The accounting policies set out below have been applied consistently to
the periods presented in these financial statements.
a) Basis of accounting and preparation of financial statements
The financial statements are prepared and presented in accordance with
the Indian Generally Accepted Accounting Principles (''GAAP'') under the
historical cost convention on accrual basis other than the assets
revalued. GAAP comprises mandatory accounting standards as specified in
the Companies (Accounting Standards) Rules, 2006, (''the Rules'') and the
relevant provisions of the Act to the extent applicable. The accounting
policies have been consistently applied by the Company. The financial
statements are presented in Indian rupees rounded off to the nearest
This is the first year of application of the revised Schedule VI to the
Companies Act, 1956 for the preparation of the financial statements of
the company. The revised Schedule VI introduces some significant
conceptual changes as well as new disclosures. These include
classification of all assets and liabilities into current and
non-current. The previous year figures have also undergone a major
reclassification to comply with the requirements of the revised
b) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in India (Indian GAAP) requires
Management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent liabilities
at the date of the financial statements. Actual results could differ
from these estimates. Any revision to accounting estimates is
recognised prospectively in current and future periods.
c) Fixed assets and depreciation
Tangible fixed assets are stated at the cost of acquisition or
construction, less accumulated depreciation. All costs incurred in
bringing the assets to its working condition for intended use have been
The cost of an item of tangible fixed asset comprises
its purchase price, including import duties and other non-refundable
taxes or levies and any directly attributable cost of bringing the
asset to its working condition for its intended use; any trade
discounts and rebates are deducted in arriving at the purchase price.
The Company had revalued certain land, building, plant and machineries
and electrical installations based on valuations done by an external
expert in the year 1991-92 and in 2010-11. Other than land, additional
depreciation due to revaluation is adjusted out of revaluation reserve.
Borrowing costs directly attributable to the acquisition/ construction
of the qualifying asset are capitalized as part of the cost of that
asset. Other borrowing costs are recognized as an expense in the period
in which they are incurred.
Exchange differences arising in respect of translation/ settlement of
long term foreign currency borrowings attributable to the acquisition
of a depreciable asset are also included in the cost of the asset.
Tangible fixed assets under construction are disclosed as capital
Leases under which the Company assumes substantially all the risks and
rewards of ownership are classified as finance leases. Assets taken on
finance lease are initially capitalized at fair value of the asset or
present value of the minimum lease payments at the inception of the
lease, whichever is lower. Lease payments are apportioned between the
finance charge and the reduction of the outstanding liability. The
finance charge is allocated to periods during the lease term so as to
produce a constant periodic rate of interest on the remaining balance
of the liability for each period.
Depreciation on fixed assets is provided using the straight-line
method. The rates of depreciation prescribed in Schedule XIV to the Act
are considered as minimum rates. If the Management''s estimate of the
useful life of a fixed asset at the time of the acquisition of the
asset or of the remaining useful life on a subsequent review is shorter
than envisaged in the aforesaid schedule, depreciation is provided at a
higher rate based on the Management''s estimate of the useful
life/remaining useful life. Pursuant to this policy, depreciation on
the following fixed assets has been provided at the following rates
(straight line method), which are higher than the corresponding rates
prescribed in Schedule XIV:
Freehold land is not depreciated. Assets individually costing Rs.5,000 or
less are fully depreciated in the year of purchase. Depreciation is
provided on a pro-rata basis i.e. from the date on which asset is ready
d) Intangibles fixed assets
(i) Acquired intangible assets
Intangible assets that are acquired by the Company are measured
initially at cost. After initial recognition, an intangible asset is
carried at its cost less any accumulated amortization and any
accumulated impairment loss.
Subsequent expenditure is capitalized only when it increases the future
economic benefits from the specific asset to which it relates.
(ii) Internally generated intangible assets
Expenditure on research activities, undertaken with the prospect of
gaining new scientific or technical knowledge and understanding, is
recognized in profit or loss as incurred.
Development activities involve a plan or design for the production of
new or substantially improved products or processes. Development
expenditure is capitalized only if development costs can be measured
reliably, the product or process is technically and commercially
feasible, future economic benefits are probable, and the Company
intends to and has sufficient resources to complete development and to
use the asset. The expenditure capitalized includes the cost of
materials, direct labour, overhead costs that are directly attributable
to preparing the asset for its intended use, and directly attributable
borrowing costs (in the same manner as in the case of tangible fixed
assets). Other development expenditure is recognized in profit or loss
Intangible assets are amortized in profit or loss over their estimated
useful lives, from the date that they are available for use based on
the expected pattern of consumption of economic benefits of the asset.
Accordingly, at present, these are being amortized on straight line
basis. In accordance with the applicable Accounting Standard, the
Company follows 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. However, if there is persuasive evidence that the
useful life of an intangible asset is longer than ten years, it is
amortized over the best estimate of its useful life. Such intangible
assets and intangible assets that are not yet available for use are
tested annually for impairment.
