1.1 Basis of accounting and preparation of financial statements
The financial statements of the Company have been prepared, in
accordance with Generally Accepted Accounting principles in India
(Indian GAAP), to comply with the mandatory Accounting Standards
prescribed by the Company (Accounting Standards) Rules, 2006 except for
certain assets and liabilities which are measured on fair value basis
as permitted by the Scheme of Arrangement approved by the Honorable
High Court of Karnataka and the relevant provisions of the Companies
Act, 1956. The Financial Statements have been prepared on accrual basis
under the historical cost convention except for certain categories of
fixed assets that are carried at revalued amounts. The accounting
policies adopted in the preparation of the financial statements are
consistent with those followed in the previous year except for change
in the accounting policy for accounting of exchange fluctuation on
restatement of long term foreign currency borrowings
1.2 Tangible fixed assets
Fixed assets are carried at cost less accumulated depreciation and
impairment losses, if any. The cost of fixed assets includes interest
on borrowings attributable to acquisition of qualifying fixed assets up
to the date the asset is ready for its intended use and other
incidental expenses incurred up to that date. Exchange differences
arising on restatement / settlement of long-term foreign currency
borrowings relating to acquisition of depreciable fixed assets are
adjusted to the cost of the respective assets and depreciated over the
remaining useful life of such assets. SubSequent expenditure relating
to fixed assets is capitalised only if such expenditure results in an
increase in the future benefits from such asset beyond its previously
assessed standard of performance.
Projects under which assets are not ready for their intended use and
other capital work- in-progress are carried at cost, comprising direct
cost, related incidental expenses and attributable interest.
1.3 Intangible assets
Intangible assets are carried at cost less accumulated amortisation and
impairment losses, if any. The cost of an intangible assets comprises
its purchase price, including any import duties and other taxes (other
than those subsequently recoverable from the taxing authorities), and
any directly attributable expenditure on making the asset ready for its
intended use and net of any trade discounts and rebates. Subsequent
expenditure on an intangible assets after its purchase / completion is
recognised as an expense when incurred unless it is probable that such
expenditure will enable the asset to generate future economic benefits
in excess of its originally assessed standards of performance and such
expenditure can be measured and attributed to the asset reliably, in
which case such expenditure is added to the cost of the asset.
Refer Note 1.5 for accounting for research and development expenses.
Depreciation is provided under the straight-line method at the rates
and in the manner prescribed under Schedule XIV of the Companies Act,
1956, based on technical estimates that indicate the useful lives would
be comparable with or higher than those arrived at using these rates,
In the case of following intangible assets depreciation is
provided/amortised under the straight line method over the useful life
of assets as follows:
Product and process development : 5 Years
Software licenses : 3 Years
The estimated useful life of the intangible assets and its amortisation
period are reviewed at the end of each financial year and the
amortisation method is revised to reflect the changed pattern.
With respect to assets carried at revalued amounts as permitted under
the Scheme of amalgamation, depreciation is recorded under the straight
line method over the balance remaining useful life of the assets.
Individual assets costing less than Rs.5,000 are depreciated in full in
the year of purchase.
1.5 Research and development costs
Revenue expenditure pertaining to research is charged to the Statement
of Profit and Loss. Development costs of products are also charged to
the Statement of Profit and Loss unless a product''s technological
feasibility has been established, in which case such expenditure is
capitalised. The amount capitalised comprises expenditure that can be
directly attributed or allocated on a reasonable and consistent basis
to creating, producing and making the asset ready for its intended use.
Fixed assets utilised for research and development are capitalised and
depreciated in accordance with the policies stated for tangible fixed
assets and intangible assets.
1.6 Impairment of assets
As at each Balance Sheet date, the carrying amount of fixed assets is
tested for impairment if impairment conditions exist. An impairment
loss is recognized 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 value in use.
(b) in the case of cash generating units, at the higher of the 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.
Current investments are carried at lower of cost and fair market value.
Provision is made to recognize decline, if any, in the carrying value.
Long-term investments are carried individually at cost less provision
for diminution, other than temporary in the value of the investment.
