the development and to use or sell the asset
6. The ability to measure reliably the expenditure attributable to the intangible asset during development.
Designs and Drawings
Amounts paid towards acquisition of designs and drawings for specifically identified products, is carried forward based on assessment of benefits arising from such expenditure. Such expenditure is amortized on straight line basis over the period of expected future sales from the related product, which the management has determined to be 24 months based on past trends, commencing from the month of commencement of commercial production.
Computer Software
Costs relating to software, which are acquired, are capitalized and amortized on a straight line basis over the management''s estimated useful life of four years.
f) Leases
Where the Company is lessee
Leases, where the less or effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.
g) Borrowing Costs
Borrowing cost includes interest, amortization of ancillary costs incurred in connection with the arrangement of borrowings.
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 respective asset. All other borrowing costs are expensed in the period they occur.
h) Impairment of tangible and intangible 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 assetâs recoverable amount. An assetâs recoverable amount is the higher of an assetâs or cash-generating unitâs (CGU) net selling price and its value in use. 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. Where 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 net selling price, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. The Company bases its impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of the Companyâs cash-generating units to which the individual assets are allocated. These budgets and forecast calculations are generally covering 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.
Impairment losses, including impairment on inventories, are recognized in the statement of profit and loss.
After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.
An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the assetâs or cash-generating unitâs recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the assetâs 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.
i) Investments
Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as long-term investments.
On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties.
Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Long-term investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments.
On disposal of an investment, the difference between its carrying amount and net disposal proceeds is charged or credited to the statement of profit and loss.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
k) Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:
Sale of goods
Revenue from sale of goods is recognized when all the significant risks and rewards of ownership of the goods have been passed to the buyer, usually on delivery of the goods. The Company collects sales taxes and value added taxes (VAT) on behalf of the government and, therefore, these are not economic benefits flowing to the Company. Hence, they are excluded from revenue. Excise duty deducted from revenue (gross) is the amount that is included in the revenue (gross) and not the entire amount of liability arising during the year. Interest
Interest income is recognized on a time proportion basis taking into account the amount outstanding and the applicable interest rate. Interest income is included under the head âother incomeâ in the statement of profit and loss. l) Foreign currency translation Initial recognition
Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. Conversion
Foreign currency monetary items are retranslated using the exchange rate prevailing at the reporting date. Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. Non-monetary items, which are measured at fair value or other similar valuation denominated in a foreign currency, are translated using the exchange rate at the date when such value was determined.
Exchange differences
The Company accounts for exchange differences arising on translation/ settlement of foreign currency monetary items as below:
1. Exchange differences arising on long-term foreign currency monetary items related to acquisition of a fixed asset are capitalized and depreciated over the remaining useful life of the asset.
2. Exchange differences arising on other long-term foreign currency monetary items are accumulated in the âForeign Currency Monetary Item Translation Difference Accountâ and amortized over the remaining life of the concerned monetary item.
3. All other exchange differences are recognized as income or as expenses in the period in which they arise. For the purpose of 1 and 2 above, the Company treats a foreign monetary item as âlong-term foreign currency monetary itemâ, if it has a term of 12 months or more at the date of its origination. In accordance with MCA circular dated 09 August 2012, exchange differences for this purpose, are total differences arising on long-term foreign currency monetary items for the period.
Forward exchange contracts entered into to hedge foreign currency risk of an existing asset/ liability
The premium or discount arising at the inception of forward exchange contract is amortized and recognized as an expense/ income over the life of the contract. Exchange differences on such contracts, except the contracts which are long-term foreign currency monetary items, are recognized in the statement of profit and loss in the period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of such forward exchange contract is also recognized as income or as expense for the period. Any gain/ loss arising on forward contracts which are long-term foreign currency monetary items is recognized in accordance with paragraph 1 and 2 above.
m) Retirement and other benefits
, Retirement benefit in the form of provident fund and superannuation fund (maintained as per the scheme of Life Insurance Corporation) is a defined contribution scheme. The Company has no obligation, other than the contribution payable to the funds. The Company recognizes contribution payable to the fund scheme as an expenditure, when an employee renders the related service. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognized as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the balance sheet date, then excess is recognized as an asset to the extent that the pre payment will lead to, for example, a reduction in future payment or a cash refund.
The Company operates a defined benefit plan for its employees, viz., gratuity. The costs of providing benefits under this plan are determined on the basis of actuarial valuation at each year-end. Actuarial valuation is carried out for the plan using the projected unit credit method. Actuarial gains and losses for the defined benefit plan are recognized in full in the period in which they occur in the statement of profit and loss.
Accumulated leave, which is expected to be utilized within the next 12 months, is treated as short-term employee benefit. The Company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date. The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefit for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains/losses are immediately taken to the statement of profit and loss and are not deferred. The Company presents the leave as a current liability in the balance sheet, to the extent it does not have an unconditional right to defer its settlement for 12 months after the reporting date. Where Company has the unconditional legal and contractual right to defer the settlement for a period beyond 12 months, the same is presented as non-current liability. n) Income taxes
Tax expense comprises of current tax and deferred tax. Current income tax is measured at the amount expected to be paid to the income tax authorities in accordance with the Income-tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date.
Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and reversal of timing differences for the earlier years. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted at the reporting date.
Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the Company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that such deferred tax assets can be realized against future taxable profits.
In the situation where the Company is entitled to a tax holiday under the Income Tax Act, 1961 enacted in India, no deferred tax (asset or liability) is recognized in respect of timing differences which reverse during the tax holiday period, to the extent the Company''s gross total income is subject to the deduction during the tax holiday period. Deferred tax in respect of timing differences which reverse after the tax holiday period is recognized in the year in which the timing differences originate. However, the Company restricts recognition of deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realized. For recognition of deferred taxes, the timing differences which originate first are considered to reverse first.
At each reporting date, the Company re-assesses unrecognized deferred tax assets. It recognizes unrecognized deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realized. The carrying amount of deferred tax assets are reviewed at each reporting date. The Company writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxable entity and the same taxation authority.
Minimum alternate tax (MAT) paid in a year is charged to the statement of profit and loss as current tax. The Company recognizes MAT credit available as an asset only to the extent that there is convincing evidence that the Company will pay normal income tax during the specified period, i.e., the period for which MAT credit is allowed to be carried forward. In the year in which the Company recognizes MAT credit as an asset in accordance with the Guidance Note on Accounting for Credit Available in respect of Minimum Alternative Tax under the Income-tax Act, 1961, the said asset is created by way of credit to the statement of profit and loss and shown as âMAT Credit Entitlement.â The Company reviews the âMAT credit entitlementâ asset at each reporting date and writes down the asset to the extent the Company does not have convincing evidence that it will pay normal tax during the specified period.
o) Government grants and subsidies
Grants and subsidies from the government are recognized when there is reasonable assurance that (i) the company will comply with the conditions attached to them, and (ii) the grant/subsidy will be received. When the grant or subsidy relates to revenue, it is recognized as income on a systematic basis in the statement of profit and loss over the periods necessary to match them with the related costs, which they are intended to compensate. Where the grant relates to an asset, it is recognized as deferred income and released to income in equal amounts over the expected useful life of the related asset.
Where the company receives non-monetary grants, the asset is accounted for on the basis of its acquisition cost. In case a non-monetary asset is given free of cost, it is recognized at a nominal value. Government grants of the nature of promotersâ contribution are credited to capital reserve and treated as a part of the shareholdersâ funds p) Segment reporting
Identification of segment
The Company''s operating businesses are organized and managed separately according to the nature of products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. The analysis of geographical segments is based on the areas in which major operating divisions of the Company operate.
Inter-segment transfers
The company generally accounts for intersegment sales and transfers at cost plus appropriate margins. Allocation of common costs
Common allocable costs are allocated to each segment according to the relative contribution of each segment to the total common costs.
Unallocated items
Unallocated items include general corporate income and expense items which are not allocated to any business segment.
Segment accounting policies
The Company prepares its segment information in conformity with the accounting policies adopted for preparing and presenting the financial statements of the Company as a whole.
q) Earnings per share
Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. r) Provisions
A provision is recognized when the Company has a present obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.
Warranty provisions
Provisions for warranty-related costs are recognized when the product is sold. Provision is based on historical experience. The estimate of such warranty-related costs is revised annually.
s) Contingent liabilities
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non- occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the financial statements.
t) Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement comprise cash at bank and in hand and short-term investments with an original maturity of three months or less.
u) Derivative instruments
In accordance with the ICAI announcement, derivative contracts, other than foreign currency forward contracts covered under AS 11, are marked to market on a portfolio basis, and the net loss, if any, after considering the offsetting effect of gain on the underlying hedged item, is charged to the statement of profit and loss. Net gain, if any, after considering the offsetting effect of loss on the underlying hedged item, is ignored.
Mar 31, 2015
A) Change in accounting estimates
Depreciation on fixed assets
Till the year ended March 31,2014, Schedule XIV to the Companies Act,
1956, prescribed requirements concerning depreciation of fixed assets.
From the current year, Schedule XIV has been replaced by Schedule II to
the Companies Act, 2013. The applicability of Schedule II has resulted
in the following changes related to depreciation of fixed assets.
Unless stated otherwise, the impact mentioned for the current year is
likely to hold good for future years also.
(i) Useful lives/ depreciation rates
Till the year ended March 31,2014, depreciation rates prescribed under
Schedule XIV were treated as minimum rates and the Company was not
allowed to charge depreciation at lower rates even if such lower rates
were justified by the estimated useful life of the asset. Schedule II
to the Companies Act, 2013 prescribes useful lives for fixed assets
which, in many cases, are different from lives prescribed under the
erstwhile Schedule XIV. However, Schedule II allows companies to use
higher/ lower useful lives and residual values if such useful lives and
residual values can be technically supported and justification for
difference is disclosed in the financial statements.
From April 1,2014, Schedule II of the Companies Act, 2013 has become
applicable to the Company. Accordingly, the Company has revised the
estimated useful life of its assets from rates prescribed under
Schedule XIV of the Companies Act, 1956 to the rates and useful life
prescribed under Schedule II of Companies Act, 2013 except for certain
class of assets, mentioned in (d) below. The written down value of
fixed assets as at April 01,2014 is being depreciated on prospective
basis at the rate prescribed under Schedule II of the Companies Act,
2013. This change in accounting estimate has resulted in increase in
depreciation and amortization expenses and correspondingly decreases in
profit (before tax) for the current year by Rs 19,266,966.
