Consolidated Financial Statements Auditors Report to the Board of Directors on Consolidated Financial Statements

Transcription

1 Consolidated Financial Statements Auditors Report to the Board of Directors on Consolidated Financial Statements We have examined the attached consolidated balance sheet of Larsen & Toubro Limited and its subsidiaries, associates and joint ventures (the L&T Group) as at March 31, 2006, the consolidated profit and loss account and the consolidated cash flow statement for the year ended on that date, annexed thereto. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework and are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements. We believe that our audit provides a reasonable basis for our opinion. In respect of the financial statements of certain subsidiaries, associates and joint ventures, we did not carry out the audit. These financial statements have been audited/reviewed by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included in respect of the subsidiaries, associates and joint ventures is based solely on the reports of the other auditors. The details of assets and revenues in respect of these subsidiaries and joint ventures and the net carrying cost of investment and current year/ period share of profit or loss in respect of these associates, to the extent to which they are reflected in the consolidated financial statements are given below: Audited by other auditors: Total assets Total revenues A. Indian subsidiaries B. Foreign subsidiaries C. Joint ventures Net carrying Current year/ cost of period share of investment profit/(loss) D. Associates We further report that in respect of certain subsidiaries and associates, we did not carry out the audit. These financial statements have been certified by management and have been furnished to us, and in our opinion, insofar as it relates to the amounts included in respect of the subsidiaries and associates are based solely on these certified financial statements. Since the financial statements for the financial year ended March 31, 2006, which were compiled by management of these companies were not audited, any adjustments to their balances could have consequential effects on the attached consolidated financial statements. However, the size of these subsidiaries and associates in the consolidated position is not significant in relative terms. The details of assets and revenues in respect of these subsidiaries and the net carrying cost of investment and current year/period share of profit or loss in respect of these associates, to the extent to which they are reflected in the consolidated financial statements are given below: Certified by management: Total assets Total revenues A. Indian subsidiaries Net carrying Current year/ cost of period share of investment profit/(loss) B. Associates We report that the consolidated financial statements have been prepared by the Company in accordance with the requirements of the Accounting Standard (AS) 21, Consolidated Financial Statements, (AS) 23, Accounting for Investments in Associates in Consolidated Financial Statements and (AS) 27, Financial Reporting of Interests in Joint Ventures issued by the Institute of Chartered Accountants of India, and on the basis of the separate audited/reviewed/certified financial statements of the L&T Group included in the consolidated financial statements. We report that on the basis of the information and according to the explanations given to us, and on the consideration of the separate audit report on individual audited financial statements of the L&T Group, we are of the opinion that the said consolidated financial statements, read together with significant accounting policies in schedule Q and notes appearing thereon, give a true and fair view in conformity with the accounting principles generally accepted in India: a) in the case of the consolidated balance sheet, of the state of affairs of the L&T Group as at March 31, 2006; b) in the case of the consolidated profit and loss account of the consolidated results of operations of the L&T Group for the year ended on that date; and c) in the case of the consolidated cash flow statement, of the consolidated cash flows of the L&T Group for the year ended on that date. SHARP & TANNAN Chartered Accountants by the hand of F.M. KOBLA Partner Mumbai, May 25, 2006 Membership No

