1.1 Use of estimates
The preparation of financial statements in conformity with Indian GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent liabilities on the date of the financial statements. Actual
results could differ from those estimates. Any revision to accounting
estimates is recognised prospectively in current and future periods.
1.2 Tangible fixed assets and depreciation
Fixed assets are stated at cost of acquisition or revalued amounts less
accumulated depreciation and impairment losses, if any. The cost of
fixed assets includes taxes, duties, freight and other incidental
expenses related to the acquisition and installation of the respective
Depreciation is provided on the straight-line method (''SLM''). The
depreciation rates prescribed in Schedule XIV to the Act are considered
as the minimum rates. If the management''s estimate of the useful life
of a fixed asset at the time of acquisition of the asset or of the
remaining useful life on a subsequent review is shorter than that
envisaged in the aforesaid Schedule, depreciation is provided at a
higher rate based on the management''s estimate of useful life/remaining
Diagnostics equipments are being treated as traded items of inventory
when they are received. However, if these instruments are issued from
inventory to customers under placement agreement, these are treated as
capital asset in the period of such issue and are stated at cost less
The key fixed asset blocks and related annual depreciation rates, which
in management''s opinion reflect the estimated useful economic lives of
the fixed assets, are:
* Freehold -
* Leasehold Over the lease period
* Factory buildings 3.33 - 6.66%
* Other buildings 2 - 2.5%
* Leasehold improvements Over the lease period
Plant and equipments
* Assets specific to a project Over the life of the project
* Special machine tools 10 - 20%
* Other plant and equipments 8.33 - 25%
Furniture, fixtures and office
equipments 10 - 33.33%
Vehicles 12.5 - 25%
1.2 Tangible fixed assets and depreciation (Continued)
Where depreciable assets are revalued, depreciation is provided on the
revalued amount and the additional depreciation on accretion to assets
on revaluation is transferred from revaluation reserve to the statement
of profit and loss.
Assets costing Rs. 5,000 or less are fully charged to the statement of
profit and loss in the year of acquisition.
Items of fixed assets that have been retired from active use and are
held for disposal are stated at the lower of their net book value and
estimated net realizable value and are disclosed separately in the
Capital work-in-progress includes the cost of fixed assets that are not
ready to use at the balance sheet date.
1.3 Intangible assets
Intangible assets comprise goodwill, software and technical know-how.
Intangible assets are stated at cost of acquisition less accumulated
amortisation and impairment losses, if any. These intangible assets are
amortised on straight-line basis based on the following useful lives,
which in management''s estimate represents the period during which
economic benefits will be derived from their use:
Asset Useful life
Goodwill 36 - 60 months
Software 36 - 60 months
Technical know-how 60 - 120 months
1.4 Impairment of assets
The Company assesses at each balance sheet date whether there is any
indication that an asset or a group of assets (cash generating unit)
may be impaired. If any such indication exists, the Company estimates
the recoverable amount of the asset or cash generating unit.
The recoverable amount is the greater of the asset''s net selling price
and value in use. In assessing value in use, the estimated future cash
flows are discounted to the present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and
the risks specific to the asset. In determining net selling price,
recent market transactions are taken into account, if available. If no
such transactions can be identified, an appropriate valuation model is
used. If such recoverable amount of the asset or the recoverable amount
of the cash-generating unit to which the asset belongs is less than its
carrying amount, the carrying amount is reduced to its recoverable
amount. The reduction is treated as an impairment loss and is
recognized in the statement of profit and loss. If at the balance sheet
date there is an indication that a previously assessed impairment loss
no longer exists, the recoverable amount is reassessed and the asset is
reflected at the recoverable amount subject to a maximum of depreciable
historical cost, had no impairment been recognised.
Investments that are readily realizable and intended to be held for not
more than a year from the date on which such investments are classified
as current investments. All other investments are classified as long
Long-term investments are carried at cost. Provision for diminution is
made to recognize a decline, other than temporary in value of long-term
investments and is determined separately for each individual
An investment in land or buildings, which is not intended to be
occupied substantially for use by or in the operations of the Company,
is classified as an investment property. Investment properties are
stated at cost, net of accumulated depreciation and accumulated
impairment losses, if any.
1.5 Investments (Continued)
The cost comprise purchase price, borrowing costs if capitalisation
criteria are met and directly attributable cost of bringing the
investment property to its working condition for the intended use.