Amortization is provided on a pro-rata basis on straight-line method
over the estimated useful lives of the assets, not exceeding ten years
as detailed below:
Application software 4 years
Prototype/ Product development 8-10 years
Inventories are valued at lower of cost or net realizable value.
Consumable stores and spares used for maintenance are debited to the
statement of profit and loss upon issuance.
The cost determined on first-in-first-out (FIFO) basis, comprises costs
of purchase, costs of conversion and other costs incurred in bringing
the inventories to their present location and condition.
The comparison of cost and net realisable value is made on an
Raw materials and other supplies held for use in production of
inventories are not written down below cost except where material
prices have declined and it is estimated that the cost of finished
products will exceed their net realisable value.
Provision for inventory obsolescence is provided as considered
f) Employee benefits
Short-term employee benefits
Employee benefits payable wholly within twelve months of receiving
employee services are classified as short-term employee benefits. These
benefits include salaries and wages, bonus and ex-gratia. The
undiscounted amount of short-term employee benefits to be paid in
exchange for employee services is recognized as an expense as the
related service is rendered by employees.
Post employment benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under
which an entity pays specified contributions to a separate entity and
has no obligation to pay any further amounts. The Company makes
specified monthly contributions towards employee provident fund to
Government administered provident fund scheme which is a defined
contribution plan. The Company''s contribution is recognized as an
expense in the statement of profit and loss during the period in which
the employee renders the related service.
Defined benefit scheme
Gratuity and compensated absences liability is a defined benefit scheme
and is accrued based on an actuarial valuation at the balance sheet
date, carried out by an independent actuary. The Company''s gratuity
scheme is administered by Life Insurance Corporation of India.
Actuarial gain/(losses) are charged to the statement of profit and
g) Revenue recognition
Revenue from sale of products is recognized when the risks and rewards
of ownership are transferred to customers, which generally coincides
with delivery to the customers. The amount recognized as sales is
exclusive of excise duty, sales tax, trade and quantity discounts.
Revenue from sale of products has been presented both gross and net of
Service income is recognized when an unconditional right to receive
such income is established.
Revenue from project execution services is recognized on rendering of
services in accordance with the terms of the arrangement with customers
using proportionate completion method (cost to cost method).
Unbilled revenues included in other current assets represent cost and
earnings in excess of billings as at the balance sheet date. Unearned
revenues included in current liabilities represent billings in excess
of earnings as at the balance sheet date.
Interest on deployment of funds is recognized using the time proportion
method, based on the underlying interest rates.
h) Foreign currency transactions and balances
The Company is exposed to currency fluctuations on foreign currency
transactions. Transactions in foreign currency are recognized at the
rate of exchange prevailing on the date of the transaction. Exchange
difference arising on foreign exchange transactions settled during the
year is recognized in the statement of profit and loss for the year.
All monetary assets and liabilities denominated in foreign currency are
restated at the rates existing at the year end and the exchange
gains/losses arising from the restatement is recognized in the
statement of profit and loss.
i) Derivative instruments and Hedge accounting
The Company is exposed to foreign currency fluctuations on foreign
currency assets, liabilities, firm commitments and highly probable
forecasted transactions denominated in foreign currency. The Company
limits the effects of foreign exchange rate fluctuations by following
its risk management policies. In accordance with its risk management
policies and procedures, the Company uses derivative instruments such
as foreign currency forward contracts, options and currency swaps to
hedge its risks associated with foreign currency fluctuations. The
Company enters into derivative financial instruments, where the
counterparty is a bank.
The Company has applied the principles of AS 30 ''Financial Instruments:
Recognition and Measurement'', to the extent that the application of the
principles does not conflict with existing accounting standards and
other authoritative pronouncements of the Company Law Board and other
The derivatives that qualify for hedge accounting and designated as
cash flow hedges are initially measured at fair value and are
re-measured at a subsequent reporting date and the changes in the fair
value of the derivatives i.e. gain or loss is recognized directly in
shareholders'' funds under hedge reserve to the extent considered
effective. Gain or loss upon fair value on derivative instruments that
either do not qualify for hedge accounting or are not designated as
cash flow hedges or designated as cash flow hedges to the extent
considered ineffective, are recognized in the statement of profit and
It is the policy of the Company to enter into derivative contracts to
hedge the risk of foreign exchange rate fluctuation and interest rate
risks related to the loan liabilities. The derivative arrangements are
co-terminus with the loan agreement and it is the intention of the
Company not to foreclose such arrangements during the tenure of the
loan. Accordingly the Company designates and applies cash flow hedge
accounting on such types of arrangements.
Hedge accounting is discontinued when the hedging instrument expires,
sold, terminated, or exercised, or no longer qualifies for hedge
accounting. The cumulative gain or loss on the hedging instrument
recognized in shareholder''s funds under hedge reserve is retained
until the forecasted transaction occurs subsequent to which the same is
adjusted against the related transaction in statement of profit and
loss. If a hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognized in shareholder''s fund is transferred
to statement of profit and loss in the same period.