2 Consolidated Balance Sheet as at March 31, 2006 As at As at Schedules SOURCES OF FUNDS: SHAREHOLDERS FUNDS: Share capital A Reserves and surplus B Employee stock options outstanding (Previous year Rs crore) Less: Deferred employee compensation expense (Previous year Rs crore) Minority interest LOAN FUNDS: Secured loans Unsecured loans C D Deferred tax liabilities (See Note No.25) TOTAL APPLICATION OF FUNDS: Fixed Assets: E (i) Gross block Less: Depreciation and impairment Net block Less: Lease adjustment Capital work-in-progress (net of impairment) Intangible Assets: E (ii) Gross block Less: Amortisation and impairment Net block Capital work-in-progress (net of impairment) Fixed assets held for sale (at lower of cost or estimated realisable value) Investments F Deferred tax assets (See Note No.25) Current assets, loans and advances: G Inventories Sundry debtors Cash and bank balances Other current assets Loans and advances Less: Current liabilities and provisions: H Liabilities Provisions Net current assets Miscellaneous expenditure (to the extent not written-off or adjusted) I TOTAL CONTINGENT LIABILITIES J SIGNIFICANT ACCOUNTING POLICIES Q (For Notes forming part of Consolidated Accounts, see page Nos.163 to 176) A.M. NAIK As per our report attached Chairman & Managing Director SHARP & TANNAN J.P. NAYAK K.V. RANGASWAMI S.N. TALWAR Chartered Accountants Y.M. DEOSTHALEE M.V. KOTWAL M.M. CHITALE by the hand of K. VENKATARAMANAN S. RAJGOPAL SURINDER NATH F.M. KOBLA R.N. MUKHIJA B.P. DESHMUKH Partner V.K. MAGAPU KRANTI SINHA Membership No N. HARIHARAN Mumbai, May 25, 2006 Company Secretary Directors Mumbai, May 25,

3 Consolidated Profit and Loss Account for the year ended March 31, Schedules INCOME: Sales & Service (Gross) K Less: Excise duty Sales & Service (Net) Other operational income L (i) Other income L (ii) EXPENDITURE: Manufacturing, construction and operating expenses M Staff expenses N Sales, administration and other expenses O Interest and brokerage P Depreciation, impairment and obsolescence Amortisation and impairment of intangible assets Less: Overheads charged to fixed assets Profit before transfer from Revaluation reserve Add: Transfer from Revaluation reserve Profit before tax before extra-ordinary items Provision for current taxes including wealth tax Provision for deferred tax (See Note No.25) (8.93) (75.93) Provision for tax on Fringe Benefits Profit after tax before extra-ordinary items Profit on sale/transfer of businesses (net of tax) (See Note No.14) Profit after tax after extra-ordinary items Less: Additional tax on dividend distributed/proposed by Subsidiaries (including proportionate share in respect of Incorporated Joint Ventures) Less: Minority interest in income Profit after minority interest Add: Share in profit/(loss) (net) of Associates (3.80) Profit available for appropriation Less: Transferred to Reserve u/s 45 1C of the RBI Act, Profit available for distribution Less: Special interim dividend Dividend paid for the year Additional tax on dividend for the year Proposed final dividend Additional tax on dividend Balance carried to Balance Sheet } Basic Earnings Per Equity Share (Rupees) Diluted Earnings Per Equity Share (Rupees) Basic Earnings Per Equity Share after excluding (See Note No.22) extra-ordinary items (Rupees) Diluted Earnings Per Equity Share after excluding extra-ordinary items (Rupees) Face Value Per Equity Share (Rupees) SIGNIFICANT ACCOUNTING POLICIES Q (For Notes forming part of Consolidated Accounts, see page Nos.163 to 176) A.M. NAIK As per our report attached Chairman & Managing Director SHARP & TANNAN J.P. NAYAK K.V. RANGASWAMI S.N. TALWAR Chartered Accountants Y.M. DEOSTHALEE M.V. KOTWAL M.M. CHITALE by the hand of K. VENKATARAMANAN S. RAJGOPAL SURINDER NATH F.M. KOBLA R.N. MUKHIJA B.P. DESHMUKH Partner V.K. MAGAPU KRANTI SINHA Membership No N. HARIHARAN Mumbai, May 25, 2006 Company Secretary Directors Mumbai, May 25,

