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SENSEX NIFTY India | Accounting Policy > Electric Equipment > Accounting Policy followed by Emco - BSE: 504008, NSE: EMCO


BSE: 504008|NSE: EMCO|ISIN: INE078A01026|SECTOR: Electric Equipment
Nov 11, 16:00
0.03 (4.11%)
Nov 11, 15:33
VOLUME 3,612
Mar 15
Accounting Policy Year : Mar '16

1. Nature of Operation:

The Company is primarily engaged in the power industry, the company manufactures range of transformers. The Company''s products include transformers, energy metering system, substation and transmission towers and lines which constitutes of generation, transmission, distribution and manufacture of power equipment viz Generation Equipment and T&D Equipment.

Significant Accounting Policies

The financial statements are prepared to comply in all material aspects with the applicable accounting principles in India, the Accounting Standards notified by the Companies (Accounting Standard) Rule 2006 and the relevant provisions of the Companies Act, 2013. The significant accounting policies are as follows

A. Basis of Accounting

The financial statements are prepared in accordance with the historical cost convention.

B. Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent amounts as at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Any revision to accounting estimates is recognized prospectively when revised.

C. Fixed Assets / Capital Work in Progress

Expenditure, which is of capital nature, is capitalized. Such expenditure includes purchase price, import duties, levies, and attributable cost of bringing the asset to its operating condition. The assets acquired on Hire Purchase basis have been capitalized at the gross value and interest thereon is charged to Statement of profit and loss. Projects under commissioning and other Capital Work-in-Progress are carried at costs, comprising direct cost, related incidental expenses and interest on borrowings.

D. Depreciation / Amortization:

I. Tangible Assets

Depreciation has been calculated in accordance with Section 123 of the Companies Act, 2013, as under

a. The depreciation is provided from the date the assets are put to use, on straight-line method at the rates prescribed under Schedule II of the Companies Act, 2013, except following assets which are depreciated over period of its estimated useful life

b. For these classes of assets, based on technical advice, the management believes that the useful lives of following assets best represent the period over which management expects to use these assets. Hence the useful lives for these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.

c. The Company provides 100% depreciation on fixed assets with value less than or equal to Rs,0.05 lakhs as per the provisions of Schedule II of the Companies Act 2013

Notes to Financial Statements as at 31st March 2016

d. Leasehold Improvements are amortized over the primary lease period.

II. Intangible Assets

a. These are amortized over their useful life, not exceeding five years.

b. Deferred Revenue Expenditure is written off in the year of expenditure.

c. Development costs for new design is amortized over a period of 5 years.

III. Leasehold land, which are given by Central / State Government authorities are not amortized in view of the long tenure of the lease.

E. Investments

Long term investments are stated at cost less permanent diminution in value, if any.

F. Valuation of Inventories

Raw Materials, Stock in Process, Stores and Spares are valued at cost and net of credits under the scheme of Convert Rules and VAT Rules. Finished goods are valued at cost, or Market Value / Net Realizable Value, whichever is less. Cost is determined on a Moving Weighted Average basis. Excise duty is included in the value of finished goods.

G. Revenue Recognition

I. Sales are inclusive of Excise Duty, Duty Drawback but net of Sales Tax, Vat, Returns, Trade Discounts and incentives.

II. Revenue from long term contracts are recognized on the percentage of completion method, in proportion that the contract costs incurred for work performed up to the reporting date bear to the estimated total contract costs. Contract revenue earned in excess of billing has been reflected under Other Current Assets and billing in excess of contract revenue has been reflected under Current Liabilities in the balance sheet. Full provision is made for any loss in the year in which it is first foreseen.

III. Dividend Income is recognized when the right to receive dividend is established. Interest Income is recognized on time proportion basis.

H. Foreign Exchange Transactions

Foreign Currency transactions are recorded at exchange rates prevailing on the date of respective transactions. Monetary assets and liabilities related to foreign currency transactions remaining unsettled at the end of the year are translated at year-end rates. Non - Monetary foreign currency items are carried at cost. The differences in translation of monetary assets and liabilities and realized gains and losses on foreign exchange transactions are recognized in the Statement of profit and loss, except in case of long term liabilities, where they relate to acquisition of fixed assets, in which case they are adjusted in carrying cost of fixed assets.

