Basis of preparation
These financial statements have been prepared in accordance with the
generally accepted accounting principles in India under the historical
cost convention on accrual basis. 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 the other relevant provisions
of the Companies Act, 1956.
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 ascertained its operating cycle as 12
months for the purpose of current - non current classification of
assets and liabilities.
1] SYSTEM OF ACCOUNTING :
i) The Company generally follows the mercantile system of accounting
and recognizes income and expenditure on an accrual basis except those
with significant uncertainties.
ii) Financial statements are based on historical cost. These costs are
not adjusted to reflect the impact of the changing value in the
purchasing power of money.
iii) The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumption that affect the reported amounts of assets,
liabilities, revenue and expenses and disclosure of contingent assets
and liabilities. The estimates and assumptions used in the accompanying
financial statements are based upon management''s evaluation of the
relevant facts and circumstances as of the date of the financial
statements. Actual results may differ from the estimates and
assumptions used in preparing the accompanying financial statements.
Any reservations to accounting estimates are recognized prospectively
in current and future periods.
2] FIXED ASSETS AND DEPRECIATION :
A. FIXED ASSETS :
Fixed Assets are carried at cost of acquisition (including cost of
specific borrowings up to date of installation) or construction, less
accumulated depreciation (except freehold land) and amortization (of
cost of acquisition). In respect of projects implemented by the
Company, fixed assets include all duties, non-refundable taxes, levies
and costs incurred (which are directly attributable) for bringing
assets into working condition for its intended use, including expenses
during construction period, trial period etc.
B. DEPRECIATION :
a) LEASEHOLD LAND AND POWER LINE :
Cost of leasehold land is amortized over the period of lease and
expenditures on power line is amortized over a period of ten years.
b) OTHER FIXED ASSETS :
Depreciation on additions to assets up to 31st August, 1987 is being
provided on Straight Line Method pursuant to Circular No.1/1/1986-CLB
No.15(50)84 CL-VI dt. 21.5.86 issued by the Department of Company
Affairs in accordance with the provisions of Section 205(2)(b) of the
Companies Act, 1956, at the rates (inclusive of multiple shift
allowance) applicable under the Income Tax Rules in force at the time
of acquisition / installation of the assets and depreciation on
additions on and after 1st September, 1987 is provided on Straight
Line Method in accordance with Schedule XIV to the Companies Act, 1956
as amended from time to time, from the beginning of the month in which
addition is made except if the life of any asset is less than that
computed with reference to the rates prescribed under Schedule XIV of
the Companies Act, 1956, the same is written off over the economic life
of the asset.
c) Depreciation on sale / deduction from Fixed Assets is provided for
upto the month of sale, deduction, discernment as the case may be.
3] FOREIGN CURRENCY TRANSACTIONS :
Foreign Currency transactions are initially recorded at exchange rates
prevailing on transaction dates. All foreign currency loans, current
assets and current liabilities outstanding on the date of Balance Sheet
are converted at the appropriate rates of exchange prevailing on the
date of the Balance Sheet except those covered by forward contracts if
any, which are accounted for at the contracted rate representing the
amount required to meet the liability. Exchange difference arising from
foreign currency fluctuations are dealt with in the Statement of Profit
Derivative instrument to hedge foreign exchange exposures are simulated
for maturity / closure at the close of the year. Losses arising on such
simulation on account of fluctuations in exchange rates during the
reporting period are recognized in the Statement of Profit and Loss.
Gains, if any, are postponed for a reorganization on final
4] TECHNICAL KNOW-HOW :
Expenditure on technical know-how in connection with production
facilities is capitalized to the cost of the plant whereas process
know-how is amortized over a period of six years in equal installments.
5] INVESTMENTS :
Investments are valued at cost of acquisition less diminution in the
value, if determined to be of a permanent nature in respect of long
term investments. Current investments are valued at cost of acquisition
less diminution in the value at the close of the year, if realizable
value is lower than carrying cost.
6] INVENTORY VALUATION :
Costs of inventories have been computed to include all costs of
purchase, costs of conversion and other costs incurred in bringing the
inventories to their present location and condition.
A. Finished goods and materials in process :
a) Finished goods and materials in process are stated at their cost or
market / realizable value, whichever is lower.
b) Cost of finished goods (including trial run product) includes all
allocable overheads and excise duties but excludes interest.
B. Raw Materials :
Raw materials are stated at their historical costs computed at the
weighted average price.
C. Stores & Spares :
Stores and spares are valued at their weighted average prices.
D. Scrap is valued at estimated realizable value.
E. Raw Material in transit is stated at actual cost up to the date of
7] DEBENTURE / SHARE ISSUE EXPENSES :
a) Debenture Issue Expenses :
Debenture issue expenses incurred in respect of debentures raised by
the Company will be written off against the balance in the Securities
Premium Account in accordance with Section 78 of the Companies Act,
1956 and in the event of inadequacy of balance in Securities Premium
Account the same will be written off against the profits of the
Company in equal annual installments over period of ten years or over
the tenure of the Debenture whichever is less, from the date of
commencement of commercial production of the concerned project for
which they have been raised.
b) Share Issue Expenses :
Share Issue Expenses incurred in respect of shares raised by the
Company will be written off from the date of allotment against the
balance in the Securities Premium Account in accordance with Section
78 of the Companies Act, 1956 and in the event of inadequacy of balance
in Securities Premium Account the same will be written off in ten
equal annual installments against the profits of the respective years.
