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Moneycontrol.com India | Accounting Policy > Electric Equipment > Accounting Policy followed by Igarashi Motors - BSE: 517380, NSE: IGARASHI
YOU ARE HERE > MONEYCONTROL > MARKETS > ELECTRIC EQUIPMENT > ACCOUNTING POLICY - Igarashi Motors

Igarashi Motors

BSE: 517380|NSE: IGARASHI|ISIN: INE188B01013|SECTOR: Electric Equipment
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May 17, 16:00
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Accounting Policy Year : Mar '17

a) Basis of presentation

The Company maintains its accounts on accrual basis following the historical cost convention, in accordance with the Accounting Principles Generally Accepted in India, [“GAAP”], and in compliance with the provisions of Companies Act, 2013 (“the Act”), including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. Further, the guidance notes / announcements issued by the Institute of Chartered Accountants of India (ICAI) are also considered, wherever applicable except to the extent where compliance with other statutory promulgations override the same requiring a different treatment.

b) Use of estimates

The preparation of financial statements in conformity with GAAP requires that the management of the company makes estimates and assumptions that affect the reported amounts of income and expenses of the period, the reported balances of assets and liabilities and the disclosures relating to contingent liabilities as of the date of the financial statements. Examples of such estimates include the useful lives of tangible and intangible fixed assets, allowance for doubtful debts / advances, future obligations in respect of retirement benefit plans, etc. Difference, if any, between the actual results and estimates is recognized in the period in which the results are known.

c) Revenue recognition

Revenue is recognized based on nature of activity when consideration can be reliably measured and there exists reasonable certainty of its recovery.

(i) Revenue from sale of products is recognized when the significant risks and rewards of ownership of the products are transferred to the customer under the terms of the contract and no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of products. Sales include excise duty and adjustments made towards liquidated damages and price variation, if any. Sales exclude sales tax / value added tax. Escalation and other claims, which are not ascertainable/ acknowledged by customers, are accounted in the period in which they are ascertained / acknowledged.

(ii) Interest income on deposits and loans is recognized at the applicable interest rate on time proportion basis.

(iii) Other items of income are accounted as and when the right to receive arises.

d) Tangible fixed assets

(i) Tangible fixed assets are stated at original cost net of tax/ duty credits availed, if any, less accumulated depreciation and cumulative impairment.

(ii) Administrative and other general overhead expenses that are specifically attributable to the construction or acquisition of a fixed asset or bringing the fixed asset to its working condition are allocated and capitalized as part of cost of the fixed asset.

(iii) Tangible fixed assets which are not ready for the intended use as on the date of the Balance Sheet are disclosed as “Capital work-in-progress”.

e) Depreciation

(i) Owned assets

Depreciation on assets including buildings constructed on leasehold land is provided for under the straight line method based on the useful lives prescribed in Schedule II to the Act. However, in respect of the following fixed assets, the Company has reviewed and revised the useful lives based on internal technical evaluation.

The Company has carried out an assessment of useful lives of the above assets and based on technical justification, different useful lives have been arrived at in respect of the above assets.

The justification for adopting different useful life compared to the useful life of assets provided in Schedule II is based on the consumption pattern and performance of the assets duly supported by internal technical assessment.

Assets costing less than Rs..5,000/- are depreciated fully in the year of purchase. Extra shift depreciation is provided on a location basis.

Depreciation charge for impaired assets is adjusted in the future periods in such a manner that the revised carrying amount of the asset is allocated over its remaining useful life.

(ii) Leased assets

Assets acquired under finance leases are depreciated on straight line method over the lease term. Where there is reasonable certainty that the Company shall obtain ownership of the assets at the end of the lease term, such assets are depreciated based on the useful life prescribed under Schedule II to the Companies Act, 2013.

f) Intangible assets and amortization

Intangible assets are stated at original cost net of tax/ duty credits availed, if any, less accumulated amortization and cumulative impairment.

Intangible assets are recognized when it is probable that the future economic benefits that are attributable to the assets will flow to the enterprise and the cost of the asset can be measured reliably.

Product development expenses on new products are capitalized as intangible assets, if all of the following can be demonstrated:

i) The technical feasibility of completing the intangible asset so that it will be available for use or sale;

ii) The Company has intention to complete the intangible asset and use or sell it;

iii) The Company has ability to use or sell the intangible asset;

iv) The manner in which the probable future economic benefits will be generated including the existence of a market for output of the intangible asset or intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;

v) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

vi) The Company has ability to measure the expenditure attributable to the intangible asset during its development reliably.

Other development costs that do not meet above criteria are expensed in the period in which they are incurred. Intangible assets are amortized over their useful lives on straight line basis in the following manner:

i) Product development expenses on new products are amortized over a period of 60 months from the date of commencement of commercial production of the relevant product.

ii) Product design expenses in respect of future products are amortized over a period of 36 months from the date of approval of design by the customer.

iii) Specialized software are amortized over a period of 6 years from the date of capitalization.

