(a) Basis of preparation
The financial statements are prepared under the historical cost
convention on an accrual basis of accounting in accordance with the
generally accepted accounting principles, Accounting Standards notified
under Section 211 (3C) of the Companies Act, 1956 and the relevant
(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 and liabilities
and disclosures of contingent liabilities at the date of these
financial statements and the reported amounts of revenues and expenses
for the years presented. Actual results may differ from these
estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis. 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 revenue on the sale of products, net of
discounts, 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 collectibility 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 Straight Line Method (SLM), at the
rates and in the manner prescribed in Schedule XIV to the Companies
Act, 1956 except in the case of :
- Leasehold land amortised over the period of the lease
- Technical know-how at 16.67% (SLM)
- Laptops at 23.75% (SLM)
- Cars at 23.75% (SLM)
- Assets acquired prior to April 1, 1975 on Written Down Value basis
at rates specified in Schedule XIV to the Companies Act, 1956.
- Software in excess of T25,000 is amortised over a period of 60 months
or on the basis of estimated useful life whichever is lower.
- Assets taken on lease are amortised over the period of lease.
(ii) Product development cost are amortised over a period of 36 months
to 120 months or on the basis of actual production to planned
production volume over such period. (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.
(e) Fixed assets
(i) Fixed assets are stated at cost of acquisition or construction less
accumulated depreciation / amortization.
(ii) The product development cost incurred on new vehicle platform,
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 asset will generate probable future benefits.
(iii) Cost includes purchase price, taxes and duties, labour cost and
directly attributable costs for self constructed assets and other
direct costs incurred upto 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,
(iv) Software not exceeding T25,000 and product development costs
relating to minor product enhancements, facelifts and upgrades are
charged off to the Profit and Loss Statement as and when incurred.
At each Balance Sheet date, the Company assesses whether there is any
indication that the fixed assets have suffered an impairment loss. 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 per the assessment conducted by the Company at March 31, 2012, there
were no indications that the fixed assets have suffered an impairment
(i) Finance lease
Assets acquired under finance leases are recognised at the lower of the
fair value of the leased assets at inception and the present value of
minimum lease payments. Lease payments are apportioned between the
finance charge and the outstanding liability. The finance charge is
allocated to periods during the lease term at 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
under operating leases are recognised in the Profit and Loss Statement
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 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
the depreciable capital asset are added to / deducted from the cost of
such capital assets.
Other differences are accumulated in Foreign Currency Monetary Item
Translation Difference Account, to be 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 is 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 asset) are amortised over the period till the date of
maturity or March 31, 2020, whichever is earlier. (ii) Hedge
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
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 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 Profit and Loss Statement.
Amounts accumulated in Hedging Reserve Account are reclassified to
profit and loss in the same periods during which the forecasted
transaction affects Profit and Loss Statement.
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. (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. Foreign currency options and other
derivatives are stated at fair value as at the year end with changes in
fair value recognized in the Profit and Loss Statement. (i) Product
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 upto
(j) Income on vehicle loan
Interest income on loan contracts are accounted for by using the
Internal Rate of Return method. Consequently, a constant rate of return
on the net outstanding amount is accrued over the period of contract.
The Company provides an allowance for hire purchase and loan
receivables that are in arrears for more than 11 months, to the extent
of an amount equivalent to the outstanding principal and amounts due
but unpaid, considering probable inherent loss including estimated
realisation based on past performance trends. In respect of loan
contracts that are in arrears for more than 6 months but not more than
11 months, allowance is provided to the extent of 10% of the
outstanding and amount due but unpaid.
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.
(l) Employee benefits
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.
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.
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.
The Company maintains a separate irrevocable trust for employees
covered and entitled to benefits. The Company contributes up to 15% of
the eligible employees'' salary to the trust every year. The Company
recognizes such contributions as an expense when incurred. The Company
has no further obligation beyond this contribution.
(iii) Bhavishya Kalyan Yojana (BKY)
Bhavishya Kalyan Yojana is an unfunded defined benefit plan. The
benefits of the plan include pension in certain case, payable upto 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
Company''s Medical Board. 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.
(iv) Post-retirement medicare scheme
Under this scheme, employees get 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.
(v) Provident fund
The eligible employees of the Company are entitled to receive benefits
under the 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
paid to the provident fund and pension fund set up as irrevocable trust
by the Company or to respective Regional Provident Fund Commissioner
and the Central Provident Fund under the State Pension scheme. 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.
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.
(n) 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
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 substantially enacted by the balance sheet date.
(o) Redemption premium on Foreign Currency Convertible Notes (FCCN) /
Convertible Alternative Reference Securities (CARS) / Non-Convertible
Premium payable on redemption of FCCN / CARS / NCD as per the terms of
issue, is provided fully in the year of issue by adjusting against the
Securities Premium Account (SPA) (net of tax). Any change in the
premium payable, consequent to conversion or exchange fluctuations is
adjusted to the SPA.
(p) 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.
(q) 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.
(r) 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, as specified in the
Companies (Accounting Standards) Rules, 2006, are considered to
constitute one single primary segment. Further, there is no reportable
secondary segment i.e. Geographical Segment.