(ii) Depreciation on assets costing less than Rs. 5,000
Till year ended March 31,2014, to comply with the requirements of
Schedule XIV to the Companies Act, 1956, the Company was charging 100%
depreciation on assets costing less than Rs.5,000 in the year of
purchase. However, Schedule II to the Companies Act 2013, applicable
from the current year, does not recognize such practice. Hence, to
comply with the requirement of Schedule II to the Companies Act,2013,
the Company has changed its accounting practise for depreciation of
assets costing less than Rs.5,000. Consequent to the change, the
Company is depreciating such assets over their useful life as assessed
by the management. The management has decided to apply the change
prospectively from accounting periods commencing on or after April
01,2014.
The change in accounting for depreciation of assets costing less than
Rs. 5,000 did not have any material impact on financial statements of
the Company for the current year.
b) Use of estimates
The preparation of financial statements in conformity with Indian GAAP
requires the management to make judgments, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and
liabilities and the disclosure of contingent liabilities, at the end of
the reporting period. Although these estimates are based on the
management''s best knowledge of current events and actions, uncertainty
about these assumptions and estimates could result in the outcomes
requiring a material adjustment to the carrying amounts of assets or
liabilities in future periods.
c) Tangible fixed assets
Fixed assets are stated at cost, net of accumulated depreciation and
accumulated impairment losses, if any. The cost comprises purchase
price, borrowing costs if capitalization criteria are met and directly
attributable cost of bringing the asset to its working condition for
the intended use. Any trade discounts and rebates are deducted in
arriving at the purchase price.
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.
All other expenses on existing fixed assets, including day-to-day
repair and maintenance expenditure and cost of replacing parts, are
charged to the statement of profit and loss for the period during which
such expenses are incurred.
Gains or losses arising from derecognition of fixed assets are measured
as the difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in the statement of profit and
loss when the asset is derecognized.
d) Depreciation on tangible fixed assets
Depreciation on fixed assets is calculated on a straight-line basis
using the rates arrived at based on the useful lives estimated by the
management. The company has used the following rates to provide
depreciation on its fixed assets:
S.No. Assets Useful lives estimated by the
management (years)
(i) Buildings 30
(ii) Plant and Machinery 2 to15
(iii) Furniture and fixtures 10
(iv) Office Equipment 5
(v) Computes- Servers & networks 6
(vi) Computes- End user devices 3
(vii) Vehicles 6
The management has estimated, supported by assessment by technical
experts, the useful lives of the following classes of assets:
* The useful lives of certain plant and machinery is estimated as
ranging between 2 to 15 years, which is lower than those indicated in
schedule II.
* Vehicles are depreciated over the estimated useful lives of 6 years,
which is lower than those indicated in schedule II.
e) Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. Following initial recognition, intangible assets
are carried at cost less accumulated amortization and accumulated
impairment losses, if any. Internally generated intangible assets,
excluding capitalized development costs, are not capitalized and
expenditure is reflected in the statement of profit and loss in the
year in which the expenditure is incurred.
Intangible assets are amortized on a straight line basis over the
estimated useful economic life. The Company uses 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. If the
persuasive evidence exists to the affect that useful life of an
intangible asset exceeds ten years, the Company amortizes the intangible
asset over the best estimate of its useful life. Such intangible assets
and intangible assets not yet available for use are tested for
impairment annually, either individually or at the cash-generating unit
level. All other intangible assets are assessed for impairment whenever
there is an indication that the intangible asset may be impaired.
The amortization period and the amortization 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
amortization period is changed accordingly. If there has been a
significant change in the expected pattern of economic benefits from
the asset, the amortization method is changed to reflect the changed
pattern. Such changes are accounted for in accordance with AS 5- "Net
Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies."
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 and loss when the asset is derecognized.
Research costs are expensed as incurred. Development expenditure
incurred on an individual project is recognized as an intangible asset
when the company can demonstrate all the following:
1. The technical feasibility of completing the intangible asset so
that it will be available for use or sale
2. Its intention to complete the asset
3. Its ability to use or sell the asset
4. How the asset will generate future economic benefits
5. The availability of adequate resources to complete the development
and to use or sell the asset
6. The ability to measure reliably the expenditure attributable to the
intangible asset during development.
Designs and Drawings
Amounts paid towards acquisition of designs and drawings for
specifically identified products, is carried forward based on
assessment of benefits arising from such expenditure. Such expenditure
is amortised on straight line basis over the period of expected future
sales from the related product, which the management has determined to
be 24 months based on past trends, commencing from the month of
commencement of commercial production.
Computer Software
Costs relating to software, which are acquired, are capitalized and
amortised on a straight line basis over the management''s estimated
useful life of four years.
f) Leases
Where the Company is lessee
Leases, where the lessor effectively retains substantially all the
risks and benefits of ownership of the leased item, are classified as
operating leases. Operating lease payments are recognized as an expense
in the statement of profit and loss on a straight-line basis over the
lease term.
g) Borrowing Costs
Borrowing cost includes interest, amortization of ancillary costs
incurred in connection with the arrangement of borrowings.
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 respective asset. All other borrowing costs are
expensed in the period they occur.
h) Impairment of tangible and intangible 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) net selling
price and its value in use. 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. Where 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
net selling price, recent market transactions are taken into account,
if available. If no such transactions can be identified, an appropriate
valuation model is used.
The Company bases its impairment calculation on detailed budgets and
forecast calculations which are prepared separately for each of the
Company''s cash-generating units to which the individual assets are
allocated. These budgets and forecast calculations are generally
covering 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.
Impairment losses, including impairment on inventories, are recognized
in the statement of profit and loss.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
An assessment is made at each reporting date as to whether there is any
indication that previously recognized impairment losses may no longer
exist or may have decreased. If such indication exists, the Company
estimates the asset''s or cash-generating unit''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.
i) Investments
Investments, which are readily realizable and intended to be held for
not more than one year from the date on which such investments are
made, are classified as current investments. All other investments are
classified as long-term investments.
On initial recognition, all investments are measured at cost. The cost
comprises purchase price and directly attributable acquisition charges
such as brokerage, fees and duties.
Current investments are carried in the financial statements at lower of
cost and fair value determined on an individual investment basis.
Long-term investments are carried at cost. However, provision for
diminution in value is made to recognize a decline other than temporary
in the value of the investments.
On disposal of an investment, the difference between its carrying
amount and net disposal proceeds is charged or credited to the
statement of profit and loss.
j) Inventories
Inventories are valued as follows:
Raw materials, Lower of cost and net realizable value.
However, materials and
components, stores other items held for use in the production
of inventories are not written
and spares down below cost if the finished products
in which they will be incorporated are
expected to be sold at or above cost. Cost
of Raw materials, components and stores
and spares is determined on a
weighted average basis.
Work-in-progress Lower of cost and net realizable value.
Cost includes direct materials
and finished goods and labour and a proportion of
manufacturing overheads, including
depreciation, based on normal capacity.
Cost of finished goods includes excise
duty. Cost is determined on a weighted
average basis.
Scrap At net realizable value
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated
costs necessary to make the sale.
k) Revenue Recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured. The following specific recognition criteria must
also be met before revenue is recognized:
Sale of goods
Revenue from sale of goods is recognized when all the significant risks
and rewards of ownership of the goods have been passed to the buyer,
usually on delivery of the goods. The Company collects sales taxes and
value added taxes (VAT) on behalf of the government and, therefore,
these are not economic benefits flowing to the Company. Hence, they are
excluded from revenue. Excise duty deducted from revenue (gross) is the
amount that is included in the revenue (gross) and not the entire
amount of liability arising during the year. Interest
Interest income is recognized on a time proportion basis taking into
account the amount outstanding and the applicable interest rate.
Interest income is included under the head "other income" in the
statement of profit and loss.
l) Foreign currency translation Initial recognition
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction. Conversion
Foreign currency monetary items are retranslated using the exchange
rate prevailing at the reporting date. Non-monetary items, which are
measured in terms of historical cost denominated in a foreign currency,
are reported using the exchange rate at the date of the transaction.
Non-monetary items, which are measured at fair value or other similar
valuation denominated in a foreign currency, are translated using the
exchange rate at the date when such value was determined.
Exchange differences
The Company accounts for exchange differences arising on translation/
settlement of foreign currency monetary items as below:
1. Exchange differences arising on long-term foreign currency monetary
items related to acquisition of a fixed asset are capitalized and
depreciated over the remaining useful life of the asset.
2. Exchange differences arising on other long-term foreign currency
monetary items are accumulated in the "Foreign Currency Monetary Item
Translation Difference Account" and amortized over the remaining life
of the concerned monetary item.
3. All other exchange differences are recognized as income or as
expenses in the period in which they arise. For the purpose of 1 and 2
above, the Company treats a foreign monetary item as "long-term foreign
currency monetary item", if it has a term of 12 months or more at the
date of its origination. In accordance with MCA circular dated 09
August 2012, exchange differences for this purpose, are total
differences arising on long-term foreign currency monetary items for
the period.
Forward exchange contracts entered into to hedge foreign currency risk
of an existing asset/ liability
The premium or discount arising at the inception of forward exchange
contract is amortized and recognized as an expense/ income over the
life of the contract. Exchange differences on such contracts, except
the contracts which are long-term foreign currency monetary items, are
recognized in the statement of profit and loss in the period in which
the exchange rates change. Any profit or loss arising on cancellation
or renewal of such forward exchange contract is also recognized as
income or as expense for the period. Any gain/ loss arising on forward
contracts which are long-term foreign currency monetary items is
recognized in accordance with paragraph 1 and 2 above.
m) Retirement and other benefits
Retirement benefit in the form of provident fund and superannuation
fund (maintained as per the scheme of Life Insurance Corporation) is a
defined contribution scheme. The Company has no obligation, other than
the contribution payable to the funds. The Company recognizes
contribution payable to the fund scheme as an expenditure, when an
employee renders the related service. If the contribution payable to
the scheme for service received before the balance sheet date exceeds
the contribution already paid, the deficit payable to the scheme is
recognized as a liability after deducting the contribution already
paid. If the contribution already paid exceeds the contribution due for
services received before the balance sheet date, then excess is
recognized as an asset to the extent that the pre payment will lead to,
for example, a reduction in future payment or a cash refund.