Intangible assets not ready for the intended use on the date of the Balance Sheet are disclosed as “Intangible assets under development”.

Amortization charge for impaired assets is adjusted in the future periods in such a manner that the revised carrying amount of the asset is allocated over its remaining useful life.

g) Impairment of assets

As at each Balance Sheet date, the carrying amount of asset is tested for impairment so as to determine:

i) the provision for impairment loss, if any; and

ii) the reversal of impairment loss recognized in previous periods, if any,

Impairment loss is recognized when the carrying amount of an asset exceeds its recoverable amount. Recoverable amount is determined:

i) in the case of an individual asset, at the higher of the net selling price and the value in use; and

ii) in the case of a cash generating unit (a group of assets that generates identified, independent cash flows), at the higher of the cash generating unit’s net selling price and the value in use.

(Value in use is determined as the present value of estimated future cash flows from the continuing use of an asset and from its disposal at the end of its useful life).

h) Investments

Trade investments comprise investments in entities in which the Company has strategic business interest.

Investments, which are readily realizable and are intended to be held for not more than one year from the date of acquisition are classified as current investments. All other investments are classified as long-term investments.

Current investments are valued at lower of cost and fair value.

Long-term investments are carried at cost, after providing for any diminution in value, if such diminution is other than temporary in nature.

The determination of carrying value of such investments is done ont he basis of weighted average cost of each individual investment

The Carrying Amount for Current investments is the lower of cost and Fair Value.

i) Inventories

Inventories are valued after providing for obsolescence as under:

j) Cash and cash equivalents

Cash and cash equivalents represents cash on hand and demand deposits with banks and include short-term and highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.

k) Employee stock options schemes

In respect of stock options granted pursuant to the Company’s Stock Option Schemes, the intrinsic value of the options (excess of market price of the share over the exercise price of the option), is treated as discount and accounted as employee compensation cost over the vesting period. The amount recognized as expense each year is arrived at based on the number of grants expected to vest. If a grant lapses after the vesting period, the cumulative discount recognized as expense in respect of such grant is transferred to the General Reserve.

l) Leases

The determination of whether the agreement is, or contains, a lease is based on the substance of the agreement at the date of inception.

(i) Finance leases

Assets acquired under leases where the Company has substantially all the risks and rewards of ownership are classified as finance leases. Such assets are capitalized at the inception of the lease at the lower of the fair value or the present value of minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic rate of interest on the outstanding liability for each period.

(ii) Operating leases

Assets acquired on leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Lease rentals are charged to the Statement of Profit and Loss on accrual basis.

m) Foreign currency transactions, forward contracts and derivatives

(i) The reporting currency of the Company is Indian Rupee.

(ii) Foreign Currency transactions are recorded on initial recognition in the reporting currency, using the exchange rate at the date of the transaction. At each balance sheet date, foreign currency monetary items are reported using the closing rate. Non-monetary items which are carried at historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction.

(iii) Exchange differences that arise on settlement of monetary items or on reporting of the Company’s monetary items at each balance sheet date at the closing rate are recognised as income or expense in the period in which they arise.

(iv) Forward contracts, other than those entered into to hedge foreign currency risk on unexecuted firm commitments or highly probable forecast transactions, are treated as foreign currency transactions and accounted accordingly as per Accounting Standard (AS) 11 “The Effects of Changes in Foreign Exchange Rates’’. Exchange differences arising on such contracts are recognized in the period in which they arise. Gains and losses arising on account of roll over/ cancellation of forward contracts are recognized as income/expenses of the period in which such roll over/ cancellation takes place.

(v) All the other derivative contracts, including forward contracts entered into to hedge foreign currency risks on unexecuted firm commitments and highly probable forecast transactions, are recognized in the financial statements at fair value as on the Balance Sheet date, in pursuance of the announcement of the Institute of Chartered Accountants of India (ICAI) dated March 29, 2008 on accounting of derivatives. The Company has adopted Guidance note on Accounting for Derivative Contracts issued by ICAI Vide GN(A) 33 (Issued 2015) for accounting of such derivative contracts.

Accordingly, the resultant gains or losses on fair valuation / settlement of the derivative contacts covered under Guidance note on Accounting for Derivative Contracts are recognized in the Statement of Profit and Loss or Balance Sheet as the case may be after applying the test of hedge effectiveness. Where the hedge in respect of off-balance sheet items is effective, the gains or losses are recognised in the “Hedging Reserve” which forms part of “Reserves and Surplus” in the Balance Sheet.