The Company uses derivative financial instruments such as forward exchange contracts to hedge its risks associated with foreign currency fluctuation.

Gain or loss on restatement of forward exchange contracts for hedging underlying outstanding at the balance sheet date are recognized in the statement of profit and loss for the year in which it occurs. The premium or discount on such contracts is recognized in the statement of profit and loss over the period of the contract.

Loss on fair valuation of forward exchange contracts and embedded derivative contracts for hedging highly forecasted transaction are recognized in the statement of profit and loss for the year in which it occurs.

I. Derivative instruments (Commodity derivatives)

In order to hedge its exposure to commodity price risk, the Company enters into non speculative hedges, such as forward, option or swap contracts and other appropriate derivative instruments. These instruments are used only for the purpose of managing the exposure to commodity price risk and not for speculative purposes. The premium and gains / losses arising from settled derivative contracts, and mark to market (MTM) losses in respect of outstanding derivative contracts as at balance sheet date are credited for gains or charged for losses to the raw material consumed in so far as it relates to the derivative instruments taken to hedge risk of movement in price of Raw Material, the net MTM gains in respect of outstanding derivatives contracts are not recognized on conservative basis.

J. Export Obligations / Entitlements / Incentives

Benefit / (Obligation) on account of entitlement on export or deemed export orders, to import duty-free raw materials, under the various Exam Schemes are estimated and accounted in the year in which the export / deemed export orders are executed.

Notes to Financial Statements as at 31st March 2016 K. Employee Benefits

Short term employee benefits are recognized as an expense at un-discounted amount in the statement of profit and loss of the year in which services are rendered. Provision for gratuity and other long term employee benefits- leave, defined benefit schemes, are made on the basis of actuarial valuations made at the end of each financial year are charged to the statement of profit and loss during the year.

Actuarial gains and losses are recognized immediately in the statement of profit and loss.

L. Operating Lease

Leases, where the less or effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.

M. Stock Based Compensation

In accordance with the Employee Stock Option Scheme (ESOS), the Company recognizes the excess, if any, of the market price of the options granted as on the date of the grant over the exercise price of the options, and amortizes it on a straight-line basis over the vesting period.

N. Taxation

a. Provision for Income Tax is made under the liability method after availing exemptions and deductions at the rates applicable under the Income Tax Act, 1961.

b. Deferred tax resulting from timing difference between book and tax profits is accounted for using the tax rates and laws that have been enacted as on the Balance Sheet Date.

c. Deferred tax assets arising on the temporary timing differences are recognized only if there is reasonable certainty of realization.

O. Impairment of Assets

The carrying amount of assets is reviewed periodically for any indication of impairment based on internal / external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value at the weighted average cost of capital. Post impairment, depreciation is provided on the revised carrying value of the asset over its remaining useful life.

P. Borrowing Costs

Interest and other costs in connection with the borrowing of the funds to the extent related / attributed to the acquisition / construction of qualifying fixed assets are capitalized up to the date when such assets are ready for its intended use and other borrowing costs are charged to the Statement of profit and loss.

Q. Provisions for contingencies

A provision is recognized when:

- The Company has a present obligation as a result of a past event;

- It is probable that an outflow of resources embodying economic benefits which will be required to settle the obligation; and

- A reliable estimate can be made of the amount of the obligation.

A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation that the likelihood of outflow of resources is remote, no provision or disclosure is made.

The Company provides for warranty cost based on a technical estimate of the costs required to be incurred for repairs, replacement, material cost, servicing and past experience in respect of warranty costs. It is expected that this expenditure will be incurred over the contractual warranty period.

R. Research & Development

All revenue expenses pertaining to research are charged to the statement of profit and loss in the year in which they are incurred and development expenditure of capital nature is capitalized as fixed assets and depreciated as per the company''s policy.

