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Larsen and Toubro
BSE: 500510|NSE: LT|ISIN: INE018A01030|SECTOR: Infrastructure - General
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« Mar 14
Accounting Policy Year : Mar '15
1. Basis of accounting
 
 The Company maintains its accounts on accrual basis following the
 historical cost convention, except for the revaluation of certain fixed
 assets, in accordance with generally accepted accounting principles
 [GAAP] in compliance with the provisions of the Companies Act, 2013
 and the Accounting Standards as specified in the Companies (Accounting
 Standards) Rules, 2006 read with Rule 7(1) of the Companies (Accounts)
 Rules, 2014 issued by the Ministry of Corporate Affairs in respect of
 section 133 of the Companies Act, 2013. Further, the guidance
 notes/announcements issued by the Institute of Chartered Accountants of
 India (ICAI) are also considered, wherever applicable except to the
 extent where compliance with other statutory promulgations override the
 same requiring a different treatment.
 
 The preparation of financial statements in conformity with GAAP
 requires that the management of the Company makes estimates and
 assumptions that affect the reported amounts of income and expenses of
 the period, the reported balances of assets and liabilities and the
 disclosures relating to contingent liabilities as of the date of the
 financial statements. Examples of such estimates include the useful
 lives of tangible and intangible fixed assets, allowance for doubtful
 debts/advances, future obligations in respect of retirement benefit
 plans, etc. difference, if any, between the actual results and
 estimates is recognised in the period in which the results are known.
 
 2. Presentation of financial statements
 
 The Balance Sheet and the Statement of Profit and Loss are prepared and
 presented in the format prescribed in the Schedule III to the Companies
 Act, 2013 (the Act). The Cash Flow Statement has been prepared and
 presented as per the requirements of Accounting Standard (AS) 3 Cash
 Flow Statements. The disclosure requirements with respect to items in
 the Balance Sheet and Statement of Profit and Loss, as prescribed in
 the Schedule III to the Act, are presented by way of notes forming part
 of accounts along with the other notes required to be disclosed under
 the notified Accounting Standards and the Equity Listing Agreement.
 
 Amounts in the financial statements are presented in Indian Rupees in
 crore [1 crore = 10 million] rounded off to two decimal places in line
 with the requirements of Schedule III. Per share data are presented in
 Indian Rupees to two decimals places.
 
 3. Revenue recognition
 
 Revenue is recognised based on nature of activity when consideration
 can be reasonably measured and there exists reasonable certainty of its
 recovery.
 
 A. Revenue from operations
 
 a. Sales & Service
 
 i. Sales and service include excise duty and adjustments made towards
 liquidated damages and price variation, wherever applicable. Escalation
 and other claims, which are not ascertainable/acknowledged by
 customers, are not taken into account.
 
 ii. Revenue from sale of manufactured and traded goods is recognised
 when the substantial risks and rewards of ownership are transferred to
 the buyer under the terms of the contract.
 
 iii. Revenue from property development activity which are in substance
 similar to delivery of goods is recognised when all significant risks
 and rewards of ownership in the land and/or building are transferred to
 the customer and a reasonable expectation of collection of the sale
 consideration from the customer exists.
 
 Revenue from those property development activities which have the same
 economic substance as that of a construction contract is recognised
 based on the ''Percentage of completion method'' (POC) when the outcome
 of a real estate project can be estimated reliably upon fulfillment of
 all the following conditions:
 
 a. All critical approvals necessary for commencement of the project
 have been obtained;
 
 b. When the stage of completion of the project reaches a reasonable
 level of development i.e., contract costs for work performed bears a
 reasonable proportion to the estimated total contract costs. For this
 purpose, a reasonable level of development is treated as achieved only
 if the cost incurred (excluding cost of land/developmental rights and
 borrowing cost) is atleast 25% of the total of such cost;
 
 c. Atleast 25% of the saleable project area is secured by contracts or
 agreements with buyers;
 
 d. Atleast 10 % of the total revenue as per the agreements of sale or
 any other legally enforceable documents are realised at the reporting
 date in respect of each of the contracts and it is reasonable to expect
 that the parties to such contracts will comply with the payment terms
 as defined in the contracts.
 
