1. Accounting convention
1.1 Financial statements are prepared in accordance with the generally
accepted accounting principles including accounting standards in India
under historical cost convention except so far as they relate to
revaluation of certain land and buildings.
1.2 All assets and liabilities have been classified as current or
non-current as per the Company''s normal operating cycle and other
criteria set out in the Revised Schedule VI to the Companies Act, 1956.
Based on the nature of products and the time between the acquisition of
assets for processing and their realization in cash and cash
equivalents, the Company has determined its operating cycle as twelve
months for the purpose of current - noncurrent classification of
assets and liabilities.
1.3 Use of estimates
The preparation of the financial statements in conformity with the
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities on the date of the financial statements, disclosure of
contingent liabilities and reported amounts of revenues and expenses
for the year. Estimates are based on historical experience, where
applicable and other assumptions that management believes are
reasonable under the circumstances. Actual results could vary from
these estimates and any such differences are dealt with in the period
in which the results are known/ materialize.
2. Fixed assets and depreciation / amortization
2.1 Cost of all civil works (including electrification and fittings) is
capitalized with the exception of alterations and modifications of a
capital nature to existing structures where the cost of such alteration
or modification is Rs 1,00,000 and below. Other fixed assets, including
intangible assets and assets given on lease, where the cost exceeds Rs.
10,000 and the estimated useful life is two years or more, is
capitalized. Cost of initial spares and tools is capitalized along with
the respective assets. Cost of fixed assets is net of eligible credits
under CENVAT / VAT Scheme. Expenditure directly related and incidental
to construction / acquisition of tangible / intangible assets are
capitalized up to the date the assets are ready for their intended use.
Interest and other related costs, including amortized cost of
borrowings attributable only to major projects are capitalized as part
of the cost of the respective assets. Exchange differences are
capitalized to the extent dealt with in para 5.2 below.
2.2 Assets are depreciated / amortized, as below, on straight line
a) Leasehold land over the period of lease
b) Leasehold land and buildings subject to revaluation, is calculated
on the respective revalued amounts, over the balance useful life as
determined by the valuers in the case of buildings and as per (a) above
in the case of land;
c) Buildings, plant and machinery (except assets subject to impairment)
and other assets, including assets given on lease and assets in leased
premises / customer premises, over their estimated useful lives or
lives derived from the rates prescribed in Schedule XIV to the
Companies Act, 1956, whichever is lower and in the case of intangible
assets, over their estimated useful life;
d) Assets subject to impairment, on the asset''s revised carrying
amount, over its remaining useful life.
2.3 Depreciation / amortization is provided on a pro-rata basis from
the month the assets are put to use during the financial year. In
respect of assets sold or disposed off during the year, depreciation /
amortization is provided till the month of sale or disposal of the
Non-current investments are stated at cost. However, provision for
diminution is made to recognize a decline, other than temporary, in the
value of the investment, if any. Current investments are valued at
lower of cost and fair value.
4.1 Inventories are valued at lower of cost and net realizable value;
cost being ascertained on the following basis:
- Stores, spares, consumable tools, raw materials and components and
work-in-progress: On monthly moving weighted average basis.
- In respect of works-made components, cost includes applicable
- Finished / trading goods: under absorption costing method.
4.2 Cost includes taxes and duties and is net of eligible credits under
CENVAT / VAT Schemes.
4.3 Cost of patterns and dies is amortized equally over five years.
4.4 Surplus / obsolete / slow moving inventories are adequately
5. Foreign currency transactions and derivatives
5.1 Foreign currency transactions are recorded at the rates prevailing
on the date of the transaction. Monetary assets and liabilities in
foreign currency are translated at closing rate. Exchange differences
arising on settlement or translation of monetary items other than those
mentioned in para 5.2 below are recognized as income or expense in the
Statement of Profit and Loss.
5.2 Exchange differences on translation or settlement of long term
foreign currency monetary items (i.e. whose term of settlement exceeds
twelve months from date of its origination) at rates different from
those at which they were initially recorded or reported in the previous
financial statements, in so far as it relates to acquisition of
depreciable assets are adjusted to the cost of the assets. In other
cases, these are accumulated in Foreign currency monetary item
translation difference account and amortized by recognition as income
or expense in each period over the balance term of such items till
settlement occurs but not beyond March 31, 2020.
