a. Basis of Preparation of Financial Statements
These financial statements have been prepared under the historical cost
convention from the books of accounts maintained on accrual basis in
conformity with accounting principles generally accepted in India and
comply with the Accounting Standards notified under Section 211 (3C) of
the Companies Act, 1956 (the Act) and the relevant provisions of the
b. Revenue Recognition
Sales are accounted for inclusive of excise duty but excluding sales
tax and trade discounts. Sales are recognised when the property and all
significant risks and rewards of ownership are transferred to the buyer
and no significant uncertainty exists regarding the amount of
consideration that is derived from the sale of goods.
Revenues in respect of long term contracts are recognised based on the
percentage of completion method. However, provisions are made for
anticipated losses (if any) for contracts to be completed in future.
The percentage completion is determined based on the actual costs
vis-a-vis the estimated total cost of a contract. Interest Income is
accounted on accrual basis and dividend income is accounted when right
to receive payment is established.
c. Fixed Assets and Depreciation
Fixed Assets are stated at cost, except for certain assets at Ambattur
and Halol, which are stated at revalued figures. Surplus arising on
revaluation of such assets is credited to revaluation reserve.
Depreciation on revaluated portion is reduced from the revaluation
Cost comprises the purchase price and any attributable cost of bringing
the asset to its working condition for its intended use.
Depreciation on building acquired up to March 31, 1984 is provided on
the written down value method at rates prescribed under Schedule XIV to
Depreciation on building acquired after March 31,1984 is provided on
the straight-line method at the rates prescribed in Schedule XIV to the
Depreciation on other fixed assets is provided on straight line method
Category % per annum
Plant and Machinery 10
Electrical Installations 10
Furniture and Fixtures 10
Furniture and Fixtures on tenanted premises Over the period of lease
Office Equipments 10
Leasehold Land is amortised over the period of the Lease.
The above rates are based on technical estimates, approved by the
Management, of the useful lives of the respective fixed assets, and are
higher than the rates prescribed under Schedule XIV to the Act.
Further, assets individually costing Rs. 5,000 or less are fully
depreciated in the year of purchase.
d. Impairment of Fixed Assets
The Company assesses at each Balance Sheet date whether there is any
indication that an asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount of the asset. If
such recoverable amount of the asset or 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
recognised as such. 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
Long-term investments are valued at cost. Provision for diminution is
made to recognise decline, other than temporary, in the value of
Inventories are stated at cost or net realisable value, whichever is
lower. Cost is arrived at on First-In-First-Out (FIFO) method and
includes, where appropriate, manufacturing overheads and excise duty.
g. Employee Benefits
[i] Defined Contribution Plans
The Company has Defined Contribution plans for post employment benefits
namely Provident Fund and Superannuation Fund which are administered
through authorities/ trustees.
The Company contributes to a Provident Fund Trust, Employees Deposit
Linked Insurance Scheme and Family Pension Fund on behalf of its
employees and has no further obligation beyond making its contribution.
The Superannuation Fund applicable to certain employees is a defined
contribution plan as the Company makes contributions to Officers
Superannuation Scheme which is administered by an insurance company and
has no further obligation beyond making the payment to the insurance
The Company makes contributions to State plans namely Employees State
Insurance Fund and Employees Pension Scheme, 1995 and has no further
obligation beyond making the payment to them.
The Companys contributions to the above funds are charged to Profit
and Loss Account.
[ii] Defined Benefit Plans
The Company has a Defined Benefit Plan namely Gratuity covering all its
employees. The gratuity scheme is funded through Group
Gratuity-cum-Life Assurance Scheme which is administered by Life
Insurance Corporation of India CLIC).
The liability for the defined benefit plan of gratuity is determined on
the basis of an actuarial valuation at the period-end using Projected
Unit Credit Method.
[iii] Termination benefits are recognised as an expense as and when
[iv] Actuarial gains and losses comprise experience adjustments and the
effects of changes in actuarial assumptions and are recognised
immediately in the Profit and Loss Account as income or expense.
[v] Long Term Compensated Absences
The liability in respect of compensated absences is provided, based on
an actuarial valuation carried out by an independent actuary as at the
period-end using the Projected Unit Credit method. This liability is
funded with HDFC Standard Life Insurance Company.
h. Foreign Currency Transactions
Foreign currency transactions are recorded at the exchange rates
prevailing on the date of such transactions. Foreign currency monetary
assets and liabilities as at the Balance Sheet date are translated at
the rates of exchange prevailing on the Balance Sheet date. Gain and
losses arising on account of differences in foreign exchange rates on
settlement / translation of foreign currency monetary assets and
liabilities are recognised in the Profit and Loss Account. Non-monetary
foreign currency items are carried at cost.
Provision for current tax has been made in accordance with the income
tax laws prevailing for the relevant assessment years.
Deferred tax is recognised, subject to the 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.
j. Provision and Contingent Liabilities
The Company recognises a provision when there is a present obligation
as a result of a past event that probably requires an outflow of
resources and a reliable estimate can be made of the amount of the
obligation. A disclosure for a contingent liability is made when there
is a possible obligation or present obligation that may, but probably
will not, require an outflow of resources. Where there is a possible
obligation or a present obligation that the likelihood of outflow of
resources is remote, no provision or disclosure as specified in
Accounting Standard 29 - Provisions, Contingent Liabilities and
Contingent Assets is made.
[i] Finance Lease
Leases of assets under which all the risks and benefits of ownership
are substantially transferred to the lessee are classified as finance
leases. Finance leases are capitalised at the estimated present value
of the minimum lease payments. Each lease payment is allocated between
the liability and finance charges so as to achieve a constant rate on
the finance balance outstanding. The corresponding rental obligations,
net of finance charges, are included in secured loans. The interest
element of the finance charge is charged to the Profit and Loss Account
over the lease period. Leased assets are being depreciated over the
[ii] Operating Lease
Assets acquired as leases where a significant portion of the risks and
rewards of the ownership are retained by the lessor are classified as
Operating Leases. Lease rentals are charged to Profit and Loss Account
on an accrual basis.