4 Consolidated Cash Flow Statement for the year ended March 31, A. Cash flow from Operating Activities: Net Profit before tax (including extra-ordinary items) Adjustments for: Dividend Received (82.26) (3.69) Depreciation (including obsolescence), amortisation and impairment Lease Equalisation Unrealised foreign exchange difference - net (gain)/loss (13.11) Interest (net) (Profit)/Loss on sale of fixed assets (net) (6.46) (23.69) (Profit)/Loss on sale of investments (net) (244.52) (385.45) Employee Stock Options - Compensation debited to Profit & Loss Account (net) Gain on sale/transfer of Dairy & Milk Processing Equipment Business (49.22) - Gain on sale/transfer of Glass Container Business (including earnest money deposit received and retained) (30.53) - Loss on reassumption of debt Provision/(Reversal) for diminution in value of investments (0.75) (0.65) Operating profit before working capital changes Adjustments for:... (Increase)/Decrease in trade and other receivables ( ) ( ) (Increase)/Decrease in inventories (461.84) (Increase)/Decrease in miscellaneous expenditure Increase/(Decrease) in trade payables Cash generated from operations Direct taxes refund/(paid)- net (376.67) (310.08) Net Cash from Operating Activities B. Cash flow from Investing Activities: Purchase of fixed assets and intangible assets ( ) (416.98) (including interest capitalised Rs.5.18 crore, previous year Rs.0.28 crore) Sale of fixed assets and intangible assets Purchase of investments ( ) ( ) Sale of investments Loans/Deposits made with associates and third parties (net) (150.03) Advance towards equity commitment (15.01) (14.42) Interest received Dividend received from Associates Dividend received from other investments Cash and cash equivalents acquired pursuant to acquisition of a subsidiary company Consideration paid on acquisition of a subsidiary company (6.80) (2.97) Consideration received on disposal of a subsidiary company Cash received on sale/transfer of Dairy & Milk Processing Equipment Business Cash received on sale/transfer of Glass Container Business (net of part refund of earnest money) Net Cash (used in)/from Investing Activities ( ) (83.79) C. Cash flow from Financing Activities: Proceeds from issue of share capital Proceeds from long term borrowings Repayment of long term borrowings (474.20) ( ) (Repayments)/Proceeds from other borrowings (net) (145.38) Dividends paid (231.24) (328.88) Additional tax on dividend (44.84) (55.95) Interest paid (176.95) (146.69) Net Cash (used in)/from Financing Activities Net (decrease)/increase in cash and cash equivalents (A + B + C) (172.21) Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Notes 1. Cash flow statement has been prepared under the indirect method as set out in the Accounting Standard (AS) 3: Cash Flow Statements issued by the Institute of Chartered Accountants of India. 2. Purchase of fixed assets and intangible assets includes movement of Capital Work-in-Progress during the year. 3. Cash and cash equivalents at the end of the year represent cash and bank balances and include unrealised gain of Rs.2.70 crore (previous year unrealised loss of Rs.1.95 crore) on account of translation of foreign currency bank balances. 4. Previous year s figures have been regrouped/reclassified wherever applicable. A.M. NAIK As per our report attached Chairman & Managing Director SHARP & TANNAN J.P. NAYAK K.V. RANGASWAMI S.N. TALWAR Chartered Accountants Y.M. DEOSTHALEE M.V. KOTWAL M.M. CHITALE by the hand of K. VENKATARAMANAN S. RAJGOPAL SURINDER NATH F.M. KOBLA R.N. MUKHIJA B.P. DESHMUKH Partner V.K. MAGAPU KRANTI SINHA Membership No N. HARIHARAN Mumbai, May 25, 2006 Company Secretary Directors Mumbai, May 25,

5 Schedules forming part of Consolidated Accounts As at As at Schedule A Share Capital: Authorised: 162,50,00,000 Equity shares of Rs.2 each (previous year 162,50,00,000 Equity shares of Rs.2 each) Issued: 13,73,85,777 Equity shares of Rs.2 each (previous year 12,99,24,182 Equity shares of Rs.2 each) Subscribed and Paid up: 13,73,85,777 Equity shares of Rs.2 each (previous year 12,99,24,182 Equity shares of Rs.2 each) As at As at Schedule B Reserves and Surplus: Revaluation Reserve: As per last Balance Sheet Less: On assets sold or obsoleted during the year Transferred to Retained Earnings Transferred to Profit and Loss Account Cash Subsidy Reserve: As per last Balance Sheet Capital Redemption Reserve: As per last Balance Sheet Add: Transferred from Retained Earnings Capital Reserve: As per last Balance Sheet Addition during the year Capital Reserve on Consolidation: As per last Balance Sheet Reserve u/s 45 1C of the RBI Act, 1934: As per last Balance Sheet Addition during the year Debenture Redemption Reserve: As per last Balance Sheet Less: Transferred to Retained Earnings Securities Premium Account: As per last Balance Sheet Addition during the year Less: Bond/Debenture issue expenses (net of tax) Share issue expenses Amortisation of premium payable on redemption of Bonds/Debentures (net of tax) 3.21 (previous year Rs.8.32 crore) Less: Write-back of provision made in previous year pursuant to conversion of Bonds 7.34 (previous year Rs.Nil) (4.13) Carried forward

