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Tata Motors

BSE: 500570|NSE: TATAMOTORS|ISIN: INE155A01022|SECTOR: Auto - LCVs & HCVs
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Mar 15
Accounting Policy Year : Mar '16
(a) Basis of preparation
 
 The financial statements of the Company have been prepared under the
 historical cost convention on an accrual basis of accounting in
 accordance with the Generally Accepted Accounting Principles in India
 to comply with the Accounting Standards prescribed under Section 133 of
 the Companies Act, 2013 and relevant provisions of the Companies Act,
 2013 (the 2013 Act).
 
 (b) Use of estimates
 
 The preparation of financial statements requires management to make
 judgments, estimates and assumptions, that affect the application of
 accounting policies and the reported amounts of assets, liabilities,
 income, expenses and disclosures of contingent liabilities at the date
 of these financial statements.  Actual results may differ from these
 estimates. Estimates and underlying assumptions are reviewed at each
 balance sheet date. Revisions to accounting estimates are recognised in
 the period in which the estimate is revised and future periods affected.
 
 (c) Revenue recognition
 
 The Company recognises revenues on the sale of products, net of
 discounts and sales incentives, when the products are delivered to the
 dealer / customer or when delivered to the carrier for export sales,
 which is when risks and rewards of ownership pass to the dealer /
 customer.
 
 Sales include income from services and exchange fluctuations relating
 to export receivables. Sales include export and other recurring and
 non-recurring incentives from the Government at the national and state
 levels. Sale of products is presented gross of excise duty where
 applicable, and net of other indirect taxes.
 
 Revenues are recognised when collectability of the resulting
 receivables is reasonably assured.
 
 Dividend from investments is recognized when the right to receive the
 payment is established and when no significant uncertainty as to
 measurability or collectability exists.
 
 Interest income is recognized on the time basis determined by the
 amount outstanding and the rate applicable and where no significant
 uncertainty as to measurability or collectability exists.
 
 (d) Depreciation and amortisation
 
 (i) Depreciation is provided on the Straight Line Method (SLM) over the
 estimated useful lives of the assets considering the nature, estimated
 usage, operating conditions, past history of replacement, anticipated
 technological changes, manufacturers warranties and maintenance
 support. Taking into account these factors, the Company has decided to
 retain the useful life hitherto adopted for various categories of fixed 
 assets, which are different from those prescribed in Schedule II
 of the Act. Estimated useful lives of assets are as follows :
 
 Type of Asset Estimated useful life
 
 - Leasehold Land Amortised over the period of the lease
 
 - Buildings, Roads, Bridges and culverts 4 to 60 years
 
 - Plant, machinery and equipment 8 to 20 years
 
 - Computers and other IT assets 4 to 6 years -Vehicles 4 to 10 years
 
 - Furniture, fixture and office appliances 5 to 15 years
 
 - Technical Know-how 5 to 6 years
 
 - Computer software 4 years
 
 - Water system and sanitation 20 years
 
 - Assets taken on lease are amortised over the period of lease 10 years
 
 (ii) Product development costs are amortised over a period of upto 120
 months for New Generation vehicles and powertrains on the basis of
 higher of the volumes between planned and actuals and on a straight
 line method over a period of 36 months for Vehicle Variants,
 Derivatives and other Regulatory Projects.
 
 (iii) In respect of assets whose useful life has been revised, the
 unamortised depreciable amount has been charged over the revised
 remaining useful life.
 
 (iv) Depreciation is not recorded on capital work-in-progress until
 construction and installation are complete and asset is ready for its
 intended use.
 
 (v) Capital assets, the ownership of which doesn''t vest with the
 Company, other than leased assets, are depreciated over the estimated
 period of their utility or five years, whichever is less.
 
 (e) Fixed assets
 
 (i) Fixed assets are stated at cost of acquisition or construction less
 accumulated depreciation / amortization and accumulated impairment, if
 any.
 
 (ii) Product development cost incurred on new vehicle platforms,
 engines, transmission and new products are recognised as fixed assets,
 when feasibility has been established, the Company has committed
 technical, financial and other resources to complete the development
 and it is probable that the asset will generate probable future benefits.
 