The Company operates a defined benefit plan for its employees, viz.,
gratuity. The costs of providing benefits under this plan are
determined on the basis of actuarial valuation at each year-end.
Actuarial valuation is carried out for the plan using the projected
unit credit method. Actuarial gains and losses for the defined benefit
plan are recognized in full in the period in which they occur in the
statement of profit and loss. Accumulated leave, which is expected to
be utilized within the next 12 months, is treated as short-term
employee benefit. The Company measures the expected cost of such
absences as the additional amount that it expects to pay as a result of
the unused entitlement that has accumulated at the reporting date. The
Company treats accumulated leave expected to be carried forward beyond
twelve months, as long-term employee benefit for measurement purposes.
Such long-term compensated absences are provided for based on the
actuarial valuation using the projected unit credit method at the
year-end. Actuarial gains/ losses are immediately taken to the
statement of profit and loss and are not deferred. The Company presents
the leave as a current liability in the balance sheet, to the extent it
does not have an unconditional right to defer its settlement for 12
months after the reporting date. Where Company has the unconditional
legal and contractual right to defer the settlement for a period beyond
12 months, the same is presented as non-current liability.
n) Income taxes
Tax expense comprises of current tax and deferred tax. Current income
tax is measured at the amount expected to be paid to the income tax
authorities in accordance with the Income-tax Act, 1961 enacted in
India. The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted, at the reporting date.
Deferred income taxes reflect the impact of timing differences between
taxable income and accounting income originating during the current
year and reversal of timing differences for the earlier years. Deferred
tax is measured using the tax rates and the tax laws enacted or
substantively enacted at the reporting date. Deferred tax liabilities
are recognized for all taxable timing differences. Deferred tax assets
are recognized for deductible timing differences only to the extent
that there is reasonable certainty that sufficient future taxable
income will be available against which such deferred tax assets can be
realized. In situations where the Company has unabsorbed depreciation
or carry forward tax losses, all deferred tax assets are recognized
only if there is virtual certainty supported by convincing evidence
that such deferred tax assets can be realized against future taxable
profits.
In the situation where the Company is entitled to a tax holiday under
the Income Tax Act, 1961 enacted in India, no deferred tax (asset or
liability) is recognized in respect of timing differences which reverse
during the tax holiday period, to the extent the Company''s gross total
income is subject to the deduction during the tax holiday period.
Deferred tax in respect of timing differences which reverse after the
tax holiday period is recognized in the year in which the timing
differences originate. However, the Company restricts recognition of
deferred tax assets to the extent that it has become reasonably certain
or virtually certain, as the case may be, that sufficient future
taxable income will be available against which such deferred tax assets
can be realized. For recognition of deferred taxes, the timing
differences which originate first are considered to reverse first.
At each reporting date, the Company re-assesses unrecognized deferred
tax assets. It recognizes unrecognized deferred tax assets to the
extent that it has become reasonably certain or virtually certain, as
the case may be, that sufficient future taxable income will be
available against which such deferred tax assets can be realized. The
carrying amount of deferred tax assets are reviewed at each reporting
date. The Company writes- down the carrying amount of a deferred tax
asset to the extent that it is no longer reasonably certain or
virtually certain, as the case may be, that sufficient future taxable
income will be available against which deferred tax asset can be
realized. Any such write-down is reversed to the extent that it becomes
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available. Deferred tax
assets and deferred tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current
tax liabilities and the deferred tax assets and deferred tax
liabilities relate to the same taxable entity and the same taxation
authority.
Minimum alternate tax (MAT) paid in a year is charged to the statement
of profit and loss as current tax. The Company recognizes MAT credit
available as an asset only to the extent that there is convincing
evidence that the Company will pay normal income tax during the
specified period, i.e., the period for which MAT credit is allowed to
be carried forward. In the year in which the Company recognizes MAT
credit as an asset in accordance with the Guidance Note on Accounting
for Credit Available in respect of Minimum Alternative Tax under the
Income-tax Act, 1961, the said asset is created by way of credit to the
statement of profit and loss and shown as "MAT Credit Entitlement." The
Company reviews the "MAT credit entitlement" asset at each reporting
date and writes down the asset to the extent the Company does not have
convincing evidence that it will pay normal tax during the specified
period.
o) Segment reporting
Identification of segments
The Company''s operating businesses are organized and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products and serves different markets. The analysis of geographical
segments is based on the areas in which major operating divisions of
the Company operate.
Segment accounting policies
The Company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the Company as a whole.
p) Earnings per share
Basic earning per share is calculated by dividing the net profit or
loss for the year attributable to equity shareholders by the weighted
average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
q) Provisions
A provision is recognized when the Company has a present obligation as
a result of past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation.
Provisions are not discounted to their present value and are determined
based on the best estimate required to settle the obligation at the
reporting date. These estimates are reviewed at each reporting date
and adjusted to reflect the current best estimates. Warranty
provisions Provisions for warranty-related costs are recognized when
the product is sold. Provision is based on historical experience. The
estimate of such warranty-related costs is revised annually.
r) Contingent liabilities
A contingent liability is a possible obligation that arises from past
events whose existence will be confirmed by the occurrence or non-
occurrence of one or more uncertain future events beyond the control of
the Company or a present obligation that is not recognised because it
is not probable that an outflow of resources will be required to settle
the obligation. A contingent liability also arises in extremely rare
cases where there is a liability that cannot be recognized because it
cannot be measured reliably. The Company does not recognize a
contingent liability but discloses its existence in the financial
statements.
s) Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
t) Derivative instruments
In accordance with the ICAI announcement, derivative contracts, other
than foreign currency forward contracts covered under AS 11, are marked
to market on a portfolio basis, and the net loss, if any, after
considering the offsetting effect of gain on the underlying hedged
item, is charged to the statement of profit and loss. Net gain, if
any, after considering the offsetting effect of loss on the underlying
hedged item, is ignored.
Mar 31, 2013
A) Use of estimates
The preparation of financial statements in conformity with Indian GAAP
requires the management to make judgments, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and
liabilities and the disclosure of contingent liabilities, at the end of
the reporting period. Although these estimates are based on the
management''s best knowledge of current events and actions, uncertainty
about these assumptions and estimates could result in the outcomes
requiring a material adjustment to the carrying amounts of assets or
liabilities in future periods.
b) Tangible fixed assets
- Fixed assets are stated at cost, net of accumulated depreciation and
accumulated impairment losses, if any. The cost comprises purchase
price, borrowing costs if capitalization criteria are met and directly
attributable cost of bringing the asset to its working condition for
the intended use. Any trade discounts and rebates are deducted in
arriving at the purchase price.
- 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.
All other expenses on existing fixed assets, including day-to-day
repair and maintenance expenditure and cost of replacing parts, are
charged to the statement of profit and loss for the period during which
such expenses are incurred.
- Gains or losses arising from derecognition of fixed assets are
measured as the difference between the net disposal proceeds and the
carrying amount of the asset and are recognized in the statement of
profit and loss when the asset is derecognized.
c) Depreciation on tangible fixed assets
- Depreciation is provided using Straight Line Method as per the useful
life of the asset estimated by the management which are equal to the
rates prescribed under Schedule XIV to the Companies Act, 1956 other
than the cases as mentioned in para (i) to (iii) below where the rate
of depreciation is higher than those prescribed in Schedule XIV to the
Companies Act, 1956.
- Depreciation on the amount of adjustment to fixed assets on account
of capitalisation of insurance spares is provided over the remaining
useful life of related assets.
- Assets costing less than or equal to Rs. 5,000 are depreciated fully
in the year of purchase.
d) Intangible assets
- Intangible assets acquired separately are measured on initial
recognition at cost. Following initial recognition, intangible assets
are carried at cost less accumulated amortization and accumulated
impairment losses, if any. Internally generated intangible assets,
excluding capitalized development costs, are not capitalized and
expenditure is reflected in the statement of profit and loss in the
year in which the expenditure is incurred.
- Intangible assets are amortized on a straight line basis over the
estimated useful economic life. The Company uses 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. If the
persuasive evidence exists to the affect that useful life of an
intangible asset exceeds ten years, the Company amortizes the
intangible asset over the best estimate of its useful life. Such
intangible assets and intangible assets not yet available for use are
tested for impairment annually, either individually or at the
cash-generating unit level. All other intangible assets are assessed
for impairment whenever there is an indication that the intangible
asset may be impaired.
- The amortization period and the amortization 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
amortization period is changed accordingly. If there has been a
significant change in the expected pattern of economic benefits from
the asset, the amortization method is changed to reflect the changed
pattern. Such changes are accounted for in accordance with AS 5 Net
Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies.
- 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 and loss when the asset is derecognized.
- Research costs are expensed as incurred. Development expenditure can
only be capitalized if specific conditions are fulfilled.
Designs and Drawings
Amounts paid towards acquisition of designs and drawings for
specifically identified products, being development expenditure
incurred towards product design is carried forward based on assessment
of benefits arising from such expenditure. Such expenditure is
amortised over the period of expected future sales from the related
product, which the management has determined to be 24 months based on
past trends, commencing from the month of commencement of commercial
production.
Computer Software
Costs relating to software, which are acquired, are capitalized and
amortised on a straight line basis over the useful lives of four years.
e) Leases
Where the Company is lessee
Leases, where the lessor effectively retains substantially all the
risks and benefits of ownership of the leased item, are classified as
operating leases. Operating lease payments are recognized as an expense
in the statement of profit and loss on a straight-line basis over the
lease term.
f) Borrowing Costs
- Borrowing cost includes interest, amortization of ancillary costs
incurred in connection with the arrangement of borrowings.
- 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 respective asset. All other
borrowing costs are expensed in the period they occur.
g) Impairment of tangible and intangible 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) net selling
price and its value in use. 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.
Where 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 net
selling price, recent market transactions are taken into account, if
available. If no such transactions can be identified, an appropriate
valuation model is used.
- The Company bases its impairment calculation on detailed budgets and
forecast calculations which are prepared separately for each of the
Company''s cash-generating units to which the individual assets are
allocated. These budgets and forecast calculations are generally
covering 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.
- Impairment losses, including impairment on inventories, are
recognized in the statement of profit and loss.
