1.1 Basis of Preparation
These financial statements have been prepared to comply in all material
aspects with the accounting standards notified under Section 211(3C)
[Companies (Accounting Standards) Rules, 2006, as amended] and other
relevant provisions of the Companies Act, 1956. These financial
statements have been prepared in accordance with the generally accepted
accounting principles in India under the historical cost convention on
accrual basis, except for certain tangible assets which are being
carried at revalued amounts.
All assets and liabilities have been classified as current or
non-current as per the Company''s operating cycle and other criteria set
out in the Revised Schedule VI to the Companies Act, 1956. Based on the
nature of products and the time between the acquisition of assets for
processing and their realisation in cash and cash equivalents, the
Company has ascertained its operating cycle as 12 months for the
purpose of current - non-current classification of assets and
liabilities except for projects business. The projects business
comprises of long-term contracts which have an operating cycle
exceeding one year and for classification of current assets and
liabilities related to projects business, the Company decided to use
the duration of the individual life cycle of the contracts as its
1.2 Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make best
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent liabilities as at the
date of the financial statements and the results of operations during
the reporting period. Actual results could differ from these estimates.
Any revision to accounting estimates is recognised prospectively in the
current and future periods.
1.3 Tangible Assets and Depreciation
Tangible assets are stated at acquisition cost (or revalued amounts,
which are shown at estimated replacement cost as determined by the
valuers), net of accumulated depreciation and accumulated impairment
losses, if any. Special tools are capitalised as plant and machinery.
Cost comprises purchase price and any other attributable cost of
bringing the asset to its working place and condition for its intended
Subsequent expenditures related to an item of fixed asset are added to
its book value only if they increase the future benefits from the
existing asset beyond its previously assessed standard of performance.
The cost of fixed assets not ready for their intended use is recorded
as capital work-in-progress before such date. Cost of construction that
relate directly to specific fixed assets and that are attributable to
construction activity in general and can be allocated to specific fixed
assets are included in capital work-in-progress.
Items of fixed assets that have been retired from active use and are
held for disposal are stated at the lesser of their net book value and
net realisable value and are shown separately in the financial
statements. Any expected loss is recognised immediately in the
Statement of Profit and Loss.
Losses arising from the retirement of, and gains or losses arising from
disposal of fixed assets which are carried at cost are recognised in
the Statement of Profit and Loss.
Tangible assets, other than land, but including revalued buildings, are
depreciated on a pro-rata basis based on the straight-line method over
the estimated useful lives of the assets, at the following annual rates
which are equal to or higher than the rates specified under Schedule
XIV to the Companies Act, 1956:
Leasehold assets are amortised over the period of the lease or the
estimated useful life whichever is lesser. Assets costing below
Rs.5,000/- are fully depreciated in the year of acquisition. In respect
of the revalued assets, the difference between the depreciation
calculated on the revalued amount and that calculated on the original
cost is recouped from the revaluation reserve account.
1.4 Intangible Assets and Amortisation
Intangible Assets are stated at acquisition cost, net of accumulated
amortisation and accumulated impairment losses, if any. Intangible
assets are amortised on a straight line basis over their estimated
The amortisation period and the amortisation method are reviewed at
least at each financial year end. If the expected useful life of the
asset is significantly different from previous estimates, the
amortisation period is changed accordingly.
Gains or losses arising from the retirement or disposal of an
intangible asset are determined as the difference between the net
disposal proceeds and the carrying amount of the asset and recognised
as income or expense in the Statement of Profit and Loss.
The amortisation rate used is:
Assessment is done at each Balance Sheet date as to whether there is
any indication that an asset (tangible and intangible) may be impaired.
For the purpose of assessing impairment, the smallest identifiable
group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows from other assets or groups
of assets, is considered as a cash generating unit. If any such
indication exists, an estimate of the recoverable amount of the
asset/cash generating unit is made. Assets whose carrying value
exceeds their recoverable amount are written down to the recoverable
amount. Recoverable amount is higher of an asset''s or cash generating
unit''s net selling price and its value in use. Value in use is the
present value of estimated future cash flows expected to arise from the
continuing use of an asset and from its disposal at the end of its
useful life. Assessment is also done at each Balance Sheet date as to
whether there is any indication that an impairment loss recognised for
an asset in prior accounting periods may no longer exist or may have
1.6 Foreign currency transactions
Initial Recognition and Settlement: On initial recognition, all foreign
currency transactions are recorded by applying to the foreign currency
amount the exchange rate between the reporting currency and the foreign
currency at the date of the transaction. Any gain or loss arising due
to exchange fluctuation at the time when such transactions are settled
is recognised in the Statement of Profit and Loss.
Subsequent Recognition: As at the reporting date, non-monetary items
which are carried in terms of historical cost denominated in a foreign
currency are reported using the exchange rate at the date of the
transaction. All non-monetary items which are carried at fair value or
other similar valuation denominated in a foreign currency are reported
using the exchange rates that existed when the values were determined.
All monetary assets and liabilities in foreign currency are restated at
the end of accounting period using the closing rate. Exchange
differences on restatement of monetary items are recognised in the
Statement of Profit and Loss.