6 Schedules forming part of Consolidated Accounts As at As at Schedule B (Contd.) Brought forward Foreign Projects Reserve: As per last Balance Sheet Less: Transferred to Retained Earnings Housing Projects Reserve: As per last Balance Sheet Less: Transferred to Retained Earnings Foreign Currency Translation Reserve: As per last Balance Sheet (1.06) - Addition during the year 3.82 (1.06) 2.76 (1.06) Retained Earnings: As per last Balance Sheet Add: Adjustments pertaining to prior years (net) (0.56) 9.92 Amounts credited in respect of change in share of net worth of an associate company pursuant to Scheme of merger Less: Employee Stock Options outstanding Transferred to Capital Redemption Reserve Add: Transferred from: Foreign Projects Reserve Housing Projects Reserve Debenture Redemption Reserve Revaluation Reserve Profit and Loss account As at As at Schedule C Secured Loans: Secured Redeemable Non-convertible Debentures: Fixed Rate Debentures Loans from banks: Cash credits / Working Capital Demand Loans Other loans Interest accrued and due Loans from financial institutions Loans from others

7 Schedules forming part of Consolidated Accounts As at As at Schedule D Unsecured Loans: Fixed Rate Debentures % Foreign Currency Convertible Bonds Zero coupon Foreign Currency Convertible Bonds (See Note No.9) Fixed deposits Short term loans and advances: From banks From others Sales Tax Deferment Loan Commercial Paper-Face Value (previous year Rs.50 crore) Less:Future Interest Obligation (previous year Rs.2.29 crore) Other loans and advances: From banks Sales Tax Deferment Loan From others Lease finance Schedule E (i) Cost / Valuation Depreciation Impairment Book Value Fixed Assets As at Deductions/ As at Up to For the Deductions/ Up to As at As at As at Additions Adjustments year Adjustments OWNED ASSETS: Freehold land Ships Buildings Railway sidings Plant and machinery Furniture and fixtures Vehicles Aircraft Owned Assets Leased Out: Plant and machinery Buildings Vehicles Lease Adjustment (185.00) (140.82) Owned Assets (sub total - A) LEASED ASSETS: Plant and machinery Vehicles Leased Assets (sub total - B) Total (A+B) Previous year Add: Capital work-in-progress Less: Impairment of Capital work-in-progress (Buildings)