Inventories comprise raw materials, packing materials, consumables,
work in process, intermediates and finished goods. These are valued at
the lower of cost and net realizable value. Cost is determined as
(i) Raw materials, packing materials and consumables First in first out
(ii) Work in process and Intermediates
At material cost, conversion costs and appropriate share of production
(iii) Finished goods
At material cost, conversion costs and an appropriate share of
production overheads and excise duty, wherever applicable.
1.9 Revenue recognition
Revenue from export sales is recognized on the basis of the shipping
bills for exports.
Revenue from domestic sales is recognized based on the passage of title
to goods which generally coincides with dispatch. Sales include excise
duty and are stated net of discounts, other taxes, and sales returns.
Income from sale of technical know-how is recognized, when the risk and
right to use is transferred to the buyer as per terms of contract.
Dividend income is recognised when the right to receive the same is
Interest income is recognised on an accrual basis.
1.10 Employee benefits
The Company''s contribution to provident fund is charged to revenue on
Leave balances standing to the credit of the employees that are
expected to be availed in the short term are provided for on full cost
basis. Liability for unavailed leave considered to be long term is
carried based on an actuarial valuation.
Liability for gratuity is funded with LIC and SBI Life Insurance
Company Limited. Gratuity expenses for the year are accounted based on
actuarial valuation carried out using Projected Unit Credit Method as
at the end of the fiscal year. The obligation recognised in the balance
sheet represents the present value of the defined benefit obligation as
adjusted for unrecognized past service cost, and as reduced by the fair
value of scheme assets. Any asset resulting from this calculation is
limited to past service cost, plus the present value of available
refunds and reductions in future contributions to the scheme.
Short term employee benefits like medical, leave travel, etc are
accrued based on the terms of employment on a time proportion basis.
1.11 Foreign currency transactions
Transactions in foreign currencies entered into by the Company and its
integral foreign operations are accounted at the exchange rates
prevailing on the date of the transaction or at rates that closely
approximate the rate at the date of the transaction.
Measurement of foreign currency monetary items at the Balance Sheet
Foreign currency monetary items of the Company and its net investment
in non-integral foreign operations outstanding at the Balance Sheet
date are restated at the year-end rates.
In the case of integral operations, assets and liabilities (other than
non-monetary items), are translated at the exchange rate prevailing on
the balance sheet date. Non-monetary items are carried at historical
cost. Revenue and expenses are translated at the average exchange rates
prevailing during the year. Exchange differences arising out of these
translations are charged to the statement of profit and loss.
Treatment of exchange differences
Exchange differences arising on settlement / restatement of short-term
foreign currency monetary assets and liabilities of the Company and its
integral foreign operations are recognised as income or expense in the
statement of profit and loss. The exchange differences on restatement /
settlement of loans to non-integral foreign operations that are
considered as net investment in such operations are accumulated in a
Foreign currency translation reserve until disposal / recovery of the
The exchange differences arising on restatement / settlement of
long-term foreign currency monetary items are capitalised as part of
the depreciable fixed assets to which the monetary item relates and
depreciated over the remaining useful life of such assets.
Accounting of forward contracts
Premium / discount on forward exchange contracts, which are not
intended for trading or speculation purposes, are amortised over the
period of the contracts if such contracts relate to monetary items as
at the Balance Sheet date.
1.12 Taxes on income
Income Tax comprises the current tax provision and the net change in
the deferred tax asset or liability during the year. Deferred tax
assets and liabilities are recognized for the future tax consequences
arising out of temporary differences between the carrying values of the
assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates applicable
on the Balance Sheet date. Deferred tax assets are recognised and
carried forward to the extent that there is a reasonable/ virtual
certainty (as applicable) that sufficient future taxable income will be
available against which such deferred tax asset can be realised. The
effect on deferred tax assets and liabilities resulting from change in
tax rates is recognized in the income statement in the period of
enactment of the change.
Current tax is the amount of tax payable on the taxable income for the
year as determined in accordance with the provisions of the Indian
Income Tax Act, 1961.