 The costs incurred on property development activities are carried as
 Inventories till such time the outcome of the project cannot be
 estimated reliably and all the aforesaid conditions are fulfilled. When
 the outcome of the project can be ascertained reliably and all the
 aforesaid conditions are fulfilled, revenue from property development
 activity is recognised at cost incurred plus proportionate margin,
 using percentage of completion method. Percentage of completion is
 determined based on the proportion of actual cost incurred to the total
 estimated cost of the project.  For this purpose, actual cost includes
 cost of land and developmental rights but excludes borrowing cost.
 
 Expected loss, if any, on the project is recognised as an expense in
 the period in which it is foreseen, irrespective of the stage of
 completion of the contract.
 
 iv. Revenue from construction/project related activity and contracts
 for supply/commissioning of complex plant and equipment is recognised
 as follows:
 
 a. Cost plus contracts: Contract revenue is determined by adding the
 aggregate cost plus proportionate margin as agreed with the customer.
 
 b. Fixed price contracts: Contract revenue is recognised only to the
 extent of cost incurred till such time the outcome of the job cannot be
 ascertained reliably. When the outcome of the contract is ascertained
 reliably, contract revenue is recognised at cost of work performed on
 the contract plus proportionate margin, using the percentage of
 completion method. Percentage of completion is the proportion of cost
 of work performed to-date, to the total estimated contract costs.
 
 Government grants in the nature of subsidy related to customer
 contracts are recognised as revenue from operations in the Statement of
 Profit and Loss, on a prudent basis, in proportion to work completed
 when there is reasonable assurance that the conditions for the grant of
 subsidy will be fulfilled.
 
 Expected loss, if any, on the construction/project related activity is
 recognised as an expense in the period in which it is foreseen,
 irrespective of the stage of completion of the contract. While
 determining the amount of foreseeable loss, all elements of costs and
 related incidental income not included in contract revenue are taken
 into consideration.
 
 v. Revenue from contracts for the rendering of engineering design
 services and other services which are directly related to the
 construction of an asset is recognised on similar basis as stated in
 (iv) supra.
 
 vi. Revenues from construction/project related activity and contracts
 executed in joint ventures under work-sharing arrangement [being
 jointly controlled operations, in terms of Accounting Standard (AS) 27
 Financial Reporting of Interests in Joint Ventures], is recognised on
 the same basis as similar contracts independently executed by the
 Company.
 
 vii. Revenue from service related activities is recognised using the
 proportionate completion method.
 
 viii. Commission income is recognised as and when the terms of the
 contract are fulfilled.
 
 ix. Revenue from engineering and service fees is recognised as per the
 terms of the contract
 
 x. Profit/loss on contracts executed by Integrated Joint Ventures under
 profit-sharing arrangement [being Jointly Controlled Entities, in terms
 of Accounting Standard (AS) 27 Financial Reporting of Interests in
 Joint Ventures] is accounted as and when the same is determined by the
 joint venture. Revenue from services rendered to such joint ventures is
 accounted on accrual basis.
 
 b. Other operational revenue
 
 Other operational revenue represents income earned from the activities
 incidental to the business and is recognised when the right to receive
 the income is established as per the terms of the contract.
 
 B. Other Income
 
 a. Interest income is accrued at applicable interest rate.
 
 b. Dividend income is accounted in the period in which the right to
 receive the same is established.
 
 c. Other Government grants, which are revenue in nature and are towards
 compensation for the related costs, are recognised as income in the
 Statement of Profit and Loss in the period in which the matching costs
 are incurred.
 
 d. Other items of income are accounted as and when the right to receive
 arises.
 