5.3 Gains and losses on certain forward contracts designated as
effective Cash flow hedges are recognized in the Hedge Reserve Account
till the underlying forecasted transaction occurs.
5.4 Gains and losses on all other derivatives (including forward
contracts not designated as Cash flow hedge) are recognized in the
Statement of Profit and Loss. Premium or discount on forward contracts
is amortized over the life of the contract.
5.5 Investments in equity capital of companies registered outside India
are carried in the Balance Sheet at the rates prevailing on the date
of the transaction.
5.6 Income / expenditure of overseas branches are recognized at the
average rate prevailing during the month in which transaction occurred.
6. Amortization of deferred expenditure
Expenditure incurred on raising loans is amortized over the period of
such borrowings. Premium paid on prepayment of any borrowing is
amortized over the unexpired period thereof or sixty months, whichever
is less. Expenditure incurred on issue of debentures is adjusted
against Securities Premium Account.
7. Segment Reporting
The Company''s primary segment is identified as business segment based
on nature of product, risks, returns and the internal business
reporting system and secondary segment is identified based on
geographical location of the customers. As per Accounting Standard -
17, the Company is principally engaged in a single business segment
viz. Commercial vehicles and related components.
8. Revenue recognition
8.1 Revenue from sale of products is recognized on dispatch or
appropriation of goods in accordance with the terms of sale and is
inclusive of excise duty. Revenue arising due to price escalation claim
is recognized in the period when such claim is made in accordance with
terms of sale.
8.2 Revenue from services is recognized in accordance with the specific
terms of contract on performance.
8.3 Other operating revenues comprise of income from ancillary
activities incidental to the operations of the Company and is recognized
when the right to receive the income is established as per the terms of
9.1 Leases in which the Company transfers substantially all the risks
and rewards of ownership of the asset are classified as finance leases.
Assets given under finance lease are recognized as a receivable at an
amount equal to the net investment in the lease. After the initial
recognition, the Company apportions lease rentals between principal
repayment and interest income so as to achieve a constant periodic rate
of return on the net investment outstanding in respect of the finance
lease. The interest income is recognized in the Statement of Profit and
Loss. Initial direct costs such as legal costs, brokerage costs, etc.,
are recognized immediately in the Statement of Profit and Loss.
9.2 Leases in which the Company does not transfer substantially all the
risks and rewards of ownership of the asset are classified as operating
leases. Assets subject to operating leases are included in fixed
assets. Lease income on an operating lease is recognized in the
Statement of Profit and Loss on a straight line basis over the lease
terms. Costs, including depreciation, are recognized as an expense in
the Statement of Profit and Loss. Initial direct costs such as legal
costs, brokerage costs etc. are recognized immediately in the Statement
of Profit and Loss.
10. Government grants
Grants in the form of capital/investment subsidy are treated as Capital
reserve. Export incentives and incentives in the nature of subsidies
given by the Government are reckoned in revenue in the year of
11. Research and Development Costs
Expenditure on the design and production of prototypes is charged to
revenue as incurred. Product development costs, including knowhow
developed / acquired, incurred on new vehicle/ engine platforms,
variants on existing platforms and aggregates are recognized as
Intangible assets and amortized.
12. Employee benefits
12.1 Short term employee benefit obligations are estimated and provided
12.2 Post-employment benefits and other long term employee benefits
- Defined contribution plans:
Company''s contribution to provident fund, superannuation fund, employee
state insurance and other funds are determined under the relevant
schemes and / or statute and charged to revenue.
- Defined benefit plans and compensated absences:
Company''s liability towards gratuity, other retirement benefits and
compensated absences are actuarially determined at each balance sheet
date using the projected unit credit method. Actuarial gains and losses
are recognized in revenue.
13. Product warranties
Provision for product warranties is made for contractual obligations in
accordance with the policy in force and is estimated for the unexpired
14. Deferred tax
Deferred tax is recognized on timing differences, being the difference
between taxable income and accounting income that originate in one
period and are capable of reversing in one or more subsequent periods.
Deferred tax asset pertaining to unabsorbed depreciation and carry
forward of losses are recognized only to the extent there is a virtual
certainty of its realization.