8] PREMIUM ON REDEMPTION OF DEBENTURES :
From the year ended 31st March, 1992 onwards, premium payable on
redemption of debentures will be provided for against balance lying in
the Securities Premium Account on the date of redemption in
accordance with Section 78 of the Companies Act, 1956. In the event of
inadequacy of balance in the Securities Premium Account, the same
will be provided for against the profits equally over the tenure of the
9] A. SALES :
i) Domestic sales are accounted for when dispatched from the point of
sale, consequent to property in goods being transferred.
ii) Export sales for exports are accounted on the basis of date of Bill
B. EXPORT INCENTIVES :
Export incentives are accounted for on export of goods if the
entitlements can be estimated with reasonable accuracy and conditions
precedent to claim are fulfilled.
C. Interest is accrued over the period of loan / investment.
D. Dividend is accrued in the year in which it is declared, whereby
right to receive is established.
E. Profit / Loss on sale of investment are recognized on contract
10] EMPLOYEE BENEFITS :
a) Provident Fund :
Benefits in the form of Provident Fund and Pension Schemes whether in
pursuance of law or otherwise which are defined contributions is
accounted on accrual basis and charged to the Statement of Profit and
Loss of the year. Provident Fund Contributions are made to the
Company''s Provident Fund Trust. Deficits, if any, of the fund as
compared to actuarial liability is to be additionally contributed by
the company and hence recognized as a liability.
b) Gratuity :
Payment for present liability of future payment of gratuity is being
made to approved gratuity funds which fully covers the same under Cash
Accumulation Policy of the Life Insurance Corporation of India. The
employee''s gratuity is a defined benefit plan is determined based on
the actuarial valuation using the Projected Unit Credit Method as at
the date of the Balance Sheet and the shortfall in the fair value of
the plan assets is recognized as obligation.
c) Superannuation :
Defined contributions to Life Insurance Corporation of India for
employees covered under superannuation scheme are accounted at the rate
of 15% of such employee''s annual salary.
d) Privilege Leave Benefits :
Privilege leave benefits or compensated absences are considered as long
term unfunded benefit and is recognized on the basis of an actuarial
valuation using the Projected Unit Credit Method determined by an
e) Termination Benefits :
Termination benefits such as compensation under voluntary retirement
scheme are recognized as a liability in the year of termination.
11] RESEARCH AND DEVELOPMENT EXPENDITURE :
Research and Development expenditure is charged to revenue under the
natural heads of account in the year in which it is incurred. However,
expenditure incurred at development phase, where it is reasonably
certain that outcome of research will be commercially exploited to
yield economic benefits to the Company, is considered as an intangible
12] STRATEGIC ALLIANCE AT GINIGERA :
The expenses incurred by the Joint Venture Company viz. Hospet Steels
Limited, formed with the specific purpose of managing and operating the
composite Steel manufacturing facility at Ginigera, in the course of
carrying out its objectives are, as agreed upon, to be shared by the
alliance components in the pre-determined mutually agreed ''sharing
ratio''. Such expenses billed for reimbursement by Hospet Steels Limited
have been booked into their natural heads of accounts and presented as
such in the accounts.
13] BORROWING COST :
Borrowing costs are recognized in the Statement of Profit and Loss
except interest incurred on borrowings, specifically raised for
projects are capitalized to the cost of the asset until such time that
the asset is ready to be put to use for its intended purpose.
14] TAXATION :
Provision for Taxation is made on the basis of the taxable profits
computed for the current accounting period in accordance with the
Income Tax Act, 1961. Deferred tax resulting from timing difference
between book profits and tax profits is accounted for at the applicable
rate of tax to the extent the timing differences are expected to
crystallize, in case of deferred tax liabilities with reasonable
certainty and in case of deferred tax assets with virtual certainty
that there would be adequate future taxable income against which
deferred tax assets can be realized.
15] IMPAIRMENT OF ASSETS :
The Company tests for impairments at the close of the accounting period
if and only if there are indicators that suggest a possible reduction
in the recoverable value of an asset. If the recoverable value of
asset, i.e. the net realizable value or the economic value in use of a
cash generating unit is lower than the carrying amount of the asset,
the difference is provided for as impairment. However, if subsequently
the position reverses and the recoverable amount becomes higher than
the then carrying value, the provision to the extent of the then
difference is reversed, but not higher than the amount provided for.
16] PROVISIONS :
Necessary provisions are made for present obligations that arise out of
past events prior to the Balance Sheet date entailing future outflow of
economic resources. Such provisions reflect best estimates based on