- After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
- An assessment is made at each reporting date as to whether there is
any indication that previously recognized impairment losses may no
longer exist or may have decreased. If such indication exists, the
Company estimates the asset''s or cash-generating unit''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.
h) Investments
- Investments, which are readily realizable and intended to be held for
not more than one year from the date on which such investments are
made, are classified as current investments. All other investments are
classified as long-term investments.
- On initial recognition, all investments are measured at cost. The
cost comprises purchase price and directly attributable acquisition
charges such as brokerage, fees and duties.
- Current investments are carried in the financial statements at lower
of cost and fair value determined on an individual investment basis.
Long-term investments are carried at cost. However, provision for
diminution in value is made to recognize a decline other than temporary
in the value of the investments.
- On disposal of an investment, the difference between its carrying
amount and net disposal proceeds is charged or credited to the
statement of profit and loss.
i) Inventories
Inventories are valued as follows:
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated
costs necessary to make the sale.
j) Revenue Recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured. The following specific recognition criteria must
also be met before revenue is recognized:
Sale of goods
Revenue from sale of goods is recognized when all the significant risks
and rewards of ownership of the goods have been passed to the buyer,
usually on delivery of the goods. The Company collects sales taxes and
value added taxes (VAT) on behalf of the government and, therefore,
these are not economic benefits flowing to the Company. Hence, they are
excluded from revenue. Excise duty deducted from revenue (gross) is the
amount that is included in the revenue (gross) and not the entire
amount of liability arising during the year.
Interest
IInterest income is recognized on a time proportion basis taking into
account the amount outstanding and the applicable interest rate.
Interest income is included under the head "other income" in the
statement of profit and loss.
k) Foreign currency translation Initial recognition
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
Conversion
Foreign currency monetary items are retranslated using the exchange
rate prevailing at the reporting date. Non-monetary items, which are
measured in terms of historical cost denominated in a foreign currency,
are reported using the exchange rate at the date of the transaction.
Non-monetary items, which are measured at fair value or other similar
valuation denominated in a foreign currency, are translated using the
exchange rate at the date when such value was determined.
Exchange differences
The Company accounts for exchange differences arising on translation/
settlement of foreign currency monetary items as below:
1. Exchange differences arising on long-term foreign currency monetary
items related to acquisition of a fixed asset are capitalized and
depreciated over the remaining useful life of the asset.
2. Exchange differences arising on other long-term foreign currency
monetary items are accumulated in the "Foreign Currency Monetary Item
Translation Difference Account" and amortized over the remaining life
of the concerned monetary item.
3. All other exchange differences are recognized as income or as
expenses in the period in which they arise.
For the purpose of 1 and 2 above, the Company treats a foreign monetary
item as "long-term foreign currency monetary item", if it has a term of
12 months or more at the date of its origination. In accordance with
MCA circular dated 09 August 2012, exchange differences for this
purpose, are total differences arising on long-term foreign currency
monetary items for the period.
Forward exchange contracts entered into to hedge foreign currency risk
of an existing asset/ liability
The premium or discount arising at the inception of forward exchange
contract is amortized and recognized as an expense/ income over the
life of the contract. Exchange differences on such contracts, except
the contracts which are long-term foreign currency monetary items, are
recognized in the statement of profit and loss in the period in which
the exchange rates change. Any profit or loss arising on cancellation
or renewal of such forward exchange contract is also recognized as
income or as expense for the period. Any gain/ loss arising on forward
contracts which are long-term foreign currency monetary items is
recognized in accordance with paragraph 1 and 2 above.
l) Retirement and other benefits
(i) Retirement benefit in the form of provident fund and superannuation
fund (maintained as per the scheme of Life Insurance Corporation) is a
defined contribution scheme. The Company has no obligation, other than
the contribution payable to the funds. The Company recognizes
contribution payable to the fund scheme as an expenditure, when an
employee renders the related service. If the contribution payable to
the scheme for service received before the balance sheet date exceeds
the contribution already paid, the deficit payable to the scheme is
recognized as a liability after deducting the contribution already
paid. If the contribution already paid exceeds the contribution due for
services received before the balance sheet date, then excess is
recognized as an asset to the extent that the pre payment will lead to,
for example, a reduction in future payment or a cash refund.
(ii) The Company operates a defined benefit plan for its employees,
viz., gratuity. The costs of providing benefits under this plan are
determined on the basis of actuarial valuation at each year- end.
Actuarial valuation is carried out for the plan using the projected
unit credit method. Actuarial gains and losses for the defined benefit
plan are recognized in full in the period in which they occur in the
statement of profit and loss.
(iii) Accumulated leave, which is expected to be utilized within the
next 12 months, is treated as short-term employee benefit. The Company
measures the expected cost of such absences as the additional amount
that it expects to pay as a result of the unused entitlement that has
accumulated at the reporting date.
(iv) The Company treats accumulated leave expected to be carried
forward beyond twelve months, as long-term employee benefit for
measurement purposes. Such long-term compensated absences are provided
for based on the actuarial valuation using the projected unit credit
method at the year-end. Actuarial gains/losses are immediately taken to
the statement of profit and loss and are not deferred. The Company
presents the leave as a current liability in the balance sheet, to the
extent it does not have an unconditional right to defer its settlement
for 12 months after the reporting date. Where Company has the
unconditional legal and contractual right to defer the settlement for a
period beyond 12 months, the same is presented as non-current
liability.
m) Income taxes
- Tax expense comprises of current tax and deferred tax. Current income
tax is measured at the amount expected to be paid to the income tax
authorities in accordance with the Income-tax Act, 1961 enacted in
India. The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted, at the reporting date.
- Deferred income taxes reflect the impact of timing differences
between taxable income and accounting income originating during the
current year and reversal of timing differences for the earlier years.
Deferred tax is measured using the tax rates and the tax laws enacted
or substantively enacted at the reporting date.
- Deferred tax liabilities are recognized for all taxable timing
differences. Deferred tax assets are recognized for deductible timing
differences only to the extent that there is reasonable certainty that
sufficient future taxable income will be available against which such
deferred tax assets can be realized. In situations where the Company
has unabsorbed depreciation or carry forward tax losses, all deferred
tax assets are recognized only if there is virtual certainty supported
by convincing evidence that such deferred tax assets can be realized
against future taxable profits.
- In the situation where the Company is entitled to a tax holiday under
the Income Tax Act, 1961 enacted in India, no deferred tax (asset or
liability) is recognized in respect of timing differences which reverse
during the tax holiday period, to the extent the Company''s gross total
income is subject to the deduction during the tax holiday period.
Deferred tax in respect of timing differences which reverse after the
tax holiday period is recognized in the year in which the timing
differences originate. However, the Company restricts recognition of
deferred tax assets to the extent that it has become reasonably certain
or virtually certain, as the case may be, that sufficient future
taxable income will be available against which such deferred tax assets
can be realized. For recognition of deferred taxes, the timing
differences which originate first are considered to reverse first.
- At each reporting date, the Company re-assesses unrecognized deferred
tax assets. It recognizes unrecognized deferred tax assets to the
extent that it has become reasonably certain or virtually certain, as
the case may be, that sufficient future taxable income will be
available against which such deferred tax assets can be realized.
- The carrying amount of deferred tax assets are reviewed at each
reporting date. The Company writes-down the carrying amount of a
deferred tax asset to the extent that it is no longer reasonably
certain or virtually certain, as the case may be, that sufficient
future taxable income will be available against which deferred tax
asset can be realized. Any such write-down is reversed to the extent
that it becomes reasonably certain or virtually certain, as the case
may be, that sufficient future taxable income will be available.
- Deferred tax assets and deferred tax liabilities are offset, if a
legally enforceable right exists to set off current tax assets against
current tax liabilities and the deferred tax assets and deferred tax
liabilities relate to the same taxable entity and the same taxation
authority.
- Minimum alternate tax (MAT) paid in a year is charged to the
statement of profit and loss as current tax. The Company recognizes MAT
credit available as an asset only to the extent that there is
convincing evidence that the Company will pay normal income tax during
the specified period, i.e., the period for which MAT credit is allowed
to be carried forward. In the year in which the Company recognizes MAT
credit as an asset in accordance with the Guidance Note on Accounting
for Credit Available in respect of Minimum Alternative Tax under the
Income-tax Act, 1961, the said asset is created by way of credit to the
statement of profit and loss and shown as "MAT Credit Entitlement." The
Company reviews the "MAT credit entitlement" asset at each reporting
date and writes down the asset to the extent the Company does not have
convincing evidence that it will pay normal tax during the specified
period.
n) Segment reporting
Identification of segments
The Company''s operating businesses are organized and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products and serves different markets. The analysis of geographical
segments is based on the areas in which major operating divisions of
the Company operate.
Segment accounting policies
The Company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the Company as a whole.
o) Earnings per share
- Basic earning per share is calculated by dividing the net profit or
loss for the year attributable to equity shareholders by the weighted
average number of equity shares outstanding during the year.
- For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
p) Provisions
A provision is recognized when the Company has a present obligation as
a result of past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation.
Provisions are not discounted to their present value and are determined
based on the best estimate required to settle the obligation at the
reporting date. These estimates are reviewed at each reporting date and
adjusted to reflect the current best estimates.
Warranty provisions
Provisions for warranty-related costs are recognized when the product
is sold. Provision is based on historical experience. The estimate of
such warranty-related costs is revised annually.
q) Contingent liabilities
A contingent liability is a possible obligation that arises from past
events whose existence will be confirmed by the occurrence or non-
occurrence of one or more uncertain future events beyond the control of
the Company or a present obligation that is not recognised because it
is not probable that an outflow of resources will be required to settle
the obligation. A contingent liability also arises in extremely rare
cases where there is a liability that cannot be recognized because it
cannot be measured reliably. The Company does not recognize a
contingent liability but discloses its existence in the financial
statements.
r) Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
s) Derivative instruments
In accordance with the ICAI announcement, derivative contracts, other
than foreign currency forward contracts covered under AS 11, are marked
to market on a portfolio basis, and the net loss, if any, after
considering the offsetting effect of gain on the underlying hedged
item, is charged to the statement of profit and loss. Net gain, if any,
after considering the offsetting effect of loss on the underlying
hedged item, is ignored.