 (iii) Cost includes purchase price, taxes and duties, labour cost and
 directly attributable overhead expenditure for self constructed assets
 incurred up to the date the asset is ready for its intended use.
 Borrowing cost incurred for qualifying assets is capitalised up to the
 date the asset is ready for intended use, based on borrowings incurred
 specifically for financing the asset or the weighted average rate of
 all other borrowings, if no specific borrowings have been incurred for
 the asset. The cost of acquisition is further adjusted for exchange
 differences relating to long term foreign currency borrowings
 attributable to the acquisition of depreciable asset w.e.f April 1,
 2007.
 
 (iv) Tangible assets and Software not exceeding Rs.25,000, and product
 development costs relating to minor product enhancements, facelifts and
 upgrades, are charged off to the Statement of Profit and Loss as and
 when incurred.
 
 (f) Impairment
 
 At each Balance Sheet date, the Company assesses whether there is any
 indication that the fixed assets with finite lives may be impaired.
 If any such indication exists, the recoverable amount of the asset is
 estimated in order to determine the extent of the impairment, if any.
 Where it is not possible to estimate the recoverable amount of
 individual asset, the Company estimates the recoverable amount of the
 cash-generating unit to which the asset belongs.  As at March 31, 2016
 none of the fixed assets were considered impaired.
 
 (g) Leases
 
 (i) Finance lease
 
 Assets acquired under finance leases are recognised as an asset and a
 liability at the commencement of the lease, at the lower of the fair
 value of the assets and the present value of minimum lease payments.
 The finance expense is allocated to each period during the lease term
 so as to produce a constant periodic rate of interest on the remaining
 balance of the liability. Assets given under finance leases are
 recognised as receivables at an amount equal to the net investment in
 the lease and the finance income is based on a constant rate of return
 on the outstanding net investment.
 
 (ii) Operating lease
 
 Leases other than finance lease, are operating leases, and the leased
 assets are not recognised on the Company''s Balance Sheet. Payments /
 rental income under operating leases are recognised in the Statement of
 Profit and Loss on a straight-line basis over the term of the lease.
 
 (h) Transactions in foreign currencies and accounting of derivatives
 
 (i) Exchange differences
 
 Transactions in foreign currencies are recorded at the exchange rates
 prevailing on the date of the transaction. Foreign currency monetary
 assets and liabilities are translated at year end exchange rates.
 
 (1) Exchange differences arising on settlement of transactions and
 translation of monetary items other than those covered by (2) below are
 recognized as income or expense in the year in which they arise.
 Exchange differences considered as borrowing cost are capitalized to
 the extent these relate to the acquisition / construction of qualifying
 assets and the balance amount is recognized in the Statement of Profit
 and Loss.
 
 (2) Exchange differences relating to long term foreign currency
 monetary assets / liabilities are accounted for with effect from April
 1, 2007 in the following manner:
 
 - Differences relating to borrowings attributable to the acquisition
 of depreciable capital assets are added to / deducted from the cost of
 such capital assets.
 
 - Other differences were accumulated in Foreign Currency Monetary Item
 Translation Difference Account and amortized over the period,
 beginning April 1, 2007 or date of inception of such item, as
 applicable, and ending on March 31, 2011 or the date of its maturity,
 whichever was earlier.
 
 - Pursuant to notification issued by the Ministry of Corporate Affairs 
 on December 29, 2011, the exchange differences on long term
 foreign currency monetary items (other than those relating to
 acquisition of depreciable assets) are amortised over the period till
 the date of maturity or March 31, 2020, whichever is earlier.
 
 (ii) Hedge accounting
 
 The Company uses foreign currency forward contracts to hedge its risks
 associated with foreign currency fluctuations relating to highly
 probable forecast transactions. With effect from April 1, 2008, the
 Company designates such forward contracts in a cash flow hedging
 relationship by applying the hedge accounting principles set out in
 Accounting Standard 30- Financial Instruments: Recognition and
 Measurement.
 
 These forward contracts are stated at fair value at each reporting
 date. Changes in the fair value of these forward and option contracts
 that are designated and effective as hedges of future cash flows are
 recognized directly in Hedging Reserve Account 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 Hedging Reserve Account are reclassified to
 Profit and Loss in the periods during which the forecasted transaction
 occurs.
 