 4. Extraordinary and exceptional Items
 
 Income or expenses that arise from events or transactions that are
 clearly distinct from the ordinary activities of the Company are
 classified as extraordinary items. Specific disclosure of such
 events/transactions is made in the financial statements. Similarly, any
 external event beyond the control of the Company, significantly
 impacting income or expense, is also treated as extraordinary item and
 disclosed as such.
 
 On certain occasions, the size, type or incidence of an item of income
 or expense, pertaining to the ordinary activities of the Company, is
 such that its disclosure improves an understanding of the performance
 of the Company. Such income or expense is classified as an exceptional
 item and accordingly disclosed in the notes to accounts.
 
 5. Research and development
 
 a. Revenue expenditure on research is expensed under respective heads
 of account in the period in which it is incurred.
 
 b. Development expenditure on new products is capitalised as intangible
 asset, if all of the following can be demonstrated:
 
 i. The technical feasibility of completing the intangible asset so that
 it will be available for use or sale
 
 ii. The Company has intention to complete the intangible asset and use
 or sell it
 
 iii. The Company has ability to use or sell the intangible asset
 
 iv. The manner in which the probable future economic benefits will be
 generated including the existence of a market for output of the
 intangible asset or intangible asset itself or if it is to be used
 internally, the usefulness of intangible assets
 
 v. The availability of adequate technical, financial and other
 resources to complete the development and to use or sell the intangible
 asset and
 
 vi. The Company has ability to measure the expenditure attributable to
 the intangible asset during its development reliably.  The development
 expenditure capitalised as intangible asset is amortised over its
 useful life.
 
 Other development costs that do not meet above criteria are expensed in
 the period in which they are incurred.
 
 6. Employee benefits
 
 a) Short term employee benefits:
 
 All employee benefits falling due wholly within twelve months of
 rendering the service are classified as short term employee benefits.
 The benefits like salaries, wages, short term compensated absences etc.
 and the expected cost of bonus, ex-gratia. are recognised in the period
 in which the employee renders the related service.
 
 b) Post-employment benefits:
 
 i. Defined contribution plans: The Company''s superannuation scheme,
 state governed provident fund scheme, employee state insurance scheme
 and employee pension scheme are defined contribution plans. The
 contribution paid/payable under the schemes is recognised during the
 period in which the employee renders the related service.
 
 ii. Defined benefit plans: The employees'' gratuity fund schemes,
 post-retirement medical care scheme, pension scheme and provident fund
 scheme managed by trust are the Company''s defined benefit plans. The
 present value of the obligation under such defined benefit plans is
 determined based on actuarial valuation using the Projected Unit Credit
 Method.
 
 The obligation is measured at the present value of the estimated future
 cash flows. The discount rate used for determining the present value of
 the obligation under defined benefit plans, is based on the market
 yield on government securities of a maturity period equivalent to the
 weighted average maturity profile of the related obligations at the
 Balance Sheet date.
 
 Actuarial gains and losses are recognised immediately in the Statement
 of Profit and Loss.
 
 The interest element in the actuarial valuation of defined benefit
 plans, which comprises the implicit interest cost and the impact of
 changes in discount rate, is classified under finance cost. The balance
 charge is recognised as employee benefit expenses in the Statement of
 Profit and Loss.
 
 In case of funded plans, the fair value of the plan assets is reduced
 from the gross obligation under the defined benefit plans to recognise
 the obligation on a net basis.
 
 Gains or losses on the curtailment or settlement of any defined benefit
 plan are recognised when the curtailment or settlement occurs. Past
 service cost is recognised as expense on a straight line basis over the
 average period until the benefits become vested.
 
 c) Long term employee benefits:
 
 The obligation for long term employee benefits such as long term
 compensated absences, long service award etc. is recognised in the
 similar manner as in the case of defined benefit plans as mentioned in
 (b)(ii) supra.
 
 d) Termination benefits:
 
 Termination benefits such as compensation under Voluntary Retirement
 cum Pension Scheme are recognised as expense in the period in which
 they are incurred.
 
