1.1 Basis for preparation of financial statements
The financial statements have been prepared and presented under the
historical cost convention on accrual basis of accounting and in
accordance with the Generally Accepted Accounting Principles (GAAP) in
India. GAAP includes Accounting Standards (AS) notifi ed by the
Government of India under Section 211(3C) of the Companies Act, 1956,
provisions of the Companies Act, 1956, pronouncements of Institute of
Chartered Accountants of India and guidelines issued by Securities and
Exchange Board of India (SEBI). The Company has presented financial
statements as per format prescribed by Revised Schedule VI, notifi ed
under the Companies Act, 1956, issued by Ministry of Corporate Affairs.
Except where otherwise stated, the accounting policies are consistently
1.2 Use of estimates
The preparation of financial statements in conformity with GAAP
requires management to make assumptions, critical judgements and
estimates, which it believes are reasonable under the circumstances
that affect the reported amounts of assets, liabilities and contingent
liabilities on the date of financial statements and the reported
amounts of revenue and expenses during the period. Actual results could
differ from those estimates. Difference between the actual results and
estimates are recognized in the period in which the results are known
1.3 Fixed assets, depreciation and amortization Tangible assets :
(a) Tangible fixed assets are stated at cost of acquisition or
construction less accumulated depreciation. The cost of fixed asset
includes non-refundable taxes & levies, freight and other incidental
expenses related to the acquisition and installation of the respective
assets. Borrowing cost attributable to acquisition or construction of
qualifying fixed assets is capitalized to respective assets when the
time taken to put the assets to use is substantial.
(b) Pre-operative expenditure comprising of revenue expenses incurred
in connection with project implementation during the period upto
commencement of commercial production are treated as part of project
costs and are capitalized. Such expenses are capitalized only if the
project to which they relate, involve substantial expansion of capacity
(c) Depreciation on fixed assets is provided on straightline method on
the basis of the depreciation rates prescribed in Schedule XIV of the
Companies Act, 1956 or based on useful life of the asset as estimated
by the management, whichever is higher.
(d) Cost of leasehold land (except for lease of long tenure) is
amortized over the period of the lease. Cost of lease hold land where
lease period is of long tenure and substantial rights of ownership are
with lessee, is not amortized.
Intangible assets :
(a) Certain software costs are capitalized and recognized as intangible
assets based on materiality, accounting prudence and signifi cant
economic benefits expected to fl ow there from for a period longer
than one year.
(b) The capitalized software costs are amortized using the straightline
method over estimated useful life of 3 to 5 years, as estimated at the
time of capitalization.
Impairment of assets :
(a) Fixed Assets are reviewed for impairment losses whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is then recognized for the amount by
which the carrying amount of the assets exceeds its recoverable amount,
which is the higher of an asset''s net selling price and value in use.
For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifi able cash fl ows.
(b) Fixed Assets that have been retired from their active use and held
for disposal, are classifi ed as current assets, and are stated at
lower of their cost or net realisable value.
(a) Long-term investments are stated at cost. Provision is made to
recognize any diminution in value, other than that of a temporary
(b) Current investments are carried at lower of cost and fair value.
Diminution in value is charged to the statement of Profit and loss.
(c) Current investments readily convertible in known amount of cash and
subject to insignifi cant risk of changes in value are classifi ed as
cash and cash equivalents for preparation of cash fl ow statement.
1.5 Cash fl ow statement
The cash fl ow statement is prepared under the Indirect Method as set
out in AS - 3 Cash Flow Statements issued by the Institute of
Chartered Accountants of India.
Inventories are valued at the lower of cost and net realizable value.
Provision for impairment is made when there is high uncertainty in
salability of an item. Costs incurred in bringing inventories to its
existing location and condition are determined on the following basis:
(a) Raw materials and packing materials - Purchase cost of materials on
moving average basis.
(b) Finished goods (manufactured) and work-in-progress - Cost of
purchase, cost of conversion and other costs proportionately allocated
determined on weighted average basis.
(c) Finished goods (traded) - Purchase cost on moving average basis.
1.7 Revenue recognition
(a) Revenue from sale of goods is recognized when the signifi cant
risks and rewards of ownership of goods are transferred to the
customer. Sales are net of discounts, sales tax, value added tax and
estimated returns. Excise duty collected on sales are shown by way of
deduction from sales.
(b) Provision for sales returns are estimated primarily on the basis of
historical experience, market conditions and specifi c contractual
terms and provided for in the year of sale as reduction from revenue.
The methodology and assumptions used to estimate returns are monitored
and adjusted regularly in line with contractual and legal obligations,
trade practices, historical trends, past experience and projected
(c) Income from services is recognized when the services are rendered
or when contracted milestones have been achieved.
(d) Revenue from arrangements which includes performance of obligations
is recognized in the period in which related performance obligations
(e) Export entitlements are recognized as income when right to receive
credit as per the terms of the scheme is established in respect of the
exports made and where there is no signifi cant uncertainty regarding
the ultimate collection of the relevant export proceeds.
(f) Dividend income is recognized when the right to receive dividend is
(g) Interest income is recognized using the time-proportion method,
based on rates implicit in the transaction. (h) Revenue in respect of
other income is recognized when a reasonable certainty as to its
1.8 Employee retirement and other benefits
Short-term employee benefits :
Short-term employee benefits like salaries, wages, bonus and welfare
expenses payable wholly within twelve months of rendering the services
are accrued in the year in which the associated services are rendered
by the employees.