 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 Hedging Reserve Account is
 immediately transferred to the Profit and Loss Statement. Foreign
 currency options and other derivatives are stated at fair value as at
 the year end with changes in fair value recognized in the Statement of
 Profit and Loss.
 
 (iii) Premium or discount on forward contracts other than those covered
 in (ii) above is amortised over the life of such contracts and is
 recognised as income or expense.
 
 (i) Product warranty expenses
 
 The estimated liability for product warranties is recorded when
 products are sold. These estimates are established using historical
 information on the nature, frequency and average cost of warranty
 claims and management estimates regarding possible future incidence
 based on corrective actions on product failures. The timing of outflows 
 will vary as and when warranty claim will arise - being typically
 up to 3 to 4 years.
 
 (j) Inventories
 
 Inventories are valued at the lower of cost and net realisable value.
 Cost of raw materials and consumables are ascertained on a moving
 weighted average / monthly moving weighted average basis. Cost,
 including variable and fixed overheads, are allocated to
 work-in-progress, stock-in-trade and finished goods determined on full
 absorption cost basis. Net realisable value is estimated selling price
 in the ordinary course of business less estimated cost of completion
 and selling expenses.
 
 (k) Employee benefits
 
 (i) Gratuity
 
 The Company has an obligation towards gratuity, a defined benefit
 retirement plan covering eligible employees. The plan provides for a
 lump sum payment to vested employees at retirement, death while in
 employment or on termination of employment of an amount equivalent to
 15 to 30 days salary payable for each completed year of service.
 Vesting occurs upon completion of five years of service. The Company
 makes annual contributions to gratuity fund established as trust. The
 Company accounts for the liability for gratuity benefits payable in
 future based on an independent actuarial valuation carried out at each
 Balance Sheet date using the projected unit credit method.
 
 (ii) Superannuation
 
 The Company has two superannuation plans, a defined benefit plan and
 a defined contribution plan. An eligible employee on April 1, 1996
 could elect to be a member of either plan.
 
 Employees who are members of the defined benefit superannuation plan
 are entitled to benefits depending on the years of service and salary
 drawn.  The monthly pension benefits after retirement range from 0.75%
 to 2% of the annual basic salary for each year of service. The Company
 accounts for the liability for superannuation benefits payable in
 future under the plan based on an independent actuarial valuation as at
 Balance Sheet date.  With effect from April 1, 2003, this plan was
 amended and benefits earned by covered employees have been protected
 as at March 31, 2003. Employees covered by this plan are prospectively
 entitled to benefits computed on a basis that ensures that the annual
 cost of providing the pension benefits would not exceed 15% of salary.
 
 During the year 2014-15, the employees covered by this plan were given
 a one time option to exit from the plan prospectively. Further, the
 employees who opted for exit were given a one time option to withdraw
 accumulated balances from the superannuation plan.
 
 The Company maintains a separate irrevocable trust for employees
 covered and entitled to benefits. The Company contributes up to 15% or
 R1,00,000 whichever is lower of the eligible employees'' salary to the
 trust every year. The Company recognizes such contributions as an
 expense when incurred and has no further obligation beyond this
 contribution.
 
 (iii) Bhavishya Kalyan Yojana (BKY)
 
 Bhavishya Kalyan Yojana is an unfunded defined benefit plan for
 employees of the Company. The benefits of the plan include pension in
 certain cases, payable up to the date of normal superannuation had the
 employee been in service, to an eligible employee at the time of death
 or permanent disablement, while in service, either as a result of an
 injury or as certified by the appropriate authority. The monthly
 payment to dependents of the deceased / disabled employee under the
 plan equals 50% of the salary drawn at the time of death or accident or
 a specified amount, whichever is higher. The Company accounts for the
 liability for BKY benefits payable in future based on an independent
 actuarial valuation as at the Balance Sheet date.  (iv) Post-retirement
 medicare scheme
 
 Under this scheme, employees of the Company receive medical benefits
 subject to certain limits of amount, periods after retirement and types
 of benefits, depending on their grade and location at the time of
 retirement. Employees separated from the Company as part of Early
 Separation Scheme, on medical grounds or due to permanent disablement
 are also covered under the scheme. The liability for post-retirement
 medical scheme is based on an independent actuarial valuation as at the
 Balance Sheet date.  
 
