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Moneycontrol.com India | Accounting Policy > Auto - LCVs/HCVs > Accounting Policy followed by Tata Motors - BSE: 500570, NSE: TATAMOTORS
Tata Motors
Apr 17, 17:00
17.45 (4.24%)
VOLUME 753,353
Apr 17, 17:00
17.95 (4.37%)
VOLUME 4,577,368
Mar 12
Accounting Policy Year : Mar '13
(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
 provisions thereof.
 (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 and Profit and Loss statement for the
 years presented. 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 /
 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 recognised when the right to receive the
 payment is established and when no significant uncertainty as to
 measurability or collectability exists.
 Interest income is recognised 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 Rs. 25,000 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 costs 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 and accumulated impairment, if
 (ii) 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 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,
 (iv) Software not exceeding Rs. 25,000 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.
 (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 per the assessment conducted by the Company at March 31, 2013, there
 were no indications that the fixed assets have suffered an impairment
 (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 Companys 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
 recognised as income or expense in the year in which they arise.
 Exchange differences considered as borrowing cost are capitalised to
 the extent these relate to the acquisition / construction of qualifying
 assets and the balance amount is recognised 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 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
 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 Profit and Loss Statement.
 Amounts accumulated in Hedging Reserve Account are reclassified to
 Profit and Loss Statement 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.
 (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 recognised in the Profit and Loss Statement.
 (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) Income on vehicle loan
 Interest income from 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.
 (k) 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.
 (l) 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. T he 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 as at Balance Sheet
 (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.
 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 for
 employees of the Company. The benefits of the plan include pension in
 certain case, 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 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
 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 employeessalary (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
 (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.
 (m) 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.
 (n) Income taxes
 Tax expense comprises of 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.
 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) /
 Non Convertible Debentures (NCD)
 Premium payable on redemption of FCCN / 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. Discount on redemption of FCCN, if any, will be
 recognised on redemption.
 (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.
Source : Dion Global Solutions Limited
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