1) USE OF ESTIMATES
The preparation of financial statements in conformity with Indian GAAP requires the management to make estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities and disclosure of contingent liabilities, as at the date of the financial statements. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from those estimates. Uncertainties about these estimates and assumptions could result in the outcomes requiring a material adjustment to the carrying amount of assets or liabilities in the future periods.
2) PRESENTATION OF FINANCIAL STATEMENTS
The Balance Sheet and Statement of Profit and Loss are prepared and presented in the format prescribed in the schedule III of the Companies Act, 2013(“the Act”). The disclosure requirements are presented as per the Companies (Accounting Standards) rules 2006, read with the General Circular 15/2013 dated 13th September 2013 of the Ministry of Corporate Affairs in respect of section 133 of Companies Act, 2013.
3) REVENUE RECOGNITION
Revenue is recognized to the extent that it is probable that economic benefits will flow to the Company and the revenue can be reliably measured.
A. SALE OF GOODS
Revenue from sale of goods is recognized when the significant risks and rewards of ownership in the goods are transferred to the buyer of goods as per the terms of contracts, the Company retains no effective control of the goods transferred to a degree usually associated with the ownership and no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of goods. The Company collects Central Sales tax and value added taxes(VAT) on the behalf of the Government and therefore these are not economic 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.
B. INTEREST INCOME
Interest from bank is recognized on time proportion basis taking into account the amount outstanding and applicable interest rate. Interest income is included under the head “other income” in the statement of profit and loss account.
C. OTHER INCOME
(i) Dividend Income is accounted in the period in which the right to receive the same is established.
(ii) Insurance claim is recognized on acceptance of claim by Insurance Company.
(iii) Vat Subsidy (granted in the state of Jharkhand) has been accounted on the basis of 50%of the Net VAT paid per annum up to a maximum of 75% of the total fixed capital investment for different duration. The subsidy is as per Mega Incentive Policy of Jharkhand Government. As per policy, industry with investment above Rs.50 crore are eligible for following incentives:
* 75%/50% of the VAT/CST paid up to maximum of 75% of cost of project (Net of land/building) within 7 years whichever is earlier.
4) RECOGNITION OF EXPENSES
All Expenses are recognized on accrual basis.
A. COST OF MATERIAL CONSUMED AND CHANGE IN INVENTORIES
Cost of material consumed is primarily comprised of landed cost of direct materials and supplies consumed in the manufacture of product including the effect of changes in the finished goods, Work in progress and Scrap material.
B. EMPLOYEE BENEFIT EXPENSES
Employee benefit expenses comprises of Salaries, wages, bonus and incentives, employee welfare expenses, share options and statutory contributions such as Provident funds, ESI, gratuity etc.
Other Expenses comprises of Manufacturing expenses, Administrative Expenses, Selling and distribution expenses and Research and development expense.
(i) Manufacturing Expenses includes expenses such as consumption of stores and spares, power consumed, repairs to plant and machinery and other direct expenses related to production of goods etc.
(ii) Administrative Expenses includes expenses like Rent (including lease rent), Insurance charges, Rates fees and taxes, auditor’s remunerations, advertisements expenses, other repairs, travelling expenses of staff, Managerial commissions, telephone and telex etc.
(iii) Selling and Distribution Expenses include business promotion, Freight charges on dispatches to customers, rebate and discounts, royalties on sales etc.
(iv) Research and Development Expenses
a) Revenue Expenses
A research and development expense comprises revenue expenses on research are expensed under the respective head of accounts in the period in which it is occurred.
b) Development Expenses
Development expenditure on new products is capitalized as intangible assets so that it will amortized over the useful life of the assets. If all of the following can be demonstrated:
. The technical feasibility of completing the intangible asset so that it will be available for use or sale.
- The Company has intention to complete the intangible asset and use or sell it.
. The Company has ability to use or sell the intangible asset.
- The manner in which the probable future economic benefits will be generated including the existence of a market for output of the intangible asset or intangible asset itself or if it is to be used internally, the usefulness of intangible assets.
- The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
The Company has ability to measure the expenditure attributable to the intangible asset during its development reliably.
Other development costs that do not meet above criteria are expensed in the period in which they are incurred.
5) EXTRAORDINARY AND EXCEPTIONAL ITEMS
Income or expenses that arise from events or transactions that clearly differs from the ordinary activities of the Company are classified as extraordinary items. Specific disclosure of such events/transactions is made in the financial statements. Similarly, any external events beyond the control of the Company, significantly impacting income or expense, is also treated as extraordinary item and are disclosed as such.