 (v) Provident fund
 
 The eligible employees of the Company are entitled to receive benefits
 in respect of provident fund, a defined contribution plan, in which
 both employees and the Company make monthly contributions at a specified 
 percentage of the covered employees'' salary (currently 12% of
 employees'' salary). The contributions as specified under the law are
 made to the provident fund and pension fund set up as irrevocable trust
 by the Company . The Company is generally liable for annual
 contributions and any shortfall in the fund assets based on the
 government specified minimum rates of return or pension and recognises
 such contributions and shortfall, if any, as an expense in the year
 incurred.  
 
 (vi) Compensated absences
 
 The Company provides for the encashment of leave or leave with pay
 subject to certain rules. The employees are entitled to accumulate
 leave subject to certain limits, for future encashment. The liability
 is provided based on the number of days of unutilised leave at each
 balance sheet date on the basis of an independent actuarial valuation.
 
 (l) Investments
 
 Long term investments are stated at cost less other than temporary
 diminution in value, if any. Current investments are stated at lower of
 cost and fair value.
 
 Fair value of investments in mutual funds are determined on a portfolio
 basis.
 
 (m) Income taxes
 
 Tax expense comprises current and deferred taxes.
 
 Current tax is the amount of tax payable on the taxable income for the
 year as determined in accordance with the provisions of the Income Tax
 Act, 1961.
 
 Current tax is net of credit for entitlement for Minimum Alternative
 Tax (MAT).
 
 Deferred tax is recognised, 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 in respect of unabsorbed depreciation and carry
 forward of losses are recognised if there is virtual certainty that
 there will be sufficient future taxable income available to realise
 such losses. Other deferred tax assets are recognised if there is
 reasonable certainity that there will be sufficient future taxable
 income to realize such assets.
 
 Deferred tax assets and liabilities are measured based on the tax rates
 that are expected to apply in the period when asset is realised or the
 liability is settled, based on tax rates and tax laws that have been
 enacted or substantively enacted by the balance sheet date.  
 
 (n) Borrowing Costs
 
 Fees towards structuring/arrangements and underwriting and other
 incidental costs incurred in connection with borrowings are amortised
 over the period of the loan.
 
 (o) Liabilities and contingent liabilities
 
 The company records a liability for any claims where a potential loss
 is probable and capable of being estimated and discloses such matters
 in its financial statements, if material. For potential losses that
 are considered possible, but not probable, the Company provides
 disclosure in the financial statements but does not record a liability
 in its accounts unless the loss becomes probable.
 
 (p) Business segments
 
 The Company is engaged mainly in the business of automobile products
 consisting of all types of commercial and passenger vehicles including
 financing of the vehicles sold by the Company. These, in the context
 of Accounting Standard 17 on Segment Reporting are considered to
 constitute one single primary segment. Further, there is no reportable
 secondary segment i.e.  Geographical Segment.
 
 (h) Rights, preferences and restrictions attached to shares :
 
 (i) Ordinary shares and ''A'' Ordinary shares, both of Rs.2 each :
 
 - The Company has two classes of shares - the Ordinary shares and the
 ''A'' Ordinary shares both ofRs.2 each (together referred to as shares).
 In respect of every Ordinary share (whether fully or partly paid),
 voting rights shall be in the same proportion as the capital paid up on
 such Ordinary share bears to the total paid up Ordinary share capital
 of the Company. In case of every ''A'' Ordinary share, if any resolution
 is put to vote on a poll or by postal ballot at any general meeting of
 shareholders, the holder shall be entitled to one vote for every ten
 ''A'' Ordinary s as per the terms of its issue and if a resolution is put
 to vote on a show of hands, the holder of ''A Ordinary shares shall be
 entitled to the same number of votes as available to holders of
 Ordinary shares.
 
 - The dividend proposed by the Board of Directors is subject to the
 approval of the shareholders in the ensuing Annual General Meeting.
 Further, the Board of Directors may also declare an interim dividend.
 The holders of ''A Ordinary shares shall be entitled to receive dividend
 for each financial year at five percentage point more than the
 aggregate rate of dividend declared on Ordinary shares for that financial 
 year.
 
 - In the event of liquidation, the shareholders are eligible to receive
 the remaining assets of the Company after distribution of all
 preferential amounts, in proportion to their shareholdings.
 