 7. Tangible fixed assets
 
 Tangible fixed assets are stated at original cost net of tax/duty
 credits availed, if any, less accumulated depreciation and cumulative
 impairment and those which were revalued as on October 1,1984 are
 stated at the values determined by the valuers less accumulated
 depreciation and cumulative impairment. Assets acquired on hire
 purchase basis are stated at their cash values. Specific know-how fees
 paid, if any, relating to plant and equipment is treated as part of
 cost thereof.
 
 Administrative and other general overhead expenses that are
 specifically attributable to construction or acquisition of fixed
 assets or bringing the fixed assets to working condition are allocated
 and capitalised as a part of the cost of the fixed assets.
 
 Own manufactured assets are capitalised at cost including an
 appropriate share of overheads.
 
 Tangible assets not ready for the intended use on the date of the
 Balance Sheet are disclosed as capital work-in-progress. (Also refer
 to policy on leases, borrowing costs, impairment of assets and foreign
 currency transactions infra.)
 
 8. Leases
 
 The determination of whether an agreement is, or contains, a lease is
 based on the substance of the agreement at the date of inception.
 
 a. Lease transactions entered into prior to April 1, 2001:
 
 Assets leased out are stated at original cost. Lease equalisation
 adjustment is the difference between capital recovery included in the
 lease rentals and depreciation provided in the books.
 
 Lease rentals in respect of assets acquired under leases are charged to
 Statement of Profit and Loss.
 
 b. Lease transactions entered into on or after April 1, 2001:
 
 Finance leases:
 
 i. Assets acquired under leases where the Company has substantially all
 the risks and rewards of ownership are classified as finance leases.
 Such assets are capitalised at the inception of the lease at the lower
 of the fair value or the present value of minimum lease payments and a
 liability is created for an equivalent amount. Each lease rental paid
 is allocated between the liability and the interest cost, so as to
 obtain a constant periodic rate of interest on the outstanding
 liability for each period.
 
 iii. Assets given under a finance lease are recognised as a receivable
 at an amount equal to the net investment in the lease.  Lease income is
 recognised over the period of the lease so as to yield a constant rate
 of return on the net investment in the lease.
 
 iv. Initial direct costs relating to assets given on finance leases are
 charged to Statement of Profit and Loss.
 
 Operating leases:
 
 i) Assets acquired on leases where a significant portion of the risks
 and rewards of ownership are retained by the lessor are classified as
 operating leases. Lease rentals are charged to the Statement of Profit
 and Loss on accrual basis.
 
 ii) Assets leased out under operating leases are capitalised. Rental
 income is recognised on accrual basis over the lease term.  (Also refer
 to policy on depreciation, infra)
 
 9. Depreciation
 
 a. Owned assets
 
 i. Revalued assets:
 
 Depreciation is provided on straight line method on the values and
 based at the rates given by the valuers. The difference between
 depreciation provided on revalued amount and on historical cost is
 transferred from revaluation reserve to the Statement of Profit and
 Loss.
 
 ii. Assets carried at historical cost:
 
 Depreciation on assets carried at historical costs is provided on
 straight line method on the basis of useful life as specified in
 Schedule II to the Companies Act, 2013 except in respect of certain
 assets where the useful life was determined by technical evaluation.
 The carrying amount of the assets as on April 1, 2014 is depreciated
 over the remaining useful life.  Where the useful life of the asset has
 expired, the carrying amount as on April 1, 2014 has been charged to
 the retained earnings as on April 1, 2014.
 
 iii. Depreciation for additions to/deductions from, owned assets is
 calculated pro rata. Extra shift depreciation is provided on a location
 basis.
 
 iv. Depreciation charge for impaired assets is adjusted in future
 periods in such a manner that the revised carrying amount of the asset
 is allocated over its remaining useful life.
 