Item of income or expense pertaining to ordinary activities of Company that demands separate disclosure considering the size, type or incidence, to improve understanding of the performance of the Company are classified as an exceptional item and accordingly disclosed in the notes to accounts.
A. Raw materials lying at Factory and job workers have been valued lower of weighted average cost or net realizable value. However these items are considered to be realizable at cost if the finished products in which they will be used are expected to be sold at or above cost.
B. Stocks in process have been valued at lower of cost or net realizable value. Cost includes raw material cost plus proportionate of conversion cost (based on normal capacity of production) comprising of direct materials; direct labour, power consumed, and other overheads directly associated with production process.
C. Finished goods lying at factory have been valued at lower of weighted average cost or net realizable value. Cost includes related overheads and excise duty paid/payable on such goods.
D. Scrap has been valued at net realizable value.
E. Stores and Spares have been valued at weight average cost.
(Net realizable value is the estimated selling price in the ordinary course of business less estimated costs of completion and estimated cost necessary to make the sale)
7) TANGIBLE FIXED ASSETS
Fixed assets are stated at original cost net of tax/duty credit availed, if any, less accumulated depreciation and cumulative impairment and those which have been revaluated are stated at the values determined by the valuers less accumulated depreciation and cumulative impairment. Cost of acquisition is inclusive of freight and other incidental expenses and interest on loan taken for the acquisition of qualifying assets up to the date of commissioning of assets.
Subsequent expenditure related to item of fixed asset is added to its book value only if it increases the future benefits from the existing assets 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.
Gain or losses arising from de-recognition of fixed assets are measured as the difference between the net disposable proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
The exchange differences arising on reporting of long term foreign currency monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, in so far as they relate to the acquisition of a depreciable capital asset, have been added to or deducted from the cost of the asset and shall be depreciated over the balance useful life of the asset.
Die Tooling, developed in-house, includes cost of material and other direct/ incidental expense on in-house development.
Tangible Assets not ready for the intended use on the date of the balance Sheet are disclosed as “capital work in progress”. (Also refer to policy on leases, borrowing costs, impairment of assets and foreign currency transactions infra.)
8) DEPRECIATION / AMORTIZATION ON TANGIBLE FIXED ASSETS
Depreciation is the systematic allocation of the depreciable amount of an asset over useful life. The depreciable amount of an asset is the cost of an asset or other amount substituted for cost, less its residual value.
A. OWNED ASSETS
(i) Pursuant to applicability of Schedule II, of Companies Act 2013,with effect from 1st April 2014, Management has reassessed the useful life of tangible assets based on the internal and external technical evaluation. The Depreciation on fixed assets is provided on straight line method in accordance with applicable Schedule of the Companies Act, 2013.
(ii) Depreciation for addition to/deductions from, owned assets is calculated on pro-rata basis from the date of such addition or, as the case may be, up to the date on which such asset has been sold, discarded, demolished or destroyed.
(iii) Residual values of assets have been considered at 5% of the original cost of the assets.
(iv) Difference of Exchange Rate fluctuation on imported plant and machineries procured out of long term foreign currency loans is amortized over the residual life of relevant plant and machineries.
(v) Depreciation on assets carried at carrying amount as on 01.04.2014 and is depreciated as per Straight line method over the remaining useful life of the assets. Further the assets whose remaining useful life are nil, has been recognized in the opening balance of retained earnings. Refer the same as transitional provision
(vi) The depreciation calculation is based on the balance useful lives of assets and shift working. Depreciation on assets used on double shift basis have been increase by 50% for that period and Depreciation on assets used in triple shift basis have been calculated on the basis of 100% for that period, Except for assets in respect of which no extra shift depreciation is permitted (indicated by NESD in Part C of the schedule).
(vii) Management has reassessed the useful life of plant and machineries based on the internal and external technical evaluation which is different from useful life prescribed under the act. The reassessed useful life is tabulated as:
B. LEASED ASSETS
Land acquired under long term lease is classified under “Tangible Assets” and is amortized over the period of lease.
9) INTANGIBLE ASSETS AND AMORTIZATION
Intangible assets are stated at original cost net of tax/duty credit availed, if any, less accumulated amortization and cumulative impairment. Intangible assets are recognized when it is probable that the future economic benefits are attributable to the asset will flow to the enterprise and the cost of asset can be measured reliably. Intangible assets are amortized over their useful life.
