(a) The Company follows the mercantile sys- tem of accounting and
 recognizes income and expenditure on accrual basis.
 
 (b) Financial statements are based on histori- cal cost.
 
 (ii) Fixed Assets
 
 Fixed Assets (tangible and intangible) are stated at cost of
 acquisition or construction less accu- mulated depreciation,
 amortization and impair- ment loss, if any. Cost is inclusive of
 duties, taxes, erection/commissioning expenses, inci- dental expenses
 and borrowing cost etc. and where applicable is net of Modvat / Cenvat
 ben- efit. From 01.10.2003 expenditure on acquisi- tion of Intangible
 Assets (including Technical Know How / Engineering Fees treated as Mis-
 cellaneous Expenditure to the extent not written off or adjusted upto
 30.09.2003) are classified as Fixed Assets.
 
 (iii) Borrowing costs
 
 Borrowing costs, attributable to the acquisition / construction of
 qualifying fixed assets are capi- talized, net of income earned on
 temporary in- vestments of borrowings, by applying weighted average
 rate for the eligible period. Other bor- rowing costs are charged to
 Profit and Loss Ac- count.
 
 Borrowing costs comprise of interest and other cost incurred in
 connection with borrowing of funds.
 
 (iv) Foreign Currency Transactions
 
 Transactions in foreign currency are accounted at exchange rates
 prevalent on the date(s) of transactions. Exchange differences arising
 on adjustment for year end settlement rates are rec- ognized in the
 Profit and Loss Account. In case of forward contract, the difference
 between the forward rate and exchange rate on the date of transaction
 is recognized as income or expense over the period of the contract.
 
 (v) Research and Development
 
 Research and Development expenditure of rev-enue nature are charged to
 the Profit and Loss Account, while capital expenditure are added to the
 cost of fixed assets in the year in which these are incurred and
 depreciated in accordance with para 1(x) below.
 
 (vi) Employee Benefits
 
 a) Gratuity & Leave Encashment
 
 The Company has provided for the liability for future payment of
 Gratuity and for leave encashment on the basis of actuarial valu-
 ation.
 
 (b) Leave travel concession and medical re- imbursement to employees
 are accounted as and when incurred and claimed.
 
 (vii) Investments
 
 Long Term Investments are stated at cost and provision for diminution
 is made if the decline in value is other than temporary in nature.
 Current Investments are stated at lower of cost and fair value.
 
 (viii)Sales
 
 (a) Revenue from domestic sales is recognised upon dispatch to
 customers.
 
 (b) Export sales are recognized upon dispatch from the customs port.
 
 (ix) Export Benefits
 
 The Company accounts for Export Benefit En- titlements under the Duty
 Entitlement Pass Book Scheme of the Government of India, in the year of
 Export Sales.
 
 (x) Depreciations, Amortization and Impairment
 
 (a) No amount is being written off on Lease- hold land.
 
 (b) Depreciation on vehicles is being provided as calculated under
 Written Down Value Method at the rates specified in Schedule XIV to the
 Companies Act, 1956.
 
 (c) On other tangible assets, depreciation is being provided
 proportionately on Straight Line Method at the rates indicated below :
 
 i) On capital expenditure incurred on leasehold improvements
 considering the period of lease; and
 
 ii) On the remaining assets at the rates specified in Schedule XIV to
 the Com- panies Act, 1956.
 
 (d) Intangible Assets are amortized over the estimated useful life of
 such assets. Tech- nical Know How is amortized by Straight Line Method
 at the rate of 20% per annum over its estimated useful life of five
 years.
 
 (e) An asset is treated as impaired when the carrying cost of asset
 exceeds its recover- able value. An impairment loss is charged to the
 profit & loss account in the year in which an asset is identified as
 impaired.
 
 (xi) Inventories
 
 Inventories are valued at lower of cost and net realizable value. Cost
 of finished goods, work in process and factory made components include
 costs of conversion and other costs incurred in bringing the
 inventories to their present location and condition. Finished goods
 lying in the fac- tory premises are valued inclusive of Excise Duty.
 
 Cost for raw materials and components, stores and spare parts, loose
 tools is determined on FIFO basis. Cost of materials is arrived at
 after adjustment of, where applicable, Cenvat ben- efit availed or to
 be availed.
 
 (xii) Leases
 
 Assets acquired under finance leases are rec- ognized as fixed assets
 at the lower of the fair value at inception and the present value of
 mini- mum lease payments. Lease payments are ap- portioned between the
 finance charge and the reduction of the outstanding liabilities. The
 fi- nance charge is allocated to periods comprised in the lease term at
 a constant periodic rate of interest on the remaining balance of the
 liabili- ties.
 
 (xiii)Product warranty costs are recognized based on Technical
 evaluation and past experience.
 
 (xiv) Taxation
 
 Income tax expense/ savings comprise current tax and deferred tax
 charge or credit. Provision for current tax is made on the estimated
 taxable income at the tax rate applicable to the relevant assessment
 year. The deferred tax assets are recognised based on the principles of
 prudence.
 
 Deferred tax asset and deferred tax liabilities are calculated by
 applying the rate and tax laws that have been enacted or substantively
 enacted by the balance sheet date. Deferred tax assets are reviewed at
 each Balance Sheet date.