(A) Basis of Accounting :
The financial statements are prepared in accordance with the generally
accepted accounting principles in India and comply with the Accounting
Standards notified under the Companies Act, 1956 and the relevant
(B) Tangible Assets :
(a) (i) Tangible assets are carried at cost less depreciation except as
stated in (ii) below. Cost includes financing cost relating to borrowed
funds attributable to the construction or acquisition of qualifying
tangible assets upto the date the assets are ready for use. Where the
acquisition of depreciable tangible assets are financed through long
term foreign currency loans (having a term of 12 months or more at the
time of their origination) the exchange differences on such loans are
added to or subtracted from the cost of such depreciable tangible
When an asset is scrapped or otherwise disposed off, the cost and
related depreciation are removed from the books of account and
resultant profit (including capital profit) or loss, if any, is
reflected in the Statement of Profit and Loss, (ii) Land and Buildings,
had been revalued as at 31st October, 1984 at depreciated replacement
values on the basis of a valuation made by a firm of Chartered
Surveyors and Valuers. The indices, if any, used are not stated in the
(b) (i) Leasehold land is amortised over the period of the lease.
(ii) Depreciation on assets is calculated on Straight Line Method over
their estimated useful lives, or lives based on the rates specified in
Schedule XIV to the Companies Act, 1956, whichever is higher.
Accordingly depreciation is provided on :
(1) Certain items of Plant and Machinery individually costing more than
Rs. 5,000 - over their useful lives (2 years, 3 years, 5 years or 7
years, as the case may be).
(2) Cars and Vehicles - at 15% of cost.
(iii) Depreciation charge for each year is after deducting the amount
representing the depreciation on the increase due to revaluation of
Land and Buildings, transferred from the Revaluation Reserve.
(C) Intangible Assets :
Intangible assets are carried at cost and amortised on a Straight Line
Basis so as to reflect the pattern in which the asset''s economic
benefits are consumed.
(a) Technical Knowhow :
The expenditure incurred is amortised over the estimated period of
benefit, not exceeding six years commencing with the year of purchase
of the technology.
(b) Development Expenditure :
The expenditure incurred on technical services and other
project/product related expenses are amortised over the estimated
period of benefit, not exceeding five years.
(c) Software Expenditure :
The expenditure incurred is amortised over three financial years
equally commencing from the year in which the expenditure is incurred.
(d) Others :
The expenditure incurred is amortised over the estimated period of
benefit, not exceeding ten years.
(D) Impairment of Assets :
The carrying value of assets/cash generating units at each balance
sheet date are reviewed for impairment. If any indication of impairment
exists, the recoverable amount of such assets is estimated and
impairment is recognised, if the carrying amount of these assets
exceeds their recoverable amount. The recoverable amount is the greater
of the net selling price and their value in use. Value in use is
arrived at by discounting the future cash flows expected to arise from
the continuing use of an asset and from its disposal at the end of its
useful life to their present value based on an appropriate discount
factor. When there is indication that an impairment loss recognised for
an asset in earlier accounting periods no longer exists or may have
decreased, such reversal of impairment loss is recognised in the
Statement of Profit and Loss, except in case of revalued assets.
(E) Investments :
Long term investments are valued at cost. However, provision for
diminution in value is made to recognise a decline other than temporary
in the value of investments. Current investments are valued at the
lower of cost and fair value, determined by category of investment.
(F) Inventories :
Inventories comprise all costs of purchase, conversion and other costs
incurred in bringing the inventories to their present location and
Raw materials and bought out components are valued at the lower of cost
or net realisable value. Cost is determined on the basis of the
weighted average method.
Finished goods produced and purchased for sale, manufactured components
and work-in-progress are carried at cost or net realisable value
whichever is lower. Excise duty is included in the value of fnished
Stores, spares and tools other than obsolete and slow moving items are
carried at cost. Obsolete and slow moving items are valued at cost or
estimated net realisable value, whichever is lower.
(G) Foreign Exchange Transactions :
Transactions in foreign currencies (other than frm commitments and
highly probable forecast transactions) are recorded at the exchange
rates prevailing on the date of transaction. Monetary items are
translated at the year-end rates. The exchange difference between the
rate prevailing on the date of transaction and on the date of
settlement as also on translation of monetary items at the end of the
year (other than those relating to long term foreign currency monetary
items) is recognised as income or expense, as the case may be.
Exchange differences relating to long term foreign currency monetary
items, to the extent they are used for fnancing the acquisition of
depreciable tangible assets are added to, or subtracted from, the cost
of such depreciable tangible assets and the balance accumulated in
‘Foreign Currency Monetary Item Translation Difference Account’, under
Reserves and Surplus, and amortised over the balance term of the long
term monetary item.
Any premium or discount arising at the inception of a forward exchange
contract is recognised as income or expense over the life of the
contract, except where the contract is designated as a cash fow hedge.