 b. Leased assets:
 
 i. Lease transactions entered into prior to April 1,2001:
 
 Lease charge comprising statutory depreciation and lease equalisation
 charge is provided for assets given on lease over the primary period of
 the lease equal to recovery of net investment in the lease.
 Accordingly, while the statutory depreciation on such assets is
 provided for on straight line method as per Schedule II to the
 Companies Act, 2013, the difference is adjusted through lease
 equalisation and lease adjustment account.
 
 ii. Lease transactions entered into on or after April 1,2001:
 
 Assets acquired under finance leases are depreciated on a straight line
 basis over the lease term. Where there is reasonable certainty that the
 Company shall obtain ownership of the assets at the end of the lease
 term, such assets are depreciated based on the useful life prescribed
 under Schedule II to the Companies Act, 2013 or based on the useful
 life adopted by the Company for similar assets.
 
 iii. Leasehold land
 
 Land acquired under long term lease is classified under tangible
 assets and is depreciated over the period of lease.
 
 10. Intangible assets and amortisation
 
 Intangible assets are stated at original cost net of tax/duty credits
 availed, if any, less accumulated amortisation and cumulative
 impairment. Intangible assets are recognised when it is probable that
 the future economic benefits that are attributable to the asset will
 flow to the enterprise and the cost of the asset can be measured
 reliably. Intangible assets are amortised over their useful life as
 follows:
 
 a. Specialised software: over a period of six years.
 
 b. Technical know-how: over a period of six years in case of foreign
 technology and three years in the case of indigenous technology.
 
 c. Development costs for new products: over a period of five years.
 
 Administrative and other general overhead expenses that are
 specifically attributable to acquisition of intangible assets are
 allocated and capitalised as a part of the cost of the intangible
 assets.
 
 Intangible assets not ready for the intended use on the date of the
 Balance Sheet are disclosed as intangible assets under development.
 
 Amortisation on impaired assets is provided by adjusting the
 amortisation charges in the remaining periods so as to allocate the
 asset''s revised carrying amount over its remaining useful life.
 
 11. Impairment of assets
 
 As at each Balance Sheet date, the carrying amount of assets is tested
 for impairment so as to determine:
 
 a. the provision for impairment loss, if any; and
 
 b. the reversal of impairment loss recognised in previous periods, if
 any,
 
 Impairment loss is recognised when the carrying amount of an asset
 exceeds its recoverable amount. Recoverable amount is determined:
 
 a. in the case of an individual asset, at the higher of the net selling
 price and the value in use;
 
 b. in the case of a cash generating unit (a group of assets that
 generates identified, independent cash flows), at the higher of the
 cash generating unit''s net selling price and the value in use.
 
 (Value in use is determined as the present value of estimated future
 cash flows from the continuing use of an asset and from its disposal at
 the end of its useful life).
 
 12. Investment
 
 Trade investments comprise investments in subsidiary companies, joint
 ventures, associate companies and in the entities in which the Company
 has strategic business interest.
 
 Investments, which are readily realisable and are intended to be held
 for not more than one year from the date of acquisition, are classified
 as current investments. All other investments are classified as long
 term investments.
 
 Long term investments including trade investments are carried at cost,
 after providing for any diminution in value, if such diminution is
 other than temporary in nature. Investments in integrated joint
 ventures are carried at cost net of adjustments for Company''s share in
 profits or losses as recognised.
 
 Current investments are carried at lower of cost and fair value. The
 determination of carrying amount of such investments is done on the
 basis of weighted average cost of each individual investment.
 
 Purchase and sale of investments are recognised based on the trade date
 accounting.
 