Intangible Assets not ready for the intended use on the date of balance sheet are disclosed as “intangible assets under development”
10) IMPAIRMENT OF ASSETS
A. At each Balance Sheet date, the carrying amount of assets is tested based on internal/external factors, for impairment so as to determine:
(i) The provision for impairment loss, if any; and
(ii) The reversal of impairment loss recognized in previous periods, if any,
B. Impairment loss is recognized when the carrying amount of an asset exceeds its recoverable amount. Recoverable amount is determined:
(i) In the case of an individual asset, higher of the net selling price and the value in use.
(ii) In the case of a cash generating unit (a group of assets that generates identified, independent cash flows), at the higher of the cash generating unit’s net selling price and the value in use.
(Value in use is determined as the present value of estimated future cash flows discounted to their present value at the weighted average cost of Capital, from the continuing use of an asset and from its disposal at the end of its useful life).
Post impairment, depreciation is provided on the revised carrying value of the asset over its remaining useful life.
11) TRANSACTIONS IN FOREIGN CURRENCY
A. INITIAL RECOGNITION
Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the applicable exchange rate on date of the transaction.
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.
C. EXCHANGE DIFFERENCES
Exchange differences arising on the settlement of monetary items or on reporting company’s monetary items 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.
Exchange differences relating to acquisition of imported fixed assets are adjusted in the carrying cost of the respective Fixed Assets.
D. FORWARD EXCHANGE CONTRACTS NOT INTENDED FOR TRADING OR SPECULATION PURPOSES
The premium or discount arising at the inception of forward exchange contracts is amortized as expense or income over the life of the contract. Exchange differences on such contracts are recognized in the statement of profit and loss in the 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.
Gain or loss on contracts relating to acquisition of imported Fixed Assets is adjusted to the carrying cost of Fixed Assets.
12) BORROWING COST
Borrowing costs that are attributable to acquisition or construction of a qualifying asset are capitalized/inventories as part of cost of such assets till such time the asset is ready for its intended use/or sale. Qualifying asset is one that necessarily takes substantial period of time to get ready for its intended use.
All other borrowing costs are recognized as expenses in the period in which they are incurred.
13) EMPLOYEE BENEFITS
A. SHORT TERM EMPLOYEE BENEFITS
All employee benefits falling due wholly within twelve months of rendering the services are classified as short term employee benefits. The benefit likes salaries, wages, short term compensated absence etc. and the expected cost of bonus, and ex-gratia is recognized in the period in which the employee renders the related services.
B. POST EMPLOYMENT BENEFITS
(i) DEFINED CONTRIBUTION PLANS
(Provident fund, family pension fund and employee state insurance scheme)
As per the employee Provident funds and misc provisions Act 1952, all employee of the Company are entitled to receive benefits under the provident fund and family pension fund which is defined contribution plan. These contributions are made to the funds administrated and managed by Government of India. In addition some employee of the Company are covered under employee state insurance scheme Act 1948 which is also defined contribution schemes recognized and administered by Government of India.
The Company’s contributions to these schemes are recognized as expense in profit and loss account during the period in which the employee renders the related service
(ii) DEFINED BENEFIT PLANS
The company provides for gratuity obligations through a defined benefits retirement plan (‘The Gratuity Plan’) covering all employees. The present value of the obligation under such Defined benefits plan is determined based on actuarial valuation using the Project Unit Credit method, which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measure each unit separately to build up final obligation. The obligation is measured at the present value of the estimated cash flows. The discount rate used for determining the present value of the defined obligation under defined benefit plan, is based on the market yields on Government securities as at the balance sheet date. Actuarial gains and losses are recognized in profit and loss account as and when determined.
The company makes annual contribution to LIC for the gratuity plan in respect of all the employees’ liability on the basis of actuarial valuation done by the LIC. The company also provides for additional liability, in case of excess contribution, determined by the independent actuary based on actuarial valuation using the Project Unit Credit method as compared to actuarial valuation determined by LIC and vice versa
b) LEAVE LIABILITY
The Company provides for the liability at the year end on account of unavailed earned leave as per the actuarial valuation.
The leave encashment liability is covered through a policy taken from Life Insurance Corporation of India. The contribution towards premium of the policy is charged to revenue every year.
Actuarial gain or losses are recognized immediately in the statement of profit and loss.