(H) Derivative Instruments and Hedge Accounting :
The Company uses foreign currency forward contracts and currency
options to hedge its risks associated with foreign currency fuctuations
relating to certain frm commitments and highly probable forecast
transactions. The Company does not hold derivative financial instruments
for speculative purposes. The Company has applied to such contracts the
hedge accounting principles set out in Accounting Standard 30
‘Financial Instruments : Recognition and Measurement’ (AS 30) by
marking them to market at each reporting date.
Changes in the fair value of the contracts that are designated and
effective as hedges of future cash fows are recognised directly in
Hedging Reserve Account and the ineffective portion is recognised in
the Statement of Profit and Loss.
(I) Revenue Recognition :
Sale of products and services including export benefits thereon are
recognised when the products are shipped or services rendered.
Excise duty recovered on sales is included in “Revenue from
Dividend from investments are recognised in the Statement of Profit and
Loss when the right to receive payment is established.
(J) Government Grants :
The Company, directly or indirectly through a consortium of Mahindra
Group Companies, is entitled to various incentives from government
authorities in respect of manufacturing units located in developing
regions. The Company accounts for its entitlement as income on accrual
(K) Employee benefits :
In respect of Defined Contribution Plans/Defined benefit Plans/Long term
Compensated Absences :
Company’s contributions paid/payable during the year to Superannuation
Fund, ESIC and Labour Welfare Fund are recognised in the Statement of
Profit and Loss.
Contributions to Provident Fund are made to a Trust administered by the
Company/Regional Provident Fund Commissioner and are charged to
Statement of Profit and Loss as incurred. The Company is liable for the
contribution and any shortfall in interest between the amount of
interest realised by the investments and the interest payable to
members at the rate declared by the Government of India in respect of
the Trust administered by the Company.
Company''s liability towards gratuity, long term compensated absences,
post retirement medical benefit and post retirement housing allowance
schemes are determined by independent actuaries, using the projected
unit credit method. Past services are recognised on a straight line
basis over the average period until the benefits become vested.
Actuarial gains and losses are recognised immediately in the Statement
of Profit and Loss as income or expense. Obligation is measured at the
present value of estimated future cash flows using a discounted rate
that is determined by reference to the market yields at the Balance
Sheet date on Government Bonds where the currency and terms of the
Government Bonds are consistent with the currency and estimated terms
of the defined benefit obligation.
In respect of Employee Stock Option Scheme :
The compensation cost of stock options granted to employees is measured
by the Intrinsic Value Method. The intrinsic value, which is the excess
of the market price of the underlying equity shares as of the date of
the grant over the exercise price of the option, is recognised and
amortised on straight line basis over the vesting period.
(L) Borrowing Costs :
All borrowing costs are charged to the Statement of Profit and Loss
(i) Borrowing costs that are attributable to the acquisition or
construction of assets that necessarily take a substantial period of
time to get ready for their intended use, which are capitalised as part
of the cost of such assets.
(ii) Expenses incurred on raising long term borrowings are amortised
over the period of borrowings. On early buyback, conversion or
repayment of borrowings, any unamortised expenditure is fully written
off in that year.
(M) Product Warranty :
In respect of warranties given by the Company on sale of certain
products, the estimated costs of these warranties are accrued at the
time of sale. The estimates for accounting of warranties are reviewed
and revisions are made as required.
(N) Leases :
The Company''s significant leasing arrangements are in respect of
operating leases for premises (residential, office, stores, godowns,
computer hardware etc.). The leasing arrangements, which are not
non-cancellable, range between eleven months and five years generally,
and are usually renewable by mutual consent on agreed terms. The
aggregate lease rentals payable are charged as rent.
(0) Taxes on Income :
Current tax is determined as the amount of tax payable in respect of
taxable income for the year. Deferred tax is recognised, subject to
consideration of prudence, on timing differences, being the difference
between taxable income and accounting income that originate in one
period and are capable of reversal in one or more subsequent periods.
Deferred tax assets arising on account of unabsorbed depreciation or
carry forward of tax losses are recognised only to the extent that
there is virtual certainty supported by convincing evidence that
sufficient future tax income will be available against which such
deferred tax assets can be realised.
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which
gives future economic benefits in the form of adjustment to future
income tax liability, is considered as an asset if there is convincing
evidence that the Company will pay normal income tax against which the
MAT paid will be adjusted.
(P) Segment Reporting :
Segments are identified having regard to the dominant source and nature
of risks and returns and internal organisation and management
Revenues and expenses have been identified to the segment based on
their relationship to the business activity of the segment.
Income/Expenses relating to the enterprise as a whole and not allocable
on a reasonable basis to business segments are reflected as unallocated
corporate income/expenses. Inter-segment transfers are at prices which
are generally market led.