 (ii) American Depositary Shares (ADSs) and Global Depositary Shares
 (GDSs) :
 
 - Each ADS and GDS underlying the ADR and GDR respectively represents
 five Ordinary shares of Rs.2 each. A holder of ADS and GDS is not
 entitled to attend or vote at shareholders meetings. An ADS holder is
 entitled to issue voting instructions to the Depositary with respect to
 the Ordinary shares represented by ADSs only in accordance with the
 provisions of the Company''s ADSs deposit agreement and Indian Law. The
 depositary for the ADSs and GDSs shall exercise voting rights in
 respect of the deposited shares by issue of an appropriate proxy or
 power of attorney in terms of the respective deposit agreements.
 
 - Shares issued upon conversion of ADSs and GDSs will rank pari passu
 with the existing Ordinary shares of Rs.2 each in all respects including
 entitlement of the dividend declared.
 
 (j) Information regarding issue of shares in the last five years
 
 (a) The Company has not issued any shares without payment being
 received in cash.
 
 (b) There has been no issue of bonus shares.
 
 (c) The Company has not undertaken any buy-back of shares.
 
 (k) The Company allotted 15,04,90,480 Ordinary shares (including
 3,20,49,820 shares underlying the ADRs) of Rs.2 each at a premium of R448
 per share, aggregating Rs.6,772.07 crores and 2,65,09,759 ''A'' Ordinary
 shares of Rs.2 each at a premium of Rs.269 per share, aggregating 
 Rs.718.42 crores pursuant to the Rights issue. 1,54,279 Ordinary shares 
 and 20,531 ''A'' Ordinary shares have been kept in abeyance.
 
 (l) The entitlements to 6,38,749 Ordinary shares of Rs.2 each (as at
 March 31, 2015 : 4,84,470 Ordinary shares of Rs.2 each) and 2,60,101 ''A''
 Ordinary shares of Rs.2 each (as at March 31, 2015: 2,39,570 ''A'' Ordinary
 shares of Rs.2 each) are subject matter of various suits filed in the
 courts / forums by third parties for which final order is awaited and
 hence kept in abeyance.
 
 I.  Information regarding long term borrowings
 
 (i) Nature of security (on loans including interest accrued thereon) :
 
 (a) Rated, Listed, Secured, 9.95% Coupon, Non-Convertible Debentures
 amounting to Rs.200 crores and 10.25% Coupon, Non-Convertible Debentures
 amounting to Rs.500 crores are secured by a pari passu charge by way of
 an English mortgage of the Company''s freehold land together with
 immovable properties, plant and machinery and other movable assets
 (excluding stock and book debts) situated at Sanand in the State of
 Gujarat.
 
 (b) Buyers line of credit from banks are secured by hypothecation of
 existing current assets of the Company viz. stock of raw materials,
 stock in process, semi-finished goods, stores and spares not relating
 to plant and machinery (consumable stores and spares), bills receivable
 and book debts including receivable from hire purchase / leasing and
 all other movable current assets except cash and bank balances, loans
 and advances of the Company both present and future. Classified under
 other current liabilities being maturity before March 31, 2017.
 
 (c) The term loan of Rs.541.51 crores is due for repayment from the
 quarter ending March 31, 2033 to quarter ending March 31, 2036, along
 with simple interest at the rate of 0.10% p.a. The loan is secured by a
 second and subservient charge (creation of charge is under process)
 over Company''s freehold land together with immovable properties, plant
 and machinery and other movable assets (excluding stock and book debts)
 situated at Sanand plant in the State of Gujarat.
 
 The term loan of Rs.11.15 crores is due for repayment in the quarter
 ending June 30, 2030, along with a simple interest of 0.10% p.a. The
 loan is secured by bank guarantee as per the terms of the agreement.
 
 II. Information regarding short term borrowings
 
 Loans, cash credits, overdrafts and buyers line of credit from banks
 are secured by hypothecation of existing current assets of the Company
 viz. stock of raw materials, stock in process, semi-finished goods,
 stores and spares not relating to plant and machinery (consumable
 stores and spares), bills receivable and book debts including
 receivable from hire purchase / leasing and all other moveable current
 assets except cash and bank balances, loans and advances of the Company
 both present and future.
Source :
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