The interest element in the actuarial valuation of defined benefits plans, which comprises the implicit interest cost and the impact of the changes in discount rate, is classified under finance costs. The balance charge is recognized as employee benefit expenses in the statement of profit and loss account
C. LONG TERM EMPLOYEE BENEFITS
The obligation for long term employee benefits such as long term compensated absences, long service award etc are recognized in the similar manner as in the case of defined benefit plans as mention in (ii).
D. EMPLOYEE TERMINATION BENEFITS
Termination benefits such as compensation under voluntary retirement cum pension scheme are recognized as expense in the period in which they are incurred.
A. CURRENT INVESTMENTS
Investments, which are readily realizable and are intended to be held for not more than one year from the date of acquisition, are classified as current investments. All other investments are classified as long term investments.
B. LONG TERM INVESTMENTS
Long-term investments including unquoted shares are carried at cost after providing diminution in value, if such diminution is other than temporary in nature. However mutual funds investments are valued at its net realizable value.
Purchase and sale of investments are recognized based on the trade date accounting.
A. FINANCE LEASE
Assets acquired under leases where the Company has substantially all the risks and rewards of ownership are classified as finance leases. Such assets are capitalized at the inception of the lease at the lower of the fair value or the present value of minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic rate of interest on the outstanding liability for each period.
B. OPERATING LEASE
Assets acquired on leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Lease rentals are charged to the Statement of Profit and Loss on accrual basis.
16) SEGMENT REPORTING
A. 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.
B. 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.
17) ACCOUNTING FOR TAXES ON INCOME
Tax expense comprises current and deferred tax. Current income-tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income-tax Act, 1961 enacted in India and tax laws prevailing in the respective tax jurisdictions where the company operates. 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 they can be realized against future taxable profits.
At each reporting date, the Company re-assesses unrecognized deferred tax assets. It recognizes unrecognized deferred tax asset 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 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 taxes relate to the same taxable entity and the same taxation authority.
MAT credit is recognized as an asset only when and to the extent there is convincing evidence that the company will pay normal income tax during the specified period. In the year in which the Minimum Alternative tax (MAT) credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in guidance Note issued by the Institute of Chartered Accountants of India, the said asset is created by way of a credit to the profit and loss account and shown as MAT Credit Entitlement. The Company reviews the same at each balance sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the effect that Company will pay normal Income Tax during the specified period.
18) PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Provisions for expenses are recognized for liabilities that can be measured only by using a substantial degree of estimation, if
(i) The Company has a present obligation as a result of a past event
(ii) A probable outflow of resources is expected to settle the obligation and
(iii) The amount of the obligation can be reliably estimated.
Contingent liability is disclosed in case of
(i) A present obligation arising from past events, when it is not probable that an outflow of resources will be required to settle the obligation.
(ii) A present obligation arising from past events, when no reliable estimate is possible.
(iii) A possible obligation arising from past events where the probability of outflow of resources is not remote.
However contingent assets are neither recognized, nor disclosed.
Provisions, contingent liabilities and contingent assets are reviewed at each Balance Sheet date and adjusted to reflect the correct management estimates.
19) EARNING PER SHARE
Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting attributable taxes and dividend on cumulative preference shares for the year) by the weighted average number of equity shares outstanding during the year. Partly paid equity shares are treated as a fraction of an equity share to the extent that they were entitled to participate in dividends relative to a fully paid equity share during the reporting period. The weighted average number of equity shares outstanding during the period is adjusted for event of bonus issue/right issue etc; bonus element in a rights issue to existing shareholders; share split; and reverse share split (consolidation of shares).
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
20) CASH AND CASH EQUIVALENTS
Cash and cash equivalents balances include cash in hand, fixed deposits, margin money deposits, earmarked balances with banks and other bank balances such as dividend accounts, which have restrictions on repatriation.
21) EMPLOYEE STOCK OPTION SCHEME.
Stock Options granted to employee under the Stock option scheme are accounted at intrinsic value as per the accounting treatment prescribed by the Securities and Exchange Board of India (Employee stock Option scheme and Employee Stock purchase Scheme) Guidelines 1999 and Guidance Note on Accounting for Employee Share-based Payments, issued by the Institute of Chartered Accountants of India. Accordingly the excess of market price, determined as per the guidelines and guidance note, of underlying equity shares (market value), over the exercise price of the options is recognized as deferred stock compensation expenses as is charged to the statement of profit and loss account on straight line basis over the vesting period of the options. The amortized portion of the cost is shown under share holder funds.