Minimum alternative tax (''MAT'') paid in accordance to the tax laws,
which gives rise to future economic benefits in the form of adjustment
of future tax liability, is considered as an asset if there is
convincing evidence that the Company will pay normal income tax in
future years. Accordingly, MAT is recognized as an assets in the
balance sheet when it is probable that the future economic benefit
associated with it will flow to the Company and asset can be measured
Lease arrangements, where the risks and rewards incident to ownership
of an asset substantially vest with the lessor, are classified as
operating leases and the lease rentals thereon are recognised in the
statement of profit and loss on accrual basis.
1.14 Employee stock option scheme
Employee stock options are accounted in accordance with the guidelines
stipulated by SEBI and Guidance Note on Accounting for Employee
Share-based Payments. The difference between the market price of the
shares underlying the options granted on the date of grant of option
and the option price is expensed under employee benefit expenses over
the vesting period.
1.15 Earnings per share (EPS)
In determining the Earnings per share, the Company considers the net
profit after tax. The number of shares used in computing Basic
Earnings per share is the weighted average number of equity shares
outstanding during the year. The number of shares used in computing
Diluted Earnings per share comprises the weighted average number of
equity shares considered for deriving Basic earnings per share and also
the weighted average number of equity shares that could have been
issued on the conversion of all dilutive potential equity shares.
Dilutive potential equity shares are deemed converted as of the
beginning of the year unless issued at a later date.
1.16 Provisions and contingencies
A provision is recognized when the Company has a present legal or
constructive obligation as a result of past event and it is probable
that an outflow of resources will be required to settle the obligation,
in respect of which reliable estimate can be made. Provisions
(excluding retirement benefits) are not discounted to its present value
and are determined based on best estimate required to settle the
obligation. Contingent liabilities are not recognized but are disclosed
in the notes to financial statements.
1.17 Use of estimates
The preparation of the financial statements in conformity with the
Accounting Standards generally accepted in India requires that the
management makes estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent liabilities
as at the date of the financial statements and the reported amounts of
revenue and expenses during the reported period. Actual results could
differ from those estimates.
Segments have been identified taking into account the nature of
services, the differing risks and returns, the organizational structure
and the internal reporting system. The Company prepares consolidated
financial statements and segment information is disclosed in
Consolidated financial statements.
1.19 Insurance claims
Insurance claims are accounted for on the basis of claims admitted /
expected to be admitted and to the extent that there is no uncertainty
in receiving the claims.
1.20 Borrowing costs
Borrowing costs include interest, amortisation of ancillary costs
incurred and exchange differences arising from foreign currency
borrowings to the extent they are regarded as an adjustment to the
interest cost. Costs in connection with the borrowing of funds to the
extent not directly related to the acquisition of qualifying assets are
charged to the Statement of Profit and Loss over the tenure of the
loan. Borrowing costs, allocated to and utilised for qualifying assets,
pertaining to the period from commencement of activities relating to
construction / development of the qualifying asset upto the date of
capitalisation of such asset is added to the cost of the assets.
Capitalisation of borrowing costs is suspended and charged to the
Statement of Profit and Loss during extended periods when active
development activity on the qualifying assets is interrupted.
1.21 Cash flow statement
Cash flows are reported using the indirect method, whereby profit /
(loss) before extraordinary items and tax is adjusted for the effects
of transactions of non-cash nature and any deferrals or accruals of
past or future cash receipts or payments. The cash flows from
operating, investing and financing activities of the Company are
segregated based on the available information.
1.22 Cash and cash equivalents (for purposes of cash flow statement)
Cash comprises cash on hand and demand deposits with banks. Cash
equivalents are short-term balances (with an original maturity of three
months or less from the date of acquisition), highly liquid investments
that are readily convertible into known amounts of cash and which are
subject to insignificant risk of changes in value.
1.23 Change in accounting policy
During the year, the Company has exercised the option of capitalising
the exchange difference on account of restatement of term loans taken
in foreign currency as per Notification issued by Ministry of Corporate
Affairs dated 29 December 2011. Accordingly, Rs.26.60 million has been
capitalised under respective assets categories and depreciated over the
remaining useful life of the assets and Rs.5.75 million has been
included in Capital work-in-progress. The depreciation expense for the
year includes Rs.2.66 million on account of such exchange differences
capitalised. Consequently the net loss before tax for the year ended
31 March 2012 is lower by Rs.29.69 million and fixed assets are higher
by Rs. 32.35 million.