Translation of foreign operations: Branches located outside India have
been classified as integral foreign operation. The financial
statements of an integral foreign operation are translated using the
principles and procedures as if the transactions of the foreign
operation are those of the Company itself.
1.7 Forward Exchange Contracts / Derivative Instruments
The Company uses derivative financial instruments, such as forward
exchange contracts, to hedge the risks associated with foreign currency
fluctuations relating to certain firm commitments and highly probable
transactions. The use of forward contracts is governed by the Company''s
policies on the use of such financial derivatives consistent with the
Company''s risk management strategy.
In cases where the Company has entered into forward exchange contracts,
which are not intended for trading or speculative purposes and covered
under Accounting Standard 11 on ''The Effects of Changes in Foreign
Exchange Rates'', the difference between the forward rate and the
initial spot rate is recognised as an income or expense over the life
of the contract. Exchange gains / losses on intermediary forward
contracts relating to firm commitments are recognised in the Statement
of Profit and Loss based on fair value changes as at the Balance Sheet
In line with the principle of prudence as enunciated in Accounting
Standard 1 on ''Disclosure of Accounting Policies'' and as per the
Announcement of the Institute of Chartered Accountants of India issued
on March 29, 2008, the other foreign exchange contracts entered into
and not intended for trading or speculative purposes, are valued on the
basis of a fair value on marked to market basis and any loss on
valuation is recognised in the Statement of Profit and Loss, on a
portfolio basis. Any gain arising on this valuation is not recognised
by the Company.
Any profit or loss arising on cancellation or renewal of the forward
exchange contracts is recognised as income or expense for the year.
Inventories comprising of raw materials and components,
work-in-progress, finished goods and stores and spares are valued at
lower of cost and net realisable value. Cost includes cost of purchase
(net of CENVAT, where applicable), cost of conversion and other costs
incurred in bringing the inventories to their present location and
condition. The cost of various categories of inventories is arrived at
- Stores, spares, raw materials and components - at cost determined
on the weighted average cost method
- Work-in-progress and finished goods - based on weighted average
cost of production, including appropriate proportion of costs of
conversion. Excise duty payable on despatch is included in the value of
finished goods inventory
- Packing materials, loose tools and consumables, being immaterial in
value terms, and also based on their being purchased mostly on need
basis, are expensed to the Statement of Profit and Loss at the point of
Contracts work-in-progress is valued at cost or net realisable value,
whichever is lower. Cost includes direct materials, labour and
appropriate proportion of overheads including depreciation.
Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and
estimated costs necessary to make the sale.
Provisions / write-downs for obsolescence, damaged and slow-moving
inventory are made, wherever necessary and inventory is stated net of
such provisions / write-downs.
1.9 Revenue recognition
1.9.1 Revenue from long-term contracts
Contract prices are either fixed or subject to price escalation
clauses. Revenues are recognised on a percentage completion method
measured by segmented portions of the contract, i.e. Contract
Milestones. The relevant cost is recognised in the financial
statements in the year of recognition of revenues. Recognition of
profit is adjusted to ensure that it does not exceed the estimated
overall contract margin. Contract revenue earned in excess of billing
has been included under Other Current Assets and billing in excess of
contract revenue has been included under Other Current Liabilities in
the Balance Sheet.
If it is expected that a contract will make a loss, the estimated loss
is provided for in the books of account immediately. Such losses are
based on technical assessments and on management''s analysis of the
risks and exposures on a case to case basis.
Amounts due in respect of price escalation claims and / or variation in
contract work are recognised as revenue only if the contract allows for
such claims or variations and / or there is evidence that the customer
has accepted it and it is probable that these will result in revenue
and are capable of being reliably measured.
Liquidated damages / penalties, warranties and contingencies are
provided for, based on management''s assessment of the estimated
liability, as per contractual terms and / or acceptance.
1.9.2 Revenue from sale of products and services
Sale of products are recognised in accordance with the terms of
contract which corresponds to transfer of significant risk and rewards
of ownership and are net of sales tax and trade discounts. Sale of
services are recognised when such services are rendered as per contract
terms which may be either percentage of completion method or completed
1.10 Other Income
1.10.1 Interest income is recognised on a time proportion basis taking
into account the amount outstanding and the rate applicable.
1.10.2 Export benefits are accounted for to the extent there is
reasonable certainty of utilisation of the same, at the estimated
realisable value / actual credit earned during the year.
1.11 Employee Benefits
Provident Fund: Contributions towards provident fund for certain
employees are made to the Regional Provident Fund Commissioner under a
defined contribution plan and are expensed to the Statement of Profit
and Loss as and when such contributions are due. The Company has no
further obligation under the above fund plans beyond its monthly
In respect of certain other employees, Provident Fund contributions are
made to a Trust administered by the Company. The Company''s liability is
actuarially determined (using the projected unit credit method) at the
end of the year. Actuarial losses/ gains are recognised in the
Statement of Profit and Loss in the year in which they arise. The
contributions made by the Company are invested by the Trust and
recognised as plan assets. The defined benefit obligation recognised in
the Balance Sheet represents the present value of the defined benefit
obligation as reduced by the fair value of plan assets.
