a) 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 revenues, expenses,
assets, and liabilities and disclosure of contingent liabilities at the
date of the financial statements and the results of operations during
the reporting period. Although these estimates are based upon
management''s best knowledge of current events and actions, uncertainty
about these assumptions and estimates could result in outcomes
requiring material adjustment to the carrying amounts of assets and
liabilities in future periods.
b) 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
Revenue from sale of goods is recognized when significant risks and
rewards of ownership of the goods are transferred to the customer.
Export incentives are recognized on accrual basis in accordance with
the applicable schemes formulated, by the Government of India and where
there is reasonable assurance that the enterprise will comply with the
conditions attached to them.
Revenues from job work contract are recognized as and when services are
Dividend income on investments is accounted when the right to receive
the dividend is established as at reporting date.
Interest income is recognized on a time proportion basis taking into
account the amount outstanding and the rate applicable. Insurance /
other claims are recognized on acceptance basis.
c) Hedge accounting
The Company is exposed to foreign currency fluctuations on foreign
currency assets, liabilities and forecasted cash flows denominated in
foreign currencies. The Company limits the effects of foreign exchange
rate fluctuations by following established risk management policies
including the use of forward cover derivatives.
The Company enters into derivative contract for sale of US dollars, GBP
and Euros, where the counterparty is a bank.
The Company has adopted principles of hedge accounting as set out in
Accounting Standard (AS) 30,Financial Instruments: Recognition and
Measurement, to the extent that the adoption does not conflict with
existing accounting standards and other authoritative pronouncements of
Company Law and other regulatory requirements.
Based on the recognition and measurement principles of hedge accounting
set out in AS 30, the effective portion on changes in the fair values
of derivative financial instruments designated as cash flow hedges are
recognized directly in reserves/ equity and are reclassified to the
statement of profit and loss upon the occurrence of the hedged
transaction. The ineffective portion of the gain or loss on the hedging
instrument is recognised immediately in the statement of profit and
loss. Changes in fair value relating to derivatives not designated as
hedges are recognized in the statement of profit and loss.
Hedge Accounting is discontinued when the hedging instrument expires or
is sold, or terminated, or exercised or no longer qualifies for hedge
accounting. Any cumulative gain or loss on the hedging instrument is
recognised in hedging reserve is transferred to profit and loss account
when forecasted transaction occurs or when a hedged transaction is no
longer expected to occur.
d) Fixed assets and depreciation/ amortization (tangible and
Fixed assets are stated at cost of acquisition/construction less
accumulated depreciation and impairment losses if any, net of grants
received, where applicable and subsequent improvements thereto
including taxes, duties, freight, and other incidental expenses related
to acquisition/construction. Any trade discounts and rebates are
deducted in arriving at the purchase price.
Depreciation is provided using the written down value method as per the
useful lives of the assets estimated by the management, or at the rates
prescribed under Schedule XIV of the Companies Act, 1956 whichever is
Assets individually costing Rs. 5,000 or less are fully depreciated in
the year of addition. Leasehold improvements are depreciated over the
primary lease period or useful life, whichever is lower which ranges
between 5 to 10 years.
Intangible assets comprising of Know-how (Process improvement costs)
are amortized over 36 months.
e) Borrowing Costs
Borrowing costs includes interest, amortisation 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.
Borrowing costs attributable to acquisition and construction of
qualifying assets that necessarily takes substantial period of time to
get ready for its intended use are capitalized as a part of the cost of
such asset. All other borrowing costs are expensed in the period they
f) Impairment of tangible and intangible assets
At each reporting date, the Company assesses whether there is any
indication that an asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount. If the carrying
amount of the asset exceeds its recoverable amount, an impairment loss
is recognized in the statement of profit and loss to the extent the
carrying amount exceeds the recoverable amount. The recoverable amount
is the greater of the asset''s 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. After
impairment, depreciation is provided on the revised carrying amount of
the asset over its remaining useful life.
Raw materials, packing materials, stores, spares, and consumables are
valued at lower of cost and net realizable value. Cost is determined on
a weighted average basis. 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.
Finished goods and work in progress are valued at lower of cost and net
realisable value after considering provision for obsolescence and other
anticipated loss, wherever considered necessary. Finished goods and
work in progress includes cost of conversion and other production
overheads. Cost is determined on a weighted average basis. Cost of
finished goods includes excise duty.
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.
h) 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
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 arising on the settlement of monetary items or on
reporting monetary items of Company at rates different from those at
which they were initially recorded during the year, or reported in
previous financial statements, are recognised as income or as expenses
in the year in which they arise.
i) Government Grants and subsidies
Grants and subsidies from the government are recognized when there is
reasonable assurance that the grant/subsidy will be received and all
attaching conditions will be complied with.
When the grant or subsidy relates to an expense item, it is netted off
with the relevant expense. Where the grant or subsidy relates to an
asset, its value is deducted in arriving at the carrying amount of the
Investments that are readily realizable and intended to be held for not
more than a year from the date on which such investments are made, are
classified as current investments. All other investments are classified
as long term investments. Current investments 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 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 / credited to statement of profit and loss.
k) Retirement and Other Employee Benefits
(i) Defined Contribution Plans:
Contributions to provident fund are made at pre-determined rates and
charged to the statement of profit and loss for the year when
contributions are due. The Company has no obligation, other than the
contribution payable to the provident fund.
(ii) Defined Benefit Plans:
Gratuity liability is accrued in the books based on actuarial valuation
on projected unit credit method as at reporting date. Actuarial gains
or losses are immediately taken to statement of profit and loss and are
(iii) Compensated absences:
Accumulated leave, which is expected to be utilised within the next
twelve months, is treated as short- term employee benefit. The Company
treats accumulated leave expected to be carried forward beyond twelve
months, as long-term employee benefit for measurement purposes.
Compensated absences are provided for, on the basis of an actuarial
valuation on projected unit credit method at the end of each financial
year. Actuarial gains or losses are immediately taken to statement of
profit and loss and are not deferred.
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. Deferred income taxes
reflects 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 reporting 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 recognised 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
realised. In situations where the Company has unabsorbed depreciation
or carry forward tax losses, deferred tax asset is recognised only to
the extent that it has timing differences the reversal of which will
result in sufficient income or there is other convincing evidence that
sufficient taxable income will be available against which such deferred
tax assets can be realised.
At each reporting date, the Company re-assesses unrecognised deferred
tax assets. It recognises 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 realised.
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 realised.
Minimum Alternative Tax (''MAT'') credit is recognised, 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 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 statement of profit and loss and
shown as MAT Credit Entitlement. The Company reviews the same at each
reporting 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
m) Accounting for leases
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased term, 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
A provision is recognised when an enterprise has a present obligation
as a result of past event; 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 reporting date. These are reviewed at each
reporting date and adjusted to reflect the current best estimates.
o) Segment Reporting Policies
(i) 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.
(ii) Basis of allocation:
Assets, liabilities, income, and expenditure are allocated to each
segment according to the relative contribution of each segment to the
total amount. Unallocated items include general corporate items, which
are not allocated to any segment.
(iii) Segment 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 earnings per share are calculated by dividing the net profit or
loss for the period attributable to equity shareholders (after
deducting preference dividends and attributable taxes) by the weighted
average number of equity shares outstanding during the period. 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 events of bonus issue; 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.
q) Contingent Liability
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
controls 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
recognised because it cannot be measured reliably. The Company does not
recognise a contingent liability but discloses its existence in the
r) Cash and Cash equivalents
Cash and cash equivalents for the purpose of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.