 13. Inventories
 
 Inventories are valued after providing for obsolescence, as under:
 
 a) Raw materials, components, construction materials, stores, spares
 and loose tools at lower of weighted average cost or net realisable
 value. However, these items are considered to be realisable at cost if
 the finished products in which they will be used, are expected to be
 sold at or above cost.
 
 b) Manufacturing work-in-progress at lower of weighted average cost
 including related overheads or net realisable value. In some cases,
 Manufacturing work-in-progress are valued at lower of specifically
 identifiable cost or net realisable value. In the case of qualifying
 assets, cost also includes applicable borrowing costs vide policy
 relating to borrowing costs.
 
 c) Finished goods and stock-in-trade (in respect of goods acquired for
 trading) at lower of weighted average cost or net realisable value.
 Cost includes related overheads and excise duty paid/payable on such
 goods.
 
 d) Completed property/work-in-progress (including land) in respect of
 property development activity at lower of specifically identifiable
 cost or net realisable value.
 
 14. Cash and bank balances
 
 Cash and bank balances also include fixed deposits, margin money
 deposits, earmarked balances with banks and other bank balances which
 have restrictions on repatriation. Short term and liquid investments
 being not free from more than insignificant risk of change in value,
 are not included as part of cash and cash equivalents.
 
 15. Securities premium account
 
 a) Securities premium includes:
 
 i. The difference between the market value and the consideration
 received in respect of shares issued pursuant to Stock Appreciation
 Rights Scheme.
 
 ii. The discount allowed, if any, in respect of shares allotted
 pursuant to Stock Options Scheme
 
 b) The following expenses are written off against securities premium
 account:
 
 i. Expenses incurred on issue of shares
 
 ii. Expenses (net of tax) incurred on issue of debentures/bonds
 
 v. Premium (net of tax) on redemption of debentures/bonds
 
 16. Borrowing Costs
 
 Borrowing costs include interest, commitment charges, amortisation of
 ancillary costs, amortisation of discounts/premium related to
 borrowings, finance charges in respect of assets acquired on finance
 lease and exchange differences arising from foreign currency
 borrowings, to the extent they are regarded as an adjustment to
 interest costs.
 
 Borrowing costs that are attributable to the acquisition, construction
 or production of a qualifying asset are capitalised/inventorised as
 part of cost of such asset till such time the asset is ready for its
 intended use or sale. A qualifying asset is an asset that necessarily
 requires a substantial period of time to get ready for its intended use
 or sale. All other borrowing costs are recognised as an expense in the
 period in which they are incurred.
 
 17. Employee stock ownership schemes
 
 In respect of stock options granted pursuant to the Company''s Stock
 Options Scheme, the intrinsic value of the options (excess of market
 price of the share over the exercise price of the option) is treated as
 discount and accounted as employee compensation cost over the vesting
 period. The amount recognised as expense each year is arrived at based
 on the number of grants expected to vest.  If a grant lapses after the
 vesting period, the cumulative discount recognised as expense in
 respect of such grant is transferred to the general reserve.
 
 18. Foreign currency transactions, foreign operations, forward
 contracts and derivatives
 
 a) The reporting currency of the Company is Indian rupee.
 
 b) Foreign currency transactions are recorded on initial recognition in
 the reporting currency, using the exchange rate at the date of the
 transaction. At each Balance Sheet date, foreign currency monetary
 items are reported using the closing rate.
 
 Non-monetary items, carried at historical cost denominated in a foreign
 currency, are reported using the exchange rate at the date of the
 transaction.
 
 Exchange differences that arise on settlement of monetary items or on
 reporting of monetary items at each Balance Sheet date at the closing
 rate are:
 
 i. adjusted in the cost of fixed assets specifically financed by the
 borrowings contracted up to March 31, 2004 to which the exchange
 differences relate
 
 ii. adjusted in the cost of fixed assets specifically financed by
 borrowings contracted between the period April 1, 2004 to March 31,
 2007 and to which the exchange differences relate, provided the assets
 are acquired from outside India
 
 iii. recognised as income or expense in the period in which they arise,
 in cases other than (i) and (ii) above.
 