Gratuity: Gratuity liability is a defined benefit obligation and is
provided on the basis of its actuarial valuation based on the projected
unit credit method made at each Balance Sheet date. The Company funds
gratuity benefits for its employees within the limits prescribed under
The Payment of Gratuity Act, 1972 through contributions to a Scheme
administered by the Life Insurance Corporation of India (''LIC''). In
case of managerial employees, in addition to the ceiling defined under
the Gratuity Act, certain additional amounts are paid depending upon
the period served for the Company. This additional gratuity liability
is also determined on the basis of its actuarial valuation based on the
projected unit credit method as on the Balance Sheet date. Such
liability is not funded.
Superannuation Fund: Contributions are made to a scheme administered by
the Life Insurance Corporation of India to discharge superannuating
liabilities to the employees, a defined contribution plan, and the same
is expensed to the Statement of Profit and Loss. The Company has no
liability other than its annual contribution.
Compensated Absences: Long term compensated absences are provided for
on the basis of its actuarial valuation as per the projected unit
credit method as on the Balance Sheet date. Actuarial gains and losses
arising from effects of changes in actuarial valuations are recognised
in the Statement of Profit and Loss in the period in which they arise.
Voluntary Separation Schemes: In the case of Voluntary Separation
Schemes which may be offered to employees on closure of Business Units,
lump sum separation payouts are expensed when the Scheme is accepted by
an employee. In respect of Schemes where payments are to be made over a
longer period till the age of retirement or death of an employee,
whichever is earlier, the liability is estimated at each Balance Sheet
date and interest implicit in the payout is expensed during the period.
Deferred Incentive Plan: During the current year, the Company has
introduced a new incentive plan namely ''Deferred Incentive Plan (DIP)''
for managerial employees to retain and attract experienced talent.
Under this plan, employees will receive four annual independent grants
effective from August 2012, which will be paid over a pre-determined
period starting from the following year. Each pay-out is independently
amortised over a period from grant date to final pay-out date.
Additionally, the Company''s liability is actuarially determined (using
the projected unit credit method) at the end of each year. Actuarial
gains and losses arising from effects of changes in actuarial
valuations are recognised in the Statement of Profit and Loss in the
period in which they arise.
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the
Statement of Profit and Loss on a straight-line basis over the period
of the lease.
Long-term investments are carried at cost. However, provision for
diminution is made to recognise a decline, other than temporary, in the
value of the investments.
1.14 Current and Deferred Tax
Tax expense for the period, comprising current tax and deferred tax,
are included in the determination of the net profit or loss for the
period. Current tax is measured at the amount expected to be paid to
the tax authorities in accordance with the taxation laws prevailing in
the respective jurisdictions.
Deferred tax is recognised for all the timing differences, subject to
the consideration of prudence in respect of deferred tax assets.
Deferred tax assets are recognised and carried forward only to the
extent that there is a reasonable certainty that sufficient future
taxable income will be available against which such deferred tax assets
can be realised. In a situation where the Company has unabsorbed
depreciation or carry forward tax losses, deferred tax assets are
recognised only if there is a virtual certainty supported by convincing
evidence that such deferred tax assets can be realised against future
taxable profits. Deferred tax assets and liabilities are measured using
the tax rates and tax laws that have been enacted or substantively
enacted by the Balance Sheet date. At each Balance Sheet date, the
Company re-assesses unrecognised deferred tax assets, if any.
Current tax assets and current tax liabilities are offset when there is
a legally enforceable right to set off the recognised amounts and there
is an intention to settle the asset and the liability on a net basis.
Deferred tax assets and deferred tax liabilities are offset when there
is a legally enforceable right to set off assets against liabilities
representing current tax and where the deferred tax assets and the
deferred tax liabilities relate to taxes on income levied by the same
governing taxation laws.
1.15 Provisions and Contingencies
Provisions: Provisions are recognised when there is a present
obligation as a result of a past event, it is probable that an outflow
of resources embodying economic benefits will be required to settle the
obligation and there is a reliable estimate of the amount of the
obligation. Provisions are measured at the best estimate of the
expenditure required to settle the present obligation at the Balance
Sheet date and are not discounted to its present value.
Contingencies: 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. Contingent
assets are not recognised in the financial statements.
1.16 Earnings per share
Basic earnings per share is calculated by dividing the net profit or
loss for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period is
adjusted for the effects of all dilutive potential equity shares.
1.17 Technology licence fee
Technology licence fee is expensed in the year in which it is incurred.
1.18 Borrowing costs
General and specific borrowing costs directly attributable to the
acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready
for their intended use or sale, are added to the cost of those assets,
until the month in which such assets are substantially ready for their
intended use or sale. All other borrowing costs are recognised in
Statement of Profit and Loss in the period in which they are incurred.
1.19 Cash and Cash Equivalents
In the cash flow statement, cash and cash equivalents includes cash in
hand, demand deposits with banks, other short-term highly liquid
investments with original maturities of three months or less.