Long-term employee benefits :
(a) Defi ned contribution plan :
Contribution in case of defi ned contribution plans (provident fund,
superannuation benefit, social security schemes and other
fund/schemes) is charged to the statement of Profit and loss as and
when it is incurred as employees'' costs.
(b) Defi ned benefit plan :
The accruing liability on account of gratuity (retirement benefit in
the nature of defi ned benefits plan) is actuarially valued every
year. The current service cost, interest cost, expected return on plan
assets and the actuarial gain / loss are debited / credited, as the
case may be to the statement of Profit and loss of the year as
(c) Other long-term benefits :
Long-term compensation plan to employees (being deferred compensation
paid 12 months or more after the end of the period in which it is
earned) are expensed out in the period to which the costs relate at
present value of the benefits under the plan.
The liability for compensated absences and leave encashment is provided
on the basis of actuary valuation, as at balance sheet date.
1.9 Government grants
(a) Government grants are recognized when there is reasonable assurance
that the grant will be received and all relevant conditions are
(b) Grants received by way of investment subsidy scheme in relation to
total investment are credited to capital reserve and are treated as
part of owners'' fund.
(c) Grants that compensate expenses are recognized on receipt basis.
1.10 Finance costs
Finance costs consist of interest and other costs that the Company
incurs in connection with the borrowing of funds and exchange
differences arising from foreign currency borrowings to the extent that
they are regarded as an adjustment to interest costs.
1.11 Cenvat credit
Cenvat (Central value added tax) credit in respect of excise, custom
and service tax is accounted on accrual basis on purchase of eligible
inputs, capital goods and services. The balance of cenvat credit is
reviewed at the end of each year and amount estimated to be
un-utilizable is charged to the statement of Profit and loss for the
1.12 Stores and spares
Stores and spares (other than spares acquired with fixed assets) are
charged to the statement of Profit and loss as and when purchased.
1.13 Software costs
Expenditure incurred for procuring, developing, improving and
maintaining software programs are charged to the statement of Profit
and loss as and when incurred, except when capitalized in accordance
with Note 1.3 above.
1.14 Research and development
Revenue expenditure on research and development is expensed off under
the respective head of expenses in the year in which it is incurred.
Capital expenditure on research and development is reported as fixed
assets under the relevant head. Depreciation on research and
development fixed assets is not classifi ed as research and
development expenses and instead included under depreciation expenses.
Lease rentals in respect of assets taken on operating lease are charged
to the statement of Profit and loss on accrual and on straight line
basis over the lease term.
1.16 Accounting for taxes
(a) Current tax is accounted on the basis of estimated taxable income
for the current accounting year and in accordance with the provisions
of the Income Tax Act, 1961.
(b) Deferred tax resulting from timing differences between accounting
and taxable Profit for the period is accounted by using tax rates and
laws that have been enacted or substantively enacted as at the balance
sheet date. Deferred tax assets are recognized only to the extent there
is reasonable certainty that the assets can be realized in future. Net
deferred tax liabilities are arrived at after setting off deferred tax
1.17 Foreign currency transactions and balances
(a) Foreign currency transactions are recorded at the exchange rates
prevailing on the date of the transaction.
(b) The net gain or loss on account of exchange differences arising on
settlement of foreign currency transactions are recognized as income or
expense of the period in which they arise.
(c) Monetary assets and liabilities denominated in foreign currencies
as at the balance sheet date are translated at closing rate. The
resultant exchange differences are recognized in the statement of profi
t and loss. The Company has not exercised the option for capitalization
or amortization of exchange differences on long-term foreign currency
monetary items as provided by notifi cation issued by the Ministry of
(d) Investments in shares of foreign subsidiaries and other entities
are expressed in reporting currency at the rates of exchange prevailing
at the time when the original investments were made.
(e) In case of forward contracts, to which AS 11, The Effects of
Changes in Foreign Exchange Rates applies, the difference between the
forward rate and the exchange rate on the date of the contract is
recognized as income or expense over the life of the contract. Exchange
differences on such a contract are recognized in the statement of profi
t and loss in the period in which the exchange rates change.
(f) Foreign currency forward contracts, to which AS 11 does not apply,
hedge accounting principles set out in AS 30 Financial Instruments:
Recognition and Measurement are adopted w.e.f. 1st April, 2011 to the
extent they do not conflict with existing mandatory accounting
standards and other authoritative pronouncements, Company law and other
regulatory requirements. These transactions comprise of forward
contracts taken to hedge risks associated with foreign currency fl
uctuations relating to highly probable forecast transactions and
designated as cash fl ow hedges and valued at fair value. Changes in
the fair value of these forward contracts that are effective hedges are
recognized directly in cash flow hedge reserve account and the
ineffective portion is recognized in the statement of Profit and loss.
Amount accumulated in cash flow hedge reserve account is reclassified
to the statement of Profit and loss in the same period during which
the forecasted transaction materialize. Hedge accounting is
discontinued when the hedging instrument expires or is sold,
terminated, or exercised, or no longer qualifi es for hedge accounting.
If the forecasted transaction is no longer expected to occur, the net
cumulative gain or loss recognized in cash fl ow hedge reserve account
is immediately transferred to the statement of Profit and loss for the
1.18 Provisions, contingent liabilities and contingent assets
Provisions involving substantial degree of estimation in measurement
are recognized when there is a present obligation as a result of past
events and it is probable that there will be an outfl ow of resources.
Liabilities which are of contingent nature are not provided but are
disclosed at their estimated amount in the notes forming part of the fi
nancial statements. Contingent assets are neither recognized nor
disclosed in the financial statements.