 c) Financial statements of foreign operations comprising jobs
 contracted prior to April 1, 2004, are translated as follows:
 
 i. Closing inventories at rates prevailing at the end of the year
 
 ii. Fixed assets as at April 1, 1991 at rates prevailing at the end of
 the year in which the additions were made. Subsequent additions are at
 rates prevailing on the dates of the additions. Depreciation is
 accounted at the same rate at which the assets are translated.
 
 iii. Other assets and liabilities at rates prevailing at the end of the
 year.
 
 iv. Net revenues at the average rate for the year.
 
 d) Financial statements of foreign operations comprising jobs
 contracted on or after April 1,2004, are treated as integral operations
 and translated as in the same manner as foreign currency transactions,
 as described above. Exchange differences arising on such translation
 are recognised as income or expense of the period in which they arise.
 
 e) Forward contracts, other than those entered into to hedge foreign
 currency risk on unexecuted firm commitments or highly probable
 forecast transactions, are treated as foreign currency transactions and
 accounted accordingly as per Accounting Standard (AS) 11 The Effects
 of Changes in Foreign Exchange Rates. Exchange differences arising on
 such contracts are recognised in the period in which they arise.
 
 Gains and losses arising on account of roll over/cancellation of such
 forward contracts are recognised as income/expense of the period in
 which such roll over/cancellation takes place.
 
 f) All the other derivative contracts, including forward contracts
 entered into to hedge foreign currency risks on unexecuted firm
 commitments and highly probable forecast transactions, are recognised
 in the financial statements at fair value as on the Balance Sheet date,
 in pursuance of the announcement of the Institute of Chartered
 Accountants of India (ICAI) dated March 29, 2008 on accounting of
 derivatives. In addition, the derivative arrangements embedded in the
 contracts entered in the course of business are accounted separately if
 the economic characteristics and risks of the embedded derivatives are
 not closely related to economic characteristics and risks of the host
 contract.
 
 The Company has adopted Accounting Standard (AS) 30 Financial
 Instruments: Recognition and Measurement for accounting of such
 derivative contracts, not covered under Accounting Standard (AS) 11
 The Effects of Changes in Foreign Exchange Rates, as mandated by the
 ICAI in the aforesaid announcement.
 
 Accordingly, the resultant gains or losses on fair valuation/settlement
 of the derivative contracts (including embedded derivatives) covered
 under Accounting Standard (AS) 30 Financial Instruments: Recognition
 and Measurement are recognised in the Statement of Profit and Loss or
 Balance Sheet as the case may be after applying the test of hedge
 effectiveness. Where the hedge in respect of off-balance sheet items is
 effective, the gains or losses are recognised in the hedging reserve
 which forms part of reserves and surplus in the Balance Sheet. The
 amount recognised in the hedging reserve is transferred to the
 Statement of Profit and Loss in the period in which the underlying
 hedged item affects the Statement of Profit and Loss. Gains or losses
 in respect of ineffective hedges are recognised in the Statement of
 Profit and Loss in the period in which such gains or losses are
 incurred.
 
 g) The premium paid/received on a foreign currency forward contract is
 accounted as expense/income over the life of the contract.
 
 19. Segment accounting
 
 a) Segment accounting policies
 
 Segment accounting policies are in line with the accounting policies of
 the Company. In addition, the following specific accounting policies
 have been followed for segment reporting:
 
 i. Segment revenue includes sales and other operational revenue
 directly identifiable with/allocable to the segment including inter
 segment revenue.
 
 ii. Expenses that are directly identifiable with/allocable to segments
 are considered for determining the segment result.  Expenses which
 relate to the Company as a whole and not allocable to segments are
 included under unallocable corporate expenditure.
 
 iii. Income which relates to the Company as a whole and not allocable
 to segments is included in unallocable corporate income.
 
 iv. Segment result includes margins on inter-segment capital jobs,
 which are reduced in arriving at the profit before tax of the Company.
 