Mar 31, 2012
A) Change in accounting policy
Presentation and disclosure of financial statements
During the year ended 31 March 2012, the revised Schedule VI notified
under the Companies Act 1956, has become applicable to the Company, for
preparation and presentation of its financial statements. The adoption
of revised Schedule VI does not impact recognition and measurement
principles followed for preparation of financial statements. However,
it has significant impact on presentation and disclosures made in the
financial statements. The Company has also reclassified the previous
year's figures in accordance with the requirements applicable in the
current year.
b) Use of estimates
The preparation of financial statements in conformity with Indian GAAP
requires the management to make judgments, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and
liabilities and the disclosure of contingent liabilities, at the end of
the reporting period. Although these estimates are based on the
management's best knowledge of current events and actions,
uncertainty about these assumptions and estimates could result in the
outcomes requiring a material adjustment to the carrying amounts of
assets or liabilities in future periods.
c) Tangible fixed assets
- Fixed assets are stated at cost, net of accumulated depreciation and
accumulated impairment losses, if any. The cost comprises purchase
price, borrowing costs if capitalization criteria are met and directly
attributable cost of bringing the asset to its working condition for
the intended use. Any trade discounts and rebates are deducted in
arriving at the purchase price.
- 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.
All other expenses on existing fixed assets, including day-to-day
repair and maintenance expenditure and cost of replacing parts, are
charged to the statement of profit and loss for the period during which
such expenses are incurred.
- From accounting periods commencing on or after 7 December 2006, the
Company adjusts exchange differences arising on translation/ settlement
of long-term foreign currency monetary items pertaining to the
acquisition of a depreciable asset to the cost of the asset and
depreciates the same over the remaining life of the asset.
- Gains or losses arising from derecognition of fixed assets are
measured as the difference between the net disposal proceeds and the
carrying amount of the asset and are recognized in the statement of
profit and loss when the asset is derecognized.
d) Depreciation on tangible fixed assets
- Depreciation on fixed assets is provided using the straight line
method as per the estimated useful lives of the fixed assets estimated
by the management, which results in depreciation rates being equal to
the corresponding rates prescribed in Schedule XIV of the Companies
Act, 1956 except for certain non factory buildings like boundary wall,
tubewell and road which are depreciated at 3.34%, the rate of which is
higher than the rate prescribed in Schedule XIV of the Companies Act,
1956.
- Depreciation on the amount of adjustment to fixed assets on account
of capitalisation of insurance spares is provided over the remaining
useful life of related assets.
- Assets costing less than or equal to Rs. 5,000 are depreciated fully
in the year of purchase.
e) Intangible assts
- Intangible assets acquired separately are measured on initial
recognition at cost. Following initial recognition, intangible assets
are carried at cost less accumulated amortization and accumulated
impairment losses, if any. Internally generated intangible assets,
excluding capitalized development costs, are not capitalized and
expenditure is reflected in the statement of profit and loss in the
year in which the expenditure is incurred.
- Intangible assets are amortized on a straight line basis over the
estimated useful economic life. The Company uses 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. If the
persuasive evidence exists to the affect that useful life of an
intangible asset exceeds ten years, the Company amortizes the
intangible asset over the best estimate of its useful life. Such
intangible assets and intangible assets not yet available for use are
tested for impairment annually, either individually or at the
cash-generating unit level. All other intangible assets are assessed
for impairment whenever there is an indication that the intangible
asset may be impaired.
- The amortization period and the amortization 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
amortization period is changed accordingly. If there has been a
significant change in the expected pattern of economic benefits from
the asset, the amortization method is changed to reflect the changed
pattern. Such changes are accounted for in accordance with AS 5 Net
Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies.
- 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 arerecognized in the statement of
profit and loss when the asset is derecognized.
Designs and Drawings
Amounts paid towards acquisition of designs and drawings for
specifically identified products, being development expenditure
incurred towards product design is carried forward based on assessment
of benefits arising from such expenditure. Such expenditure is
amortised over the period of expected future sales from the related
product, which the management has determined to be 24 months based on
past trends, commencing from the month of commencement of commercial
production.
Computer Software
Costs relating to Software, which are acquired, are capitalized and
amortised on a straight line basis over the useful lives of four years.
f) Leases
Where the Company is lessee
Leases, where the lessor effectively retains substantially all the
risks and benefits of ownership of the leased item, are classified as
operating leases. Operating lease payments are recognized as an expense
in the statement of profit and loss on a straight-line basis over the
lease term.
g) Borrowing Costs
- Borrowing cost includes interest, amortization of ancillary costs
incurred in connection with the arrangement of borrowings and exchange
differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest cost.
- Ancilliary costs of arranging the borrowings are amortized equally
over the period for which the funds are acquired. During an earlier
year, the Company incurred such expenditure amounting to Rs.
18,118,261/- on External Commercial Borrowings which is being amortized
over a period of 5 years. During the year, an amount of Rs.3,623,652/-
(Previous year: Rs. 3,623,652/-) has been charged to the statement of
profit and loss.
- 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 respective asset. All other
borrowing costs are expensed in the period they occur.
h) Impairment of tangible and intangible 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)
net selling price and its value in use. 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. Where 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
net selling price, recent market transactions are taken into account,
if available. If no such transactions can be identified, an appropriate
valuation model is used.
- The Company bases its impairment calculation on detailed budgets and
forecast calculations which are prepared separately for each of the
company's cash-generating units to which the individual assets are
allocated. These budgets and forecast calculations are generally
covering 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.
- Impairment losses, including impairment on inventories, are
recognized in the statement of profit and loss.
- After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
- An assessment is made at each reporting date as to whether there is
any indication that previously recognized impairment losses may no
longer exist or may have decreased. If such indication exists, the
Company estimates the asset's or cash-generating unit'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 unless the
asset is carried at a revalued amount, in which case the reversal is
treated as a revaluation increase.
i) Investments
- Investments, which are readily realizable and intended to be held for
not more than one year from the date on which such investments are
made, are classified as current investments. All other investments are
classified as long-term investments.
- On initial recognition, all investments are measured at cost. The
cost comprises purchase price and directly attributable acquisition
charges such as brokerage, fees additions.
- Current investments are carried in the financial statements at lower
of cost and fair value determined on an individual investment basis.
Long-term investments are carried at cost. However, provision for
diminution in value is made to recognize a decline other than temporary
in the value of the investments. On disposal of an investment, the
difference between its carrying amount and net disposal proceeds is
charged or credited to the statement of profit and loss.
j) Inventories
Inventories are valued as follows:
Raw materials, components, stores and spares
Lower of cost and net realizable value. However, materials and other
items held for use in the production of inventories are not written
down below cost if the finished products in which they will be
incorporated are expected to be sold at or above cost. Cost is
determined on a weighted average basis.
Work-in-progress and finished goods
Lower of cost and net realizable value. Cost includes direct materials
and labour and a proportion of manufacturing overheads, including
depreciation, based on normal capacity. Cost of finished goods includes
excise duty. Cost is determined on a weighted average basis.
Scrap At net realizable value
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated
costs necessary to make the sale.
k) Revenue Recognition
Revenue from sale of goods is recognized when all the significant risks
and rewards of ownership of the goods have been passed to the buyer,
usually on delivery of the goods. The Company collects sales taxes and
value added taxes (VAT) on behalf of the government and, therefore,
these are not economic benefits flowing to the Company. Hence, they are
excluded from revenue. Excise duty deducted from revenue (gross) is the
amount that is included in the revenue (gross) and not the entire
amount of liability arising during the year.
Sale of goods
Revenue is recognized when the significant risks and rewards of
ownership of the goods have been passed to the buyer, usually on
delivery of the goods.
Interest
Interest income is recognized on a time proportion basis taking into
account the amount outstanding and the applicable interest rate.
Interest income is included under the head "other income" in the
statement of profit and loss.
Dividends
Dividend income is recognized when the Company's right to receive
dividend is established by the reporting date. l) Foreign currency
translation Initial recognition Foreign currency transactions are
recorded in the reporting currency, by applying to the foreign currency
amount the exchange rate between the reporting currency and the foreign
currency at the date of the transaction.
Conversion
Foreign currency monetary items are retranslated using the exchange
rate prevalling at the reporting date. Non-monetary items which are
measured in terms of historical cost denominated in a foreign currency
are reported using the exchange rate at the date of the transaction.
Non-monetary items which aremeasured 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.
Exchange differences
From accounting periods commencing on or after 7 December 2006, the
Company accounts for exchange differences arising on translation/
settlement of foreign currency monetary items as below:
1. Exchange differences arising on long-term foreign currency monetary
items related to acquisition of a fixed asset are capitalized and
depreciated over the remaining useful life of the asset. For this
purpose, the Company treats a foreign monetary item as "long-term
foreign currency monetary item", if it has a term of 12 months or more
at the date of its origination.
2. Exchange differences arising on other long-term foreign currency
monetary items are accumulated in the "Foreign Currency Monetary Item
Translation Difference Account" and amortized over the remaining life
of the concerned monetary item.
3. All other exchange differences are recognized as income or as
expenses in the period in which they arise.
Forward exchange contracts entered into to hedge foreign currency risk
of an existing asset/ liability
The premium or discount arising at the inception of forward exchange
contract is amortized and recognized as an expense/ income over the
life of the contract. Exchange differences on such contracts, except
the contracts which are long-term foreign currency monetary items, are
recognized in the statement of profit and loss in the period in which
the exchange rates change. Any profit or loss arising on cancellation
or renewal of such forward exchange contract is also recognized as
income or as expense for the period. Any gain/ loss arising on forward
contracts which are long-term foreign currency monetary items is
recognized in accordance with paragraph 1 and 2 above.
l) Retirement and other benefits
(i) Retirement benefits in the form of Provident Fund contributions and
superannuation fund (maintained per the scheme of Life Insurance
Corporation) which are defined contribution schemes are charged to the
statement of profit and loss for the year when the contributions to the
respective funds are due. The Company does not have any other
obligation other than contribution payable to the fund.
(ii) Gratuity liability under the Payment of Gratuity Act is a defined
benefit obligation and is provided for on the basis of an actuarial
valuation on projected unit credit method made at the end of each
financial year. The gratuity plan has been funded by policy taken from
Life Insurance Corporation of India. Actuarial gains and losses for
defined benefit plan are recognized in full in the period in which they
occur in the statement of profit and loss.