Nature of Security and Repayment Terms

a) Vehicle Loans are secured by way of hypothecation on respective vehicles financed.

b) Term loan from banks referred in (b) (i) above Includes Rs,2,393.42 Lacs (Rs,2578.59 Lacs) loan which is secured by exclusive first charge by way of mortgage on the specific land on which the windmills are installed in Maharashtra and exclusive first charge by way of hypothecation on current assets and movable fixed assets (plant, machinery equipments) pertaining to windmills.

c) Term loan from banks referred in (b) (i) above includes Rs,9,753.71 Lacs (Rs,8850.00 Lacs) loan which is secured by first charge basis (pari passu) by way of registered mortgage on Company''s immovable and movable property situated at MIDC-Thane, MIDC- Jalgaon, Umala- Jalgoan, Vadodara (Gujarat) and Silvassa except assets exclusively financed by other lenders i.e. Wind Mill and Solar farm and second charge (pari passu) by way of hypothecation on the Company''s movable assets including current assets except assets exclusively financed by other lenders i.e. Wind Mill and Solar farm. Further out of this working capital term loan Rs,6,574.58 Lacs (Rs,7350.00 Lacs) is secured by personal guarantee of promoter directors.

d) Term loan from banks referred above in (b) (i) includes Rs,848.53 Lacs (Rs,1904.40 lacs) loan which is secured by bank guarantee.

e) Term loan from banks referred in (b) (ii) above is secured on first charge basis by way of exclusive mortgage on Solar Project''s land and all other immovable properties, present and future and also by way of hypothecation on solar project''s all movable, present and future, all book debts, operating cash flows, receivables, commissions, revenues of what so ever nature and where ever arising out of Solar Project.

a) Working Capital Loans from banks referred in (a) and (b) above and bank facilities mentioned in Note 26 (I) (a) and

(b) are secured on first charge basis (pari passu) by way of hypothecation on current assets of the Company such as raw Materials, stocks-in-process, finished goods, consumable stores and spares, book debts, outstanding and claims, receivable both present and future except book debts and receivables pertaining to wind mill and solar farm which are exclusively financed by other lenders. Further the said working capital facilities are secured on second charge ) by way of registered mortgage on Company''s immovable and movable property situated at MIDC-Thane, MIDC- Jalgaon, Umala- Jalgoan, Vadodara (Gujarat) and Silvassa except assets exclusively financed by other lenders i.e. Wind Mill and Solar farm.

b) Working capital referred in (b ) above is in excess of section limit by Rs,6,256 Lacs (Rs,3,324 Lacs) as at year end.

c) Working capital referred in (b ) above is also secured by mortgage of 21 flats.

* Includes buyer''s credit of Rs,1,434.75 lakhs (Rs,1,684.63 lakhs)

Following disclosures required for Micro and Small Enterprises has been determined on the basis of information available with the company.

Defined Benefit Plans

The employees'' gratuity fund scheme managed by Life Insurance Corporation of India is a defined benefit plan. The present value of obligation is determined based on actuarial valuation using the Projected Unit Credit Method, which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation. The obligation for leave encashment is recognized in the same manner as gratuity.

Claims for Liquidated Damages against the company are recognized in the accounts based on Management assessment of probable outcome with reference to available information supplemented by experience of similar transactions. Accordingly additional provision of Rs,300.00 lacs ( Rs,493.44 lacs) has been made to meet the future probable losses on this account and cumulative provision as at year end Rs,1,872.60 lacs (Rs,1,725.09 lacs). b In respect of certain trade receivables, the customers have deducted amounts aggregating to Rs,5,805 Lacs on account of liquidated damages and other deductions. The Company has or is in the process of taking legal action for recovery of above amounts. Management considers these amounts as good of recovery and on the basis of legal advice, no provision has been made on the same.

c Trade receivable includes contractual retention amount of Rs,20,171 lacs( Rs,21,187 lacs) billed to customers and Liquidated Damages & Other Deductions withheld by customers aggregating to Rs,7,155 lacs (Rs,7,005 lacs) excluding amount of deductions made by customers as disclosed in 27(b) above. Considering the nature of industry, past experience, correspondences with customers, ongoing business relationships with these customers, management expect to collect these dues in due course.

Source : Dion Global Solutions Limited
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