The amount recognised in the “Hedging Reserve” is transferred to the Statement of Profit and Loss in the period in which the underlying hedged item affects the Statement of Profit and Loss. Gains or losses in respect of ineffective hedges are recognised in the Statement of Profit and Loss in the period in which such gains or losses are incurred.

(vi) Premium paid / received on a foreign currency forward contract is accounted as expense / income over the life of the contract.

n) Employee benefits

(i) Short-term employee benefits:

All employee benefits falling due wholly within twelve months of rendering the service are classified as short-term employee benefits. The benefits like salaries, wages, short-term compensated absences, etc. and the expected cost of bonus and ex-gratia are recognized in the period in which the employee renders the related service.

(ii) Post-employment benefits:

1) Defined contribution plans

The Company’s state governed provident fund scheme, employees’ state insurance scheme and employee pension scheme are the defined contribution plans. The contribution paid/ payable under the schemes is recognized during the period in which the employee renders the related service.

2) Defined benefit plans

The Company’s obligation towards gratuity is a defined benefit plan. The present value of the obligation under such defined benefit plan 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 is measured at the present value of the estimated future cash flows. The discount rate used for determining the present value of the obligation under defined benefit plans is based on the market yields on Government securities having maturity periods approximating to the terms of related obligations as at the balance sheet date.

The fair value of the plan assets is reduced from the gross obligation under the defined benefit plans to recognize the obligation on a net basis.

Actuarial gains and losses are recognized immediately in the Statement of Profit and Loss, and gains or losses on the curtailment or settlement of the defined benefit plan are recognized when the curtailment or settlement occurs.

Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on a straight-line basis over the average period until the benefits become vested.

(iii) Long-term employee benefits

The obligation for long-term employee benefits such as long-term compensated absences is recognized in the similar manner as in the case of defined benefit plans as mentioned in (ii) (2) above.

o) Borrowing costs

(i) Borrowing costs include interest, commitment charges, amortization of ancillary costs, amortization of discounts/ premium related to borrowings, finance charges in respect of assets acquired on finance lease and exchange differences arising from foreign currency borrowings, to the extent they are regarded as an adjustment to interest costs.

(ii) Borrowing costs that are attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of cost of such asset till such time the asset is ready for its intended use or sale. A qualifying asset is an asset that necessarily requires a substantial period of time (ordinarily, a period of twelve months) to get ready for its intended use or sale.

(iii) All other borrowing costs are recognized as an expense in the period in which they are incurred. p) Taxes on income

(i) Tax on income for the current period is determined on the basis of taxable income and tax credits computed in accordance with the provisions of the Income-tax Act, 1961 and based on the expected outcome of assessments / appeals.

(ii) Deferred tax is recognized on timing differences between the accounting income and taxable income for the year and quantified using the tax rates and laws enacted or substantively enacted as on the Balance Sheet date.

(iii) Deferred tax assets relating to unabsorbed depreciation/business losses are recognized and carried forward to the extent there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.

(iv) Other deferred tax assets are recognized and carried forward to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.

q) Operating cycle for current/ non-current classification

Operating cycle for the business activities of the Company is taken as twelve months for classification of its assets and liabilities into current/ non-current.

r) Provisions, contingent liabilities and contingent assets

Provisions are recognized for liabilities that can be measured only by using a substantial degree of estimation, if

i) the company has a present obligation as a result of a past event,

ii) a probable outflow of resources is expected to settle the obligation; and

iii) the amount of obligation can be reliably estimated.

Reimbursement expected in respect of expenditure required to settle a provision is recognized only when it is virtually certain that the reimbursement will be received.

Contingent liability is disclosed in the case of

i) present obligation arising from past events, when it is not probable that an outflow of resources will be required to settle the obligation;

ii) a present obligation arising from past events, when no reliable estimate is possible;

iii) a possible obligation arising from past events, unless the probability of outflow of resources is remote. Contingent assets are neither recognized, nor disclosed.

Provisions, contingent liabilities and contingent assets are reviewed at each balance sheet date. s) Commitments

Commitments are future liabilities for contractual expenditure. Commitments are classified and disclosed as follows:

(i) Estimated amount of contracts remaining to be executed on capital account and not provided for; and

(ii) Other non-cancellable commitments, if any, to the extent they are considered material and relevant in the opinion of management.

Other commitments related to sales/procurements made in the normal course of business are not disclosed to avoid excessive details.

t) Cash Flow Statement

Cash Flow Statement is prepared segregating the cash flows from operating, investing and financing activities. Cash flow from operating activities is reported using indirect method. Under the indirect method, the net profit is adjusted for the effects of :

(i) transactions of a non-cash nature

(ii) any deferrals or accruals of past or future operating cash receipts or payments and

(iii) items of income or expense associated with investing or financing cash flows.

Cash and cash equivalents are reflected as such in the Cash Flow Statement.

Source : Dion Global Solutions Limited
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