(a) Basis of Accounting:
The financial statements have been prepared and presented under the
historical cost convention on accrual basis of accounting to comply
with the accounting standards referred to in Section 211 (3C)of the
Companies Act, 1956.
(b) Use of estimates:
The presentation of the financial statements in conformity with the
generally accepted accounting principles requires the management to
make estimates and assumptions that affect the reported amount of
assets and liabilities, revenues and expenses and disclosure of
contingent liabilities. Such estimates and assumptions are based on
managements evaluation of relevant facts and circumstances as on the
date of financial statements. The actual outcome may diverge from
(c) Fixed Assets:
Tangible fixed assets and depreciation
Tangible fixed assets acquired by the Company are reported at
acquisition value, with deductions for accumulated depreciation and
impairment losses, if any. The acquisition value includes the purchase
price (excluding refundable taxes) and expenses directly attributable
to the asset to bring it to the site and in the working condition for
its intended use. Examples of directly attributable expenses included
in the acquisition value are delivery and handling costs, installation,
legal services and consultancy services. Where the construction or
development of any such asset requiring a substantial period of time to
set up for its intended use, is funded by borrowings, the corresponding
borrowing costs are capitalised up to the date when the asset is ready
for its intended use.
Intangible assets and amortization
The cost of technical know-how acquired is recognised as an Intangible
Asset and amortised over a period of thirty six months from the date of
Long term investments (including interest in a jointly controlled
entity) are carried at cost less provision for permanent diminution in
value of such investments. Current investments comprising investments
in units of mutual fund are carried at lower of cost and fair value.
Inventories are valued at the lower of the cost and the net realisable
value. Cost is ascertained on weighted average basis. Costs include the
purchase price, non-refundable taxes and delivery and handling costs.
Cost of finished goods and work-in-progress are determined using the
absorption costing principles. Costs include the cost of materials
consumed, labour and a systematic allocation of variable and fixed
production overheads. Excise duties at the applicable rates are also
included in the cost of finished goods. Tools are fully written off in
the year of issue. Net realisable value is estimated at the expected
selling price less estimated completion and selling costs.
(f) Sales, services, other income and cost of sales: Supply contracts:
Revenue is recognised when significant risks and rewards of ownership
of the goods sold are transferred to the customer. Revenue represents
the invoice value of goods provided to third parties net of excise
duty, discounts and sales taxes/value added taxes.
Revenue is recognised under the percentage of completion method by
reference to the stage of completion of the contract activity.
Revenue is recognised pro-rata over the period during which the service
is performed and are recorded net of service tax, as applicable.
Export incentives are recognised in the year on the basis of claims
submitted to the appropriate authorities provided there is no
uncertainty to expect ultimate collection at the time of making the
Dividend income is recognised when the right to receive payment is
Depreciation on fixed assets has been provided on straight-line basis
at the rates as under:
(i) improvements to properties taken under lease are written off over
the primary period of the lease;
(ii) data processing equipments @ 33.33%;
(iii) cellular phones @ 100%;
(iv) plant and machinery @ 10% (On single shift operation basis);
(v) office equipments @ 10%;
(vi) furniture and fixtures @ 10%;
(vii) buildings @ 3.33%;
(viii) vehicles @ 20%.
(h) Employee benefits:
(i) Post-employment benefit plans
Contributions to defined contribution retirement benefit schemes are
recognised as expense when employees have rendered services entitling
them to contributions.
For defined benefit schemes, the cost of providing benefits is
determined using the Projected Unit Credit
Method, with actuarial valuations being carried out at each balance
sheet date. Actuarial gains and losses are recognised in full in the
Profit and Loss Account for the period in which they occur. Past
service cost is recognised immediately to the extent that the benefits
are already vested, and otherwise is amortised on a straight-line basis
over the average period until the benefits become vested.
The retirement benefit obligation recognised in the balance sheet
represents the present value of the defined benefit obligation as
adjusted for unrecognised past service cost, and as reduced by the fair
value of scheme assets. Any asset resulting from this calculation is
limited to past service cost plus present value of available refunds
and reductions in future contributions to the scheme.
(ii) Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employees is recognised
during the period when the employee renders the service. These benefits
include compensated absences such as paid annual leave and performance
(iii) Other long term employee benefits
Other long term employee benefits are recognised as an expense in the
Profit and Loss account for the period in which the employee has
rendered services. Estimated liability on account of long term benefits
is discounted to the current value, using the yield on government
bonds, as on the date of balance sheet, as the discounting rate.
(i) Lease Accounting: Operating Leases
Lease of an asset whereby the lessor essentially remains the owner of
the asset is classified as operating lease. The payments made by the
Company as lessee in accordance with operational leasing contracts or
rental agreements are expensed proportionally during the lease or
rental period respectively. Any compensation, according to agreement,
that the lessee is obliged to pay to the lessor if the leasing contract
is terminated prematurely is expensed during the period in which the
contract is terminated.
(j) Foreign Currency Transactions:
Transactions in foreign currency are recorded at the exchange rates
prevailing on the date of transaction and monetary assets and
liabilities in foreign currency are converted at the rates prevailing
on the balance sheet date. Gains/losses including unrealised
gains/losses are recognised in the Profit and Loss account.
(k) Insurance claims:
The expenses incurred against claims receivable are carried as claims
recoverable pending the settlement of claims.
(I) Taxes on income:
Tax expense for the period comprises of current tax, deferred tax and
fringe benefit tax. Deferred tax is recognised for timing differences,
subject to the consideration of prudence.
(m) Impairment of Assets:
The carrying amount of Companys cash generating unit, is reviewed at
each balance sheet date to determine whether there is any indication of
impairment. If any such indication exists, the assets recoverable
amount is estimated.
An impairment loss is recognized whenever the carrying amount of an
asset or its cash generating unit exceeds its recoverable amount. The
recoverable amount is the greater of the assets net selling price and
value in the use which is determined based on the estimated future cash
flows discounted to their present values. All impairment losses are
recognized in the profit and loss account. An impairment loss is
reversed if there has been a change in the estimates used to determine
the recoverable amount and is recognized in the Profit and Loss
(n) Provisions and Contingencies:
A provision is recognised when the Company has a present obligation as
a result of past event and it is probable that an outflow of resources
will be required to settle the obligation, in respect of which reliable
estimate can be made. Provisions (excluding retirement benefits) are
not discounted to its present value and are determined based on best
estimate required to settle the obligation at the balance sheet date.
These are reviewed at each balance sheet date and adjusted to reflect
the current best estimates. Contingent liabilities are not recognised
but are disclosed in the notes to the financial statement. A contingent
asset is neither recognised nor disclosed.
(o) Provision for trade guarantees:
The Companys sales of diesel generating sets and components carry
warranty performance. The Company provides for such warranty
obligations by way of trade guarantees at the time of recording sales.
The same are reviewed at period end, and the surplus/shortfall is
adjusted to the Profit and Loss account.
(p) Provision for contingencies
The Company provides for contingencies in the event of uncertainties
arising from matters relating to the execution of projects that remain
unresolved and operation and maintenance of power plants.
(q) Cash Flow Statements
Cash-flow statements are prepared in accordance with Indirect Method
as explained in the Accounting Standard (AS-3)- Cash Flow Statements as
prescribed under Section 211(3C) of the Indian Companies Act, 1956.
(r) Cash and Cash Equivalents
The Company considers all highly liquid financial instruments, which
are readily convertible into cash and have original maturities of three
months or less from the date of purchase, to be Cash equivalents.