(iii) Accumulated leave, which is expected to be utilized within the
next 12 months, is treated as short-term employee benefit. The Company
measures the expected cost of such absences as the additional amount
that it expects to pay as a result of the unused entitlement that has
accumulated at the reporting date.
(iv) The Company treats accumulated leave expected to be carried
forward beyond twelve months, as long-term employee benefit for
measurement purposes. Such long-term compensated absences are provided
for based on the actuarial valuation using the projected unit credit
method at the year-end. Actuarial gains/losses are immediately taken
to the statement of profit and loss and are not deferred.
m) Income taxes
- Tax expense comprises of current tax and deferred tax. Current income
tax is measured at the amount expected to be paid to the income tax
authorities in accordance with the Income-tax Act, 1961 enacted in
India. The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted, at the reporting date.
- Deferred income taxes reflect the impact of timing differences
between taxable income and accounting income originating during the
current year and reversal of timing differences for the earlier years.
Deferred tax is measured using the tax rates and the tax laws enacted
or substantively enacted at the reporting date.
- Deferred tax liabilities are recognized for all taxable timing
differences. Deferred tax assets are recognized for deductible timing
differences only to the extent that there is reasonable certainty that
sufficient future taxable income will be available against which such
deferred tax assets can be realized. In situations where the Company
has unabsorbed depreciation or carry forward tax losses, all deferred
tax assets are recognized only if there is virtual certainty supported
by convincing evidence that such deferred tax assets can be realized
against future taxable profits.
- In the situation where the Company is entitled to a tax holiday under
the Income Tax Act, 1961 enacted in India, no deferred tax (asset or
liability) is recognized in respect of timing differences which reverse
during the tax holiday period, to the extent the Company's gross total
income is subject to the deduction during the tax holiday period.
Deferred tax in respect of timing differences which reverse after the
tax holiday period is recognized in the year in which the timing
differences originate. However, the Company restricts recognition of
deferred tax assets to the extent that it has become reasonably certain
or virtually certain, as the case may be, that sufficient future
taxable income will be available against which such deferred tax assets
can be realized. For recognition of deferred taxes, the timing
differences which originate first are considered to reverse first.
- At each reporting date, the Company re-assesses unrecognized deferred
tax assets. It recognizes unrecognized deferred tax assets to the
extent that it has become reasonably certain or virtually certain, as
the case may be, that sufficient future taxable income will be
available against which such deferred tax assets can be realized.
- The carrying amount of deferred tax assets are reviewed at each
reporting date. The Company writes- down the carrying amount of a
deferred tax asset to the extent that it is no longer reasonably
certain or virtually certain, as the case may be, that sufficient
future taxable income will be available against which deferred tax
asset can be realized. Any such write-down is reversed to the extent
that it becomes reasonably certain or virtually certain, as the case
may be, that sufficient future taxable income will be available.
- Deferred tax assets and deferred tax liabilities are offset, if a
legally enforceable right exists to set off current tax assets against
current tax liabilities and the deferred tax assets and deferred tax
liabilities relate to the same taxable entity and the same taxation
authority.
n) Segment reporting
Identification of segments
The Company's operating businesses are organized and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products and serves different markets. The analysis of geographical
segments is based on the areas in which major operating divisions of
the Company operate.
Segment accounting policies
The Company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the Company as a whole.
o) Earnings per share
- Basic earning per share is calculated by dividing the net profit or
loss for the year attributable to equity shareholders by the weighted
average number of equity shares outstanding during the year.
- For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
p) Provisions
A provision is recognized when the Company has a present obligation as
a result of past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation.
Provisions are not discounted to their present value and are determined
based on the best estimate required to settle the obligation at the
reporting date. These estimates are reviewed at each reporting date and
adjusted to reflect the current best estimates.
Warranty provisions
Provisions for warranty-related costs are recognized when the product
is sold. Provision is based on historical experience. The estimate of
such warranty-related costs is revised annually.
q) Contingent liabilities
A contingent liability is a possible obligation that arises from past
events whose existence will be confirmed by the occurrence or non-
occurrence of one or more uncertain future events beyond the control of
the Company or a present obligation that is not recognised because it
is not probable that an outflow of resources will be required to settle
the obligation. A contingent liability also arises in extremely rare
cases where there is a liability that cannot be recognized because it
cannot be measured reliably. The Company does not recognize a
contingent liability but discloses its existence in the financial
statements.
r) Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
s) Derivative instruments
In accordance with the ICAI announcement, derivative contracts, other
than foreign currency forward contracts covered under AS 11, are marked
to market on a portfolio basis, and the net loss, if any, after
considering the offsetting effect of gain on the underlying hedged
item, is charged to the statement of profit and loss. Net gain, if any,
after considering the offsetting effect of loss on the underlying
hedged item, is ignored.
t) Measurement of EBITDA
As permitted by the Guidance Note on the Revised Schedule VI to the
Companies Act,1956, the Company has elected to present earnings before
interest, tax, depreciation and amortization (EBITDA) as a separate
line item on the face of the statement of profit and loss. The company
measures EBITDA on the basis of profit/ (loss) from continuing
operations. In its measurement, the Company does not include
depreciation and amortization expense, finance costs and tax expense.
(b) Terms/ rights attached to equity shares
- The Company has only one class of equity shares having par value of
Rs. 2 /- per share. Each holder of equity shares is entitled to one
vote per share. The Company declares and pays dividends in Indian
rupees. The dividend proposed by the Board of Directors is subject to
the approval of the shareholders in the ensuing Annual General Meeting.
- During the year ended 31 March 2012, the amount of per share dividend
recognized as distributions to equity shareholders is Rs. 3.00 previous
year Rs. 2.50.
- In the event of liquidation of the Company, the holders of equity
shares will be entitled to receive 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. Indian rupee loan from a bank was taken during the financial year
2010-11 and carries interest linked to Bank base rate 2.50% p.a. The
loan is repayable in 10 quarterly installments of Rs. 20,000,000 each
after the initial moratorium of 6 months from the date of first
drawdown, viz., 28 February, 2011. The loan is secured by equitable
mortgage charge over property at 9-11, Maruti Industrial Area,
Gurgaon-122015.
b. Foreign currency loan from a bank carries a fixed rate of interest
@ 9.10% p.a (fixed by interest rate swap contract on INR notional). The
loan is repayable in 16 quarterly installments of JPY 39,868,033 (Rs.
24,502,894) each, beginning from 26th June 2009. The loan is secured by
equitable mortgage charge over property at 9-11, Maruti Industrial
Area, Gurgaon-122015.
c. External Commercial Borrowing ('ECB') from a bank carries a
fixed rate of interest @ 8.85% p.a (fixed by interest rate swap
contract on INR notional). The loan is repayable in 17 equal quarterly
installments of JPY 68,029,412 (Rs. 31,863,971), started from 31st
December, 2009. The loan is secured with an exclusive charge on the
fixed assets to be procured out of the loan along with mortgage charge
over property at 9-11, Maruti Industrial Area, Gurgaon -122015.
d. Buyer's credit from a bank in EURO, JPY & USD carries a fixed
rate of interest @ 8.70% p.a., 8.70% p.a. & 8.00% p.a. respectively
(fixed by interest rate swap contracts on INR notional). The loan in
USD was taken during the financial year 2010-11 and is repayable in
four half yearly installments of USD 77,500 (Rs. 3,631,263) each,
started from 20th January, 2012. The loan in EURO is repayable in four
half yearly installments of EURO 110,841 (Rs. 7,747,768) each, started
from 4th March, 2011. The loan in JPY is repayable in four half yearly
installments of JPY 10,990,000 (Rs. 5,872,923) each, started from 8th
September, 2010. The loans are secured by exclusive charge on specific
imported machineries against which buyers credit has been availed.
Provision for warranties
A provision is recognized for expected warranty claims on products sold
during the last one to three years as per warranty period on respective
models, based on past experience of level of repairs and returns.
Assumption used to calculate the provision for warranties are based on
current sales level and current information available about returns
based on the warranty period for all products sold. The table below
gives information about movement in warranty provision:
Provision for contingency
The Company had received a show-cause notice from Haryana State
Pollution Control Board ('HSPCB') in 2009-10 towards contamination
of ground water caused due to higher concentration of chromium used by
the Company as compared to the minimum expected level. Pursuant to the
show cause notice, the management had submitted a time bound
remediation plan as per which specified milestones were to be achieved
at the end of each quarter till December 2010. A bank guarantee of Rs.
50,000,000 had also been submitted to HSPCB. The management has
initiated adequate steps suggested by the experts and has completed the
plan within the overall time frame. Against the appeal filed by the
Company with Appellate Authority, HSPCB, the case has been decided by
the appellate authority on November 4, 2011 and as per the order of the
appellate authority, bank guarantee of Rs. 37,500,000 has been released
and bank guarantee of Rs. 12,500,000 has been forfeited by HSPCB. The
Company has filed a writ petition against the order of the appellate
authority with the Hon'ble High Court of Punjab and Haryana, which is
pending for disposal. Since the matter is subjudice, provision of Rs.
7,500,000 (Previous year Rs. 32,500,000), over and above the amount
already forfeited by HSPCB, has been retained towards any contingency,
as per management's assessment of the costs to be incurred. The table
below gives information about movement in provision (others):
Cash credit and working capital loan from banks are secured by the
hypothecation of stocks and book debts, both present and future. The
cash credit is repayable on demand and carries interest @ 11.25% to 13%
p.a. Working capital loan carries interest @ 10.75% p.a.
Unamortised premium on forward contracts
A sum of Rs. 357,710 (Previous year Rs. 2,620,522) on account of
unamortized foreign exchange premium on outstanding forward exchange
contracts is being carried forward to be charged to the statement of
profit and loss of subsequent period.
Margin money deposit pledged as security with bank Fixed deposit of Rs.
50,000 has been pledged with VAT authorities. Fixed deposit of Rs.
2,500,000 in the previous year was held as margin money against
issuance of bank guarantee of Rs. 50,000,000 provided in favour of
Haryana State Pollution Control Board.
#In accordance with explanations below Para 10 of Notified Accounting
Standard 9 - Revenue Recognition, excise duty on sales amounting to Rs.