Depreciation on investment property is calculated on a straight line
basis as per the rates arrived at based on the useful lives estimated
by the management or that prescribed under the Schedule XIV to the Act,
whichever is higher. The Company has used depreciation rate of 1.39% -
On disposal of an investment property, the difference between its
carrying amount and net disposal proceeds is charged or credited to the
statement of profit and loss.
1.6 Revenue recognition
Revenue is recognised to the extent it is probable that the economic
benefits will flow to the Company and the revenue can be reliably
Revenue from sale of products is recognised on transfer of significant
risk and rewards of ownership of the products to the customers, which
is generally on dispatch of goods. Sales are stated exclusive of sales
tax and net of trade and quantity discount.
Revenue from services is recognised as per the terms of the contract
with the customer using the proportionate completion method.
Revenue from services represents service income other than from
services which are incidental to sale of products and projects.
Income from fixed price construction contracts is recognised by
reference to the estimated overall profitability of the contract under
the percentage of completion method. Percentage of completion is
determined as a proportion of the costs incurred upto the reporting
date to the total estimated contract costs. Contract revenue earned in
excess of billing has been reflected as Project excess cost under
Other current assets and Billing in excess of contract revenue has
been reflected under Other current liabilities in the balance sheet.
Provision for expected loss is recognized immediately when it is
probable that the total estimated contract costs will exceed total
Commission income is recognised when proof of shipment is received from
Interest income is recognised on the time proportion basis.
Export incentives receivable are accrued for when the right to receive
the credit is established and there is no significant uncertainty
regarding the ultimate collection of export proceeds.
Inventories comprise all costs of purchase, conversion and other costs
incurred in bringing the inventories to their present location and
Raw materials are valued at the lower of cost and net realisable value.
Cost is determined on the basis of the weighted average method.
Work-in-progress, finished goods and traded goods are valued at the
lower of cost and net realisable value. Excise duty is included in the
value of finished goods inventory. Cost is determined on a weighted
The net realisable value of work-in-progress is determined with
reference to the estimated selling price less estimated cost of
completion and estimated costs necessary to make the sale of related
finished goods. Raw materials held for the production of finished goods
are not written down below cost except in case where material prices
have declined and it is estimated that the cost of the finished product
will exceed its net realisable value.
Where the Company is the lessee:
Leases where the lessor effectively retains substantially all the risk
and benefits of ownership of the leased items are classified as
operating leases. Lease payments under an operating lease, are
recognised as an expense in the statement of profit and loss on a
straight line basis over the lease term.
Where the Company is the lessor:
Assets subject to operating leases are included in fixed assets. Lease
income is recognised in the statement of profit and loss on a
straight-line basis over the lease term. Costs, including depreciation
are recognised as an expense in the statement of profit and loss.
Initial direct costs such as legal costs, brokerage costs, etc. are
recognised immediately in the statement of profit and loss.
1.9 Employee benefits
(a) Short term employee benefits
All employee benefits payable wholly within twelve months of rendering
the service are classified as short-term employee benefits. Benefits
such as salaries, wages and short term compensated absences, etc. and
the expected cost of ex-gratia is recognised in the period in which the
employee renders the related service.
(b) Post-employment benefits
(i) Defined Contribution Plans: The Company''s approved superannuation
scheme and employee state insurance scheme are defined contribution
plans. The Company''s contribution paid/payable under the schemes is
recognised as expense in the statement of profit and loss during the
period in which the employee renders the related service.
(ii) Defined Benefit Plans and other Long Term Benefits: The Company''s
provident fund, gratuity, pension and medical benefit schemes are
defined benefit plans. Leave wages, retention bonus, silver jubilee and
star awards are other long term benefits. The present value of the
obligation under such defined benefit plans and other long term
benefits are determined based on actuarial valuation using the
Projected Unit Credit Method, which recognises each period of service
as giving rise to additional unit of employee benefit entitlement and
measures each unit separately to build up the final obligation.
Provision for leave wages, pension, medical benefit, retention bonus,
silver jubilee and star awards which is expected to be utilized within
the next 12 months is treated as short term employee benefits and
beyond 12 months as long term employee benefits. For the purpose of
presentation, the allocation between short and long term provisions has
been made as determined by an actuary.
Actuarial gains and losses are recognised immediately in the statement
of profit and loss.
1.10 Foreign currency transactions
The Company is exposed to currency fluctuations on foreign currency
transactions. Transactions denominated in foreign currency are recorded
at the exchange rate prevailing on the date of transactions.