 v. Segment assets and liabilities include those directly identifiable
 with the respective segments. Unallocable corporate assets and
 liabilities represent the assets and liabilities that relate to the
 Company as a whole and not allocable to any segment.
 
 vi. Segment non-cash expenses forming part of segment expenses includes
 the intrinsic value of the employee stock options which is accounted as
 employee compensation cost [see Note R(17)] and is allocated to the
 segment.
 
 b) Inter-segment transfer pricing
 
 Segment revenue resulting from transactions with other business
 segments is accounted on the basis of transfer price agreed between the
 segments. Such transfer prices are either determined to yield a desired
 margin or agreed on a negotiated basis.
 
 20. Taxes on Income
 
 Tax on income for the current period is determined on the basis of
 taxable income and tax credits computed in accordance with the
 provisions of the Income Tax Act 1961, and based on the expected
 outcome of assessments/appeals.
 
 Deferred tax is recognised on timing differences between the income
 accounted in financial statements and the taxable income for the year,
 and quantified using the tax rates and laws enacted or substantively
 enacted as on the Balance Sheet date.
 
 Deferred tax assets relating to unabsorbed depreciation/business
 losses/losses under the head capital gains are recognised and carried
 forward to the extent there is virtual certainty that sufficient future
 taxable income will be available against which such deferred tax assets
 can be realised.
 
 Other deferred tax assets are recognised and carried forward 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.
 
 22. Provisions, contingent liabilities and contingent assets
 
 Provisions are recognised for liabilities that can be measured only by
 using a substantial degree of estimation, if
 
 a) the Company has a present obligation as a result of a past event
 
 b) a probable outflow of resources is expected to settle the obligation
 and
 
 c) the amount of the obligation can be reliably estimated.
 
 Reimbursement expected in respect of expenditure required to settle a
 provision is recognised only when it is virtually certain that the
 reimbursement will be received.
 
 Contingent liability is disclosed in case of
 
 a) a present obligation arising from past events, when it is not
 probable that an outflow of resources will be required to settle the
 obligation
 
 b) a present obligation arising from past events, when no reliable
 estimate is possible
 
 c) a possible obligation arising from past events where the probability
 of outflow of resources is not remote. Contingent assets are neither
 recognised, nor disclosed.
 
 Provisions, contingent liabilities and contingent assets are reviewed
 at each Balance Sheet date.
 
 23. Commitments
 
 Commitments are future liabilities for contractual expenditure.
 
 Commitments are classified and disclosed as follows:
 
 a) Estimated amount of contracts remaining to be executed on capital
 account and not provided for
 
 b) Uncalled liability on shares and other investments partly paid
 
 c) Funding related commitment to subsidiary, associate and joint
 venture companies and
 
 d) Other non-cancellable commitments, if any, to the extent they are
 considered material and relevant in the opinion of management.  Other
 commitments related to sales/procurements made in the normal course of
 business are not disclosed to avoid excessive details.
 
 24. Operating cycle for current and non-current classification
 
 Operating cycle for the business activities of the Company covers the
 duration of the specific project/contract/product line/service
 including the defect liability period, wherever applicable and extends
 up to the realisation of receivables (including retention monies)
 within the agreed credit period normally applicable to the respective
 lines of business.
 
 25. Cash Flow Statement
 
 Cash Flow Statement is prepared segregating the cash flows from
 operating, investing and financing activities. Cash flow from operating
 activities is reported using indirect method. Under the indirect
 method, the net profit is adjusted for the effects of:
 
 i. transactions of a non-cash nature
 
 ii. any deferrals or accruals of past or future operating cash receipts
 or payments and
 
 iii. items of income or expense associated with investing or financing
 cash flows.
 
 Cash and cash equivalents (including bank balances) are reflected as
 such in the Cash Flow Statement. Those cash and cash equivalents which
 are not available for general use as on the date of Balance Sheet are
 also included under this category with a specific disclosure.
Source : Dion Global Solutions Limited
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