1,172,093,764 (Previous year Rs. 990,879,090) has been reduced from
sales in the statement of profit and loss and excise duty on variation
of opening and closing stock of finished goods and scrap amounting to
Rs. 1,965,520 (Previous year Rs. 426,523) has been considered as
expense in note 22 of the financial statements.
Mar 31, 2011
A) Basis of preparation
The financial statements have been prepared to comply in all material
respects with the Notified accounting standard by Companies (Accounting
Standards) Rules, 2006 (as amended) and the relevant provisions of the
Companies Act, 1956. The financial statements have been prepared under
the historical cost convention on an accrual basis. The accounting
policies have been consistently applied by the Company and are
consistent with those used in the previous year.
b) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period end. Although these estimates are based upon managements best
knowledge of current events and actions, actual results could differ
from these estimates.
c) Tangible assets and depreciation
- Fixed assets are stated at cost less accumulated depreciation and
impairment losses, if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Borrowing cost relating to acquisition of fixed
assets, which take substantial period of time to get ready for its
intended use, are also included to the extent they relate to the period
till such assets are ready to be put to use. Machinery spares which can
be used only in connection with an item of fixed assets and whose use
as per technical assessment is expected to be irregular are
capitalized.
- In respect of accounting periods commencing on or after 7th December,
2006, exchange differences arising on reporting of the long-term
foreign currency monetary items at rates different from those at which
they were initially recorded during the year, or reported in the
previous financial statements are added to or deducted from the cost of
the asset and are depreciated over the balance life of the asset, if
these monetary items pertain to the acquisition of a depreciable fixed
asset.
- Depreciation is provided using the straight line method as per the
estimated useful lives of the fixed assets estimated by the management,
which results in depreciation rates being equal to the corresponding
rates prescribed in Schedule XIV of the Companies Act, 1956 except for
certain non factory buildings like boundary wall, tubewell and road
which are depreciated at 3.34%, the rate of which is higher than the
rate prescribed in Schedule XIV of the Companies Act, 1956.
- Depreciation on the amount of adjustment to fixed assets on account
of capitalisation of insurance spares is provided over the remaining
useful life of related assets.
- All assets costing upto Rs 5,000 are fully depreciated in the year of
purchase.
d) Intangible assets and amortisation
Designs and Drawings
Amounts paid towards acquisition of designs and drawings for
specifically identified products, being development expenditure
incurred towards product design is carried forward based on assessment
of benefits arising from such expenditure. Such expenditure is
amortised over the period of expected future sales from the related
product, which the management has determined to be 24 months based on
past trends, commencing from the month of commencement of commercial
production.
Computer Software
Costs relating to Software, which are acquired, are capitalized and
amortised on a straight line basis over the useful lives of four years.
The period of amortisation is reassessed annually to ascertain
reasonableness and appropriateness.
e) Impairment
The carrying amounts of assets are reviewed at each balance sheet date
to determine if there is any indication of impairment based on
external/internal factors. An impairment loss is recognized wherever
the carrying amount of an asset exceeds its recoverable amount. The
recoverable amount is greater of the assets net selling price and
value in use. 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 risk specific to the asset.
f) Leases
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased term are classified as
operating charges. Operating lease payments are recognized as an
expense in the profit and loss account on a straight-line basis over
the lease term.
g) Investments
Investments that are readily realisable and intended to be held for not
more than a year are classified as current investments. All other
investments are classified as long-term investments. Current
investments are carried at lower of cost and market value determined on
an individual investment basis. Long-term investments are carried at
cost. However, provision for diminution in value is made to recognize a
decline, other than temporary, in the value of the investments.
i) Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured.
Sale of goods
Revenue is recognized when the significant risks and rewards of
ownership of the goods have been passed to the buyer. Sale of goods is
inclusive of excise duty but exclusive of sales tax. Excise Duty
deducted from turnover (gross) is the amount that is included in the
amount of turnover (gross) and not the entire amount of liability that
arose during the year.
Interest
Revenue is recognized on a time proportion basis taking into account
the amount outstanding and the rate applicable.
Dividends
Dividend income on investments is accounted for when the right to
receive the payment is established.
j) Miscellaneous expenditure
Costs incurred in raising funds are amortized equally over the period
for which the funds are acquired. During an earlier year, the Company
incurred such expenditure amounting to Rs. 18,118,261 on ECB loan which
is being amortized over a period of 5 years. During the year, an amount
of Rs.3,623,652 (Previous year: Rs. 3,623,652) has been charged to
Profit & Loss Account.
k) Warranty costs
Warranty costs are provided on accrual basis determined based on past
experience of claims. Exceptional warranty claims are not taken into
account to determine such provisions.
l) Foreign currency transactions
(i) Initial recognition
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
(ii) Conversion
Foreign currency monetary items are reported using the closing rate.
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; and 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.
(iii) Exchange differences
Exchange differences, in respect of accounting periods commencing on or
after 7th December, 2006, arising on reporting of long-term foreign
currency monetary items at rates different from those at which they
were initially recorded during the year, or reported in previous
financial statements,in so far as they relate to the acquisition
of a depreciable capital asset, are added to or deducted from the cost
of the asset and are depreciated over the balance life of the asset, and
in other cases, are accumulated in a "Foreign Currency Monetary Item
Translation Difference Accountà in the enterprises financial statements
and amortized over the balance period of such long-term asset/ liability
but not beyond accounting period ending on or before 31st March, 2011.
Exchange differences arising on the settlement of monetary items not
covered above, or on reporting such monetary items of the Company at
rates different from those at which they were initially recorded during
the year, or reported in previous financial statements, are recognized
as income or as expenses in the year in which they arise.
(iv) Forward exchange contracts not intended for trading or speculation
purposes
The premium or discount arising at the inception of forward exchange
contracts is amortised as expense or income over the life of the
contract. Exchange differences on such contracts are recognized in the
statement of profit and loss in the year in which the exchange rates
change. Any profit or loss arising on cancellation or renewal of
forward exchange contract is recognized as income or as expense for the
year. However, exchange difference in respect of accounting period
commencing on or after 7th December, 2006 arising on the forward
exchange contract undertaken to hedge the long term foreign currency
monetary item, in so far as they relate to the acquisition of
depreciable capital asset, are added to or deducted from the cost of
asset and in other cases, are accumulated in "Foreign Currency Monetary
Item Translation Difference Accountà and amortised over the balance
period of such long term asset / liability but not beyond 31st March,
2011.
(v) Forward Exchange Contracts for trading or speculation purposes
A gain or loss on such forward exchange contracts is computed by
multiplying the foreign currency amount of the forward exchange
contract by the difference between the forward rate available at the
reporting date for the remaining maturity of the contract and the
contracted forward rate (or the forward rate last used to measure a
gain or loss on that contract for an earlier year). The gain or loss so
computed is recognized in the statement of profit and loss for the
period. The premium or discount on the forward exchange contract is not
recognized separately.
m) Retirement and other employee benefits
(i) Retirement benefits in the form of Provident Fund contributions and
superannuation fund (maintained per the scheme of Life Insurance
Corporation) which are defined contribution schemes are charged to the
profit and loss account of the year when the contributions to the
respective funds are due. The Company does not have any other
obligation other than contribution payable to the fund.
(ii) Gratuity liability under the Payment of Gratuity Act is a defined
benefit obligation and is provided for on the basis of an actuarial
valuation on projected unit credit method made at the end of each
financial year. The gratuity plan has been funded by policy taken from
Life Insurance Corporation of India.
(iii) Short term compensated absences are provided for on based on
estimates. Long term compensated absences are provided for based on
actuarial valuation. The actuarial valuation is done as per projected
unit credit method.
(iv) Actuarial gains/losses are immediately taken to profit and loss
account and are not deferred.
n) Income taxes
Tax expense comprises of current and deferred tax. Current income tax
and fringe benefit tax is measured at the amount expected to be paid to
the tax authorities in accordance with the Indian Income Tax Act, 1961,
enacted in India. Deferred income taxes reflect the impact of current
year timing differences between taxable income and accounting income
for the year and reversal of timing differences of earlier years.
Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the balance sheet date. Deferred
tax assets and deferred tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current
tax liabilities and the deferred tax assets and deferred tax
liabilities relate to the taxes on income levied by same governing
taxation laws. Deferred tax assets are recognized only to the extent
that there is reasonable certainty that sufficient future taxable
income will be available against which such deferred tax assets can be
realized. In situations where the company has unabsorbed depreciation
or carry forward tax losses, all deferred tax assets are recognized
only if there is virtual certainty supported by convincing evidence
that they can be realized against future taxable profits.
At each balance sheet date, the Company re-assesses unrecognized
deferred tax assets. It recognizes unrecognized deferred tax assets to
the extent that it has become reasonably certain or virtually certain,
as the case may be that sufficient future taxable income will be
available against which such deferred tax assets can be realized.
The carrying amount of deferred tax assets are reviewed at each balance
sheet date. The company writes-down the carrying amount of a deferred
tax asset to the extent that it is no longer reasonably certain or
virtually certain, as the case may be, that sufficient future taxable
income will be available against which deferred tax asset can be
realized. Any such write-down is reversed to the extent that it becomes
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available.
o) Provisions
A provision is recognized when an enterprise has a present obligation
as a result of past event and it is probable that an outflow of
resources will be required to settle the obligation, in respect of
which a reliable estimate can be made. Provisions are not discounted
to its present value and are determined based on best estimate
required to settle the obligation at the balance sheet date. These
are reviewed at each balance sheet date and adjusted to
reflect the current best estimates.
p) Segment Reporting Policies
The Company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the Company as a whole.
q) Earnings per share
Basic earning per share is calculated by dividing the net profit or
loss for the year attributable to equity shareholders by the weighted
average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
r) Cash and cash equivalent
Cash and cash equivalents in the balance sheet comprise cash at bank
and in hand and short-term investments with an original maturity of
three months or less.
s) Derivative instruments
As per the ICAI Announcement, accounting for derivative contracts,
other than those covered under AS-11, are marked to market on a
portfolio basis, and the net loss after considering the offsetting
effect on the underlying hedge item is charged to the income statement.
Net gains are ignored.