Exchange differences arising on foreign exchange transactions settled
during the year are recognized in the statement of profit and loss of
1.10 Foreign currency transactions (Continued)
Monetary assets and liabilities in foreign currency, which are
outstanding as at the year-end, are translated at the year-end at the
closing exchange rate and the resultant exchange differences are
recognized in the statement of profit and loss. Non monetary items are
stated in the balance sheet using the exchange rate at the date of the
The Company''s exposure to foreign currency fluctuations relates to
foreign currency assets, liabilities and forecasted cash flows. The
Company limits the effects of foreign exchange rate fluctuations by
following established risk management policies including the use of
derivatives. The Company enters into forward exchange contracts, where
the counterparty is a bank.
As per Accounting Standard (''AS'') 11 - ''The Effects of Changes in
Foreign Exchange Rates'', the premium or the discount on forward
exchange contracts not relating to firm commitments or highly probable
forecast transactions and not intended for trading or speculation
purpose is amortized as expense or income over the life of the
contract. All other derivatives except cash flow hedges, which are not
covered by AS 11, are measured using the mark-to-market principle with
the resulting gains / losses thereon being recorded in the statement of
profit and loss.
The Company uses foreign currency forward contracts to hedge its risks
associated with foreign currency fluctuations relating to highly
probable forecast transactions. The Company designates some of the
forward contracts in a cash flow hedging relationship by applying the
hedge accounting principles.
These forward contracts are stated at fair value at each reporting
date. Changes in the fair value of these forward contracts that are
designated and effective as hedges of future cash flows are recognised
directly in Cash Flow Hedge Reserve under Reserves and Surplus, net of
applicable deferred income taxes and the ineffective portion is
recognised immediately in the statement of profit and loss.
Amounts accumulated in Cash Flow Hedge Reserve are reclassified to
profit and loss in the same periods during which the forecasted
Hedge accounting is discontinued when the hedging instrument expires or
is sold, terminated, or exercised, or no longer qualifies for hedge
accounting. For forecasted transactions, any cumulative gain or loss on
the hedging instrument recognised in Hedging Reserve Account is
retained there until the forecasted transaction occurs.
If the forecasted transaction is no longer expected to occur, the net
cumulative gain or loss recognised in Cash Flow Hedge Reserve is
immediately transferred to the statement of profit and loss for the
Income-tax expense comprises current tax (i.e. amount of tax for the
year determined in accordance with the income-tax law), deferred tax
charge or credit (reflecting the tax effect of timing differences
between accounting income and taxable income for the year) computed in
accordance with the relevant provisions of the Income Tax Act, 1961.
The deferred tax charge or credit and the corresponding deferred tax
liabilities or assets are recognised using the tax rates that have been
enacted or substantively enacted by the balance sheet date. Deferred
tax assets are recognised only to the extent there is reasonable
certainty that the asset can be realised in future; however, where
there is unabsorbed depreciation or carried forward loss under taxation
laws, all deferred tax assets are recognised only if there is a virtual
certainty supported by convincing evidence of realisation of the
assets. Deferred tax assets are reviewed as at each balance sheet date
and written down or written-up to reflect the amount that is
reasonable/virtually certain (as the case may be) to be realised.
1.12 Earnings per share
Basic and diluted earnings per share is computed by dividing the net
profit attributable to equity shareholders for the year, by the
weighted average number of equity shares outstanding during the year.
Provisions are recognized when the Company recognises it has a present
obligation as a result of past events and it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation and a reliable estimate can be made of the amount
of the obligation. Provisions are not discounted to its present value
and are determined based on best estimate required to settle the
obligation at the balance sheet date. These are reviewed at each
balance sheet date and adjusted to reflect current best estimates.
Disclosures for contingent liability are made when there is a possible
or present obligation which arises from past events which is not
recognised since it is not probable that there will be an outflow of
resources. When there is a possible or present obligation in respect of
which the likelihood of outflow of resources is remote, no disclosure
Loss contingencies arising from claims, litigation, assessment, fines,
penalties, etc. are recorded when it is probable that a liability has
been incurred and the amount can be reasonably estimated.
Contingent assets are neither recognized nor disclosed in the financial
1.14 Cash and cash equivalents
Cash and cash equivalents include cash, cheques in hand, cash at bank
and short term deposits with banks having maturity of three months or
1.15 Insurance claims
Amounts by way of insurance claims are recognised as assets when it is
reasonably certain that the claim is receivable and is recorded as a
reduction in the expense where the corresponding loss has been debited.
1.16 Operating cycle
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 Revised Schedule VI to the Companies Act, 1956. The
Company has ascertained its operating cycle as twelve months for the
purpose of current or non-current classification of assets and