The fair value of derivative instruments is determined based on
observable market inputs and estimates including currency spot and
forward rates, yield curves and currency volatility.
Warranty costs are estimated by the Management on the basis of
technical evaluation and past experience. The Company accrues the
estimated cost of warranties at the time when the revenue is
Investments that are readily realizable 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. However, that part
of long term investments which is expected to be realized within 12
months after the reporting date is also presented under ''current
assets'' as current portion of long term investments in consonance
with the current-non-current classification scheme of revised Schedule
Current investments (including current portion thereof) are carried 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, if any, is made to recognize a decline other
than temporary in the value of the investments.
l) Provisions and contingencies
The Company recognizes a provision when there is a present obligation
as a result of past (or obligating) event that probably requires an
outflow of resources and a reliable estimate can be made of the amount
of the obligation. A disclosure for a contingent liability is made when
there is a possible obligation or a present obligation that may, but
probably will not, require an outflow of resources. When there is a
possible obligation or a present obligation that the likelihood of
outflow of resources is remote, no provision or disclosure is made.
Provisions for onerous contracts, i.e. contracts where the expected
unavoidable costs of meeting the obligations under the contract exceed
the economic benefits expected to be received under it, are recognized
when it is probable that an outflow of resources embodying economic
benefits will be required to settle a present obligation as a result of
an obligating event, based on a reliable estimate of such obligation.
m) Impairment of assets
The Company periodically assesses whether there is any indication that
an asset or a group of assets comprising a cash generating unit may be
impaired. If any such indication exists, the Company estimates the
recoverable amount of the asset. For an asset or group of assets that
does not generate largely independent cash inflows, the recoverable
amount is determined for the cash-generating unit to which the asset
belongs. If such recoverable amount of the asset or the recoverable
amount of the cash generating unit to which the asset belongs is less
than its carrying amount, the carrying amount is reduced to its
recoverable amount. The reduction is treated as an impairment loss and
is recognised in the statement of profit and loss. If at the balance
sheet date, there is an indication that if a previously assessed
impairment loss no longer exists, the recoverable amount is reassessed
and the asset is reflected at the recoverable amount subject to a
maximum of depreciable historical cost. An impairment loss is reversed
only to the extent that the carrying amount of asset does not exceed
the net book value that would have been determined; if no impairment
loss had been recognised.
Leases under which the Company assumes substantially all the risks and
rewards of ownership are classified as finance leases. Such assets
acquired on or after 1 April 2001 are capitalised at fair value of the
asset or present value of the minimum lease payments at the inception
of the lease, whichever is lower.
For operating leases, lease payments (excluding cost for services, such
as maintenance) are recognised as an expense in the statement of profit
and loss on a straight line basis over the lease term. The lease term
is the non- cancellable period for which the lessee has agreed to take
on lease the asset together with any further periods for which the
lessee has the option to continue the lease of the asset, with or
without further payment, which option at the inception of the lease it
is reasonably certain that the lessee will exercise.
Income-tax expense comprises current tax (i.e. amount of tax for the
year determined in accordance with the income-tax law) and deferred tax
charge or credit (reflecting the tax effects of timing differences
between accounting income and taxable income for the period). The
deferred tax charge or credit and the corresponding deferred tax
liabilities or assets are recognized using the tax rates that have been
enacted or substantively enacted by the balance sheet date. Deferred
tax asset/liability as at the balance sheet date resulting from timing
differences between book profit and tax profit are not considered to
the extent that such asset/liability is expected to get reversed in the
future years within the tax holiday period. Deferred tax assets are
recognized only to the extent that there is reasonable certainty that
the assets can be realized in future; however, where there is
unabsorbed depreciation or carry forward of losses, deferred tax assets
are recognized only if there is virtual certainty of realization of
such assets. Deferred tax assets are reviewed as at each balance sheet
date and written down or written up to reflect the amount that is
reasonably/ virtually certain (as the case may be) to be realized.
Minimum Alternate Tax (''MAT'') paid in accordance with the laws, which
gives rise to future economic benefits in the form of tax credit
against future income tax liability, is recognized as an asset in the
balance sheet if there is convincing evidence that the Company will pay
normal tax in the near future.
The Company offsets, on a year on year basis, the current tax assets
and liabilities where it has a legally enforceable right and where it
intends to settle such assets and liabilities on a net basis.
p) Earnings per share
The basic earnings/ (loss) per share is computed by dividing the net
profit/ (loss) attributable to equity shareholders for the year by the
weighted average number of equity shares outstanding during the year.
The Company did not have any potentially dilutive equity shares during
q) Cash flow statement
Cash flows are reported using indirect method, whereby net profit
before 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 regular revenue generating, investing and
financing activities of the Company are segregated.