Mar 31, 2010
A) Basis of preparation
The financial statements have been prepared to comply in all material
respects with the Notified accounting standard by Companies (Accounting
Standards) Rules, 2006 (as amended) and the relevant provisions of the
Companies Act, 1956. The financial statements have been prepared under
the historical cost convention on an accrual basis. The accounting
policies have been consistently applied by the Company and are
consistent with those used in the previous year.
b) Use of estimates
The preparation of financial statements in conformity with generally
apcepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period end. Although these estimates are based upon managements best
knowledge of current events and actions, actual results could differ
from these estimates.
c) Tangible assets and depreciation
- Fixed assets are stated at cost less accumulated depreciation and
impairment losses, if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Borrowing cost relating to acquisition of fixed
assets, which take substantial period of time to get ready for its
intended use, are also included to the extent they relate to the period
till such assets are ready to be put to use. Machinery spares which
can be used only in connection with an item of fixed assets and whose
use as per technical assessment is expected to be irregular, are
capitalized.
- In respect of accounting periods commencing on or after 7th December,
2006, exchange differences arising on reporting of the long-term
foreign currency monetary items at rates different from those at which
they were initially recorded during the year, or reported in the
previous financial statements are added to or deducted from the cost of
the asset and are depreciated over the balance life of the asset, if
these monetary items pertain to the acquisition of a depreciable fixed
asset.
- Depreciation is provided using the straight line method as per the
estimated useful lives of the fixed assets estimated by the management,
which results in depreciation rates being equal to the corresponding
rates prescribed in Schedule XIV of the Companies Act, 1956 except for
certain non factory buildings like boundary wall, tubewell and road
which are depreciated at 3.34%, the rate of which is higher than the
rate prescribed in Schedule XIV of the Companies Act, 1956.
- Depreciation on the amount of adjustment to fixed assets on account
of capitalisation of insurance spares is provided over the remaining
useful life of related assets.
- All assets costing upto Rs 5,000 are fully depreciated in the year of
purchase.
d) Impairment
The carrying amounts of assets are reviewed at each balance sheet date
to determine if there is any indication of impairment based on
external/internal factors. An impairment loss is recognized wherever
the carrying amount of an asset exceeds its recoverable amount. The
recoverable amount is greater of the assets net selling price and
value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value at the weighted average
cost of capital.
e) Intangible assets and amortisation Designs and Drawings
Amounts paid towards acquisition of designs and drawings for
specifically identified products, being development expenditure
incurred towards product design is carried forward based on assessment
of benefits arising from such expenditure. Such expenditure is
amortised over the period of expected future sales from the related
product, which the management has determined to be 24 months based on
past trends, commencing from the month of commencement of commercial
production.
Computer Software
Costs relating to Software, which are acquired, are capitalized and
amortised on a straight line basis over the useful lives of four years.
The period of amortisation is reassessed annually to ascertain
reasonableness and appropriateness.
f) Leases
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased term are classified as
operating charges. Operating lease payments are recognized as an
expense in the profit and loss account on a straight-line basis over
the lease term.
g) Investments
Investments that are readily realisable and intended to be held for not
more than a year are classified as current investments. All other
investments are classified as long-term investments. Current
investments are carried at lower of cost and market value determined on
an individual investment basis. Long-term investments are carried at
cost. However, provision for diminution in value is made to recognize a
decline, other than temporary, in the value of the investments. h)
Inventories
Inventories are valued as follows:
Raw materials, components, stores and spares
Lower of cost and net realizable value. However, materials and other
items held for use in the production of inventories are not written
down below cost if the finished products in which they will be
incorporated are expected to be sold at or above cost. Cost is
determined on a weighted average basis.
Work-in-progress and finished goods
Lower of cost and net realizable value. Cost includes direct materials
and labour and a proportion of manufacturing overheads, including
depreciation, based on normal capacity. Cost of finished goods includes
excise duty. Cost is determined on a weighted average basis.
Scrap At net realizable value
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and selling
expenses. I) Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured. Sale of goods
Revenue is recognized when the significant risks and rewards of
ownership of the goods have been passed to the buyer. Sale of goods is
inclusive of excise duty but exclusive of sales tax. Excise Duty
deducted from turnover (gross) is the amount that is included in the
amount of turnover (gross) and not the entire amount of liability that
arose during the year. Interest
Revenue is recognized on a time proportion basis taking into account
the amount outstanding and the rate applicable. Dividends
Dividend income on investments is accounted for when the right to
receive the payment is established. j) Miscellaneous expenditure
Costs incurred in raising funds are amortized equally overthe period
for which the funds are acquired. During the previous year, the Company
incurred such expenditure amounting to Rs. 18,118,261 on ECB loan which
is being amortized over a period of 5 years. During the year an amount
of Rs. 3,623,652 (Previous year: Rs. 1,811,826) has been charged to
Profit & Loss Account. k) Warranty costs
Warranty costs are provided on accrual basis determined based on past
experience of claims. Exceptional warranty claims are not taken into
account to determine such provisions.
I) Foreign currency transactions
(i) Initial recognition
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
(ii) Conversion
Foreign currency monetary items are reported using the closing rate.
Foreign currency monetary items are reported using the closing rate.
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; and 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.
(iii) Exchange differences
Exchange differences, in respect of accounting periods commencing on or
after 7m December, 2006, arising on reporting of long-term foreign
currency monetary items at rates different from those at which they
were initially recorded during the year, or reported in previous
financial statements, in so far as they relate to the acquisition of a
depreciable capital asset, are added to or deducted from the cost of
the asset and are depreciated over the balance life of the asset, and
in other cases, are accumulated in a "Foreign Currency Monetary Item
Translation Difference Account" in the enterprises financial
statements and amortized over the balance period of such long-term
asset/liability but not beyond accounting period ending on or before
31stMarch, 2011.
Exchange differences arising on the settlement of monetary items not
covered above, or on reporting such monetary items of the Company at
rates different from those at which they were initially recorded during
the year, or reported in previous financial statements, are recognized
as income or as expenses in the year in which they arise.
(iv) Forward exchange contracts not intended for trading or speculation
purposes
The premium or discount arising at the inception of forward exchange
contracts is amortised as expense or income over the life of the
contract. Exchange differences on such contracts are recognized in the
statement of profit and loss in the year in which the exchange rates
change. Any profit or loss arising on cancellation or renewal of
forward exchange contract is recognized as income or as expense for the
year. However, exchange difference in respect of accounting period
commencing on or after 7th December, 2006 arising on the forward
exchange contract undertaken to hedge the long term foreign currency
monetary item, in so far as they relate to the acquisition of
depreciable capital asset, are added to or deducted from the cost of
asset and in other cases, are accumulated in "Foreign Currency Monetary
Item Translation Difference Account" and amortised over the balance
period of such long term asset / liability but not beyond 31 st March,
2011.
(v) Forward Exchange Contracts for trading or speculation purposes
Again or loss on such forward exchange contracts is computed by
multiplying the foreign currency amount of the forward exchange
contract by the difference between the forward rate available at the
reporting date for the remaining maturity of the contract and the
contracted forward rate (or the forward rate last used to measure a
gain or loss on that contract for an earlier year). The gain or loss so
computed is recognized in the statement of profit and loss for the
period. The premium or discount on the forward exchange contract is not
recognized separately.
m) Retirement and other employee benefits
(i) Retirement benefits in the form of Provident Fund contributions and
superannuation fund (maintained per the scheme of Life Insurance
Corporation) which are defined contribution schemes are charged to the
profit and loss account of the year when the contributions to the
respective funds are due. The Company does not have any other
obligation other than contribution payable to the fund.
(ii) Gratuity liability under the Payment of Gratuity Act is a defined
benefit obligation and is provided for on the basis of an actuarial
valuation on projected unit credit method made at the end of each
financial year. The gratuity plan has been funded by policy taken from
Life Insurance Corporation of India.
(iii) Short term compensated absences are provided for on based on
estimates. Long term compensated absences are provided for based on
actuarial valuation. The actuarial valuation is done as per projected
unit credit method. (iv) Actuarial gains/losses are immediately taken
to profit and loss account and are not deferred
n) Income taxes
Tax expense comprises of current and deferred tax. Current income tax
and fringe benefit tax is measured at the amount expected to be paid to
the tax authorities in accordance with the Indian Income Tax Act, 1961,
enacted in India. Deferred income taxes reflect the impact of current
year timing differences between taxable income and accounting income
for the year and reversal of timing differences of earlier years.
Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the balance sheet date. Deferred
tax assets and deferred tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current
tax liabilities and the deferred tax assets and deferred tax
liabilities relate to the taxes on income levied by same governing
taxation laws. Deferred tax assets are recognized only to the extent
that there is reasonable certainty that sufficient future taxable
income will be available against which such deferred tax assets can be
realized. In situations where the company has unabsorbed depreciation
or carry forward tax losses, all deferred tax assets are recognized
only if there is virtual certainty supported by convincing evidence
that they can be realized against future taxable profits. At each
balance sheet date, the Company re- assesses unrecognized deferred tax
assets. It recognizes unrecognized deferred tax assets to the extent
that it has become reasonably certain or virtually certain, as the case
may be that sufficient future taxable income will be available against
which such deferred tax assets can be realized.
The carrying amount of deferred tax assets are reviewed at each balance
sheet date. The company writes-down the carrying amount of a deferred
tax asset to the extent that it is no longer reasonably certain or
virtually certain, as the case may be, that sufficient future taxable
income will be available against which deferred tax asset can be
realized. Any such write-down is reversed to the extent that it becomes
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available.
o) Provisions
A provision is recognized when an enterprise has a present obligation
as a result of past event and it is probable that an outflow of
resources will be required to settle the obligation, in respect of
which a reliable estimate can be made. Provisions are not discounted to
its present value and are determined based on best estimate required to
settle the obligation at the balance sheet date. These are reviewed at
each balance sheet date and adjusted to reflect the current best
estimates.
p) Earnings per share
Basic earning per share is calculated by dividing the net profit or
loss for the year attributable to equity shareholders by the weighted
average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
q) Cash and cash equivalent
Cash and cash equivalents in the balance sheet comprise cash at bank
and in hand and short-term investments with an original maturity of
three months or less.
r) Derivative instruments
As per the ICAI Announcement, accounting for derivative contracts,
other than those covered under AS-11, are marked to market on a
portfolio basis, and the net loss after considering the offsetting
effect on the underlying hedge item is charged to the income statement.
Net gains are ignored.
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