8 Schedules forming part of Consolidated Accounts Schedule E (ii) Cost / Valuation Amortisation Impairment Book Value Intangible Assets As at As at Up to For the Up to As at As at As at Additions Deductions year Deductions Goodwill on consolidation Leasehold land Leasehold buildings Jetties Specialised software Lump sum fees for technical know-how Trade-marks Total Previous year Add: Capital work-in-progress Notes: 1 (i) In respect of fixed assets, opening gross block includes Rs.3.52 crore and opening accumulated depreciation includes Rs.2.94 crore on account of three subsidiaries and a joint venture company which are consolidated for the first time during the year. Exchange difference of Rs.0.01 crore arising on translation of value of fixed assets in respect of non integral foreign operations have been adjusted in the opening gross block and opening accumulated depreciation. (ii) In respect of intangible assets, opening gross block includes Rs.1.16 crore and opening accumulated amortisation includes Rs.0.67 crore on account of a joint venture company which is consolidated for the first time during the year. (iii) In respect of intangible assets, opening gross block includes Rs.1.31 crore and opening accumulated depreciation includes Rs.0.01 crore relating to leasehold land which was earlier classifed as freehold land under tangible assets. (iv) Certain categories of assets have been reclassified during the year and there is no impact of this change in the depreciation for the year. 2 Cost / Valuation of: (i) Freehold land includes (a) Rs.0.14 crore for which conveyance is yet to be completed. (b) Rs.0.72 crore of leasehold land which has become freehold during the year vide agreement with Karnataka Industrial Area Development Board (KIADB). (c) Land considered at nominal value taken at HITEC City (Madhapur) from Andhra Pradesh Industrial Infrastructure Corporation Limited (APIIC) vide agreement dated December 27, The sale consideration was satisfied by fulfilling the conditions laid down in Government Order No.5 dated January 29, 2002 and confirmed by APIIC vide their letter no.1539/pm(ipu)/apiic dated December 6, Thus no payment by way of consideration is required to be made as per Government Order as the said conditions are fulfilled. (ii) Leasehold land includes (a) Rs.0.72 crore for land at Mysore taken on lease-cum-sale basis from KIADB vide agreement dated July 14, In terms of extensions granted by KIADB, the lease agreement is currently valid up to July 12, 2006 or till the execution of the sale deed, whichever is earlier. Pending transfer, this land has been shown as leasehold land. (b) Rs.5.95 crore for land taken at Bangalore on lease from KIADB vide agreement dated January 21, The lease agreement is for a period of six years, at the end of which sale deed would be executed, on fulfilment of certain conditions by the Company. (c) Rs.1.31 crore for land taken on sub lease from West Bengal Electronics Industry Development Corporation Limited for a period of 99 years with a right to renew for further term of 99 years each vide Memorandum of Understanding dated August 18, Pending execution of Sub Lease Deed, the Company has paid the full consideration and taken possesion of the land for execution of the project. (d) Rs.0.22 crore for land taken at Hubli on lease from KIADB vide agreement dated December 8, This lease agreement is for a period of six years, at the end of which sale deed would be executed, on fulfilment of certain conditions by the Company. 3 Cost / Valuation of Buildings includes ownership accommodation: (i) (a) In various co-operative societies and apartments and shop-owners associations: Rs crore (including 1300 shares of Rs.50 each, 177 shares of Rs.100 each, 100 shares of Rs.10 each and 1 share of Rs.250). (b) In proposed co-operative societies: Rs crore. (ii) of Rs.4.45 crore in respect of which the deed of conveyance is yet to be executed. (iii) of Rs.3.36 crore representing the undivided share in a property at a certain location. 4 Additions during the year and capital work-in-progress include (i) Rs.2.74 crore being the exchange loss (net); and (ii) Rs.5.18 crore being borrowing cost capitalised in accordance with Accounting Standard (AS) 16 Borrowing Costs issued by the Institute of Chartered Accountants of India. 152

9 Schedules forming part of Consolidated Accounts Schedule E (ii) (Contd.) 5 Deductions include cost Rs crore and depreciation Rs crore (book value Rs crore net of impairment of Rs crore) relating to the Glass Container business transferred during the year under a Business Transfer Agreement. 6 During the year, the Company has reviewed the useful life of certain categories of assets. Consequently, the depreciation rates have been revised, resulting in an additional charge of Rs crore. 7 Capital work-in-progress includes advances Rs crore (previous year Rs crore). 8 The Company had revalued as at October 1,1984 some of its land, buildings, plant and machinery and railway sidings at replacement/ market value which resulted in a net increase of Rs crore. As at As at Schedule F Investments Long Term Investments Investments in Associates (See Note below) Fully paid equity shares of associate companies Fully paid preference shares of associate companies Add/(Deduct): Accumulated share in profit/(loss) [net] of associate companies at the beginning of the year [previous year (Rs.73.69) crore] (88.62) Adjustment pursuant to disposal of stake in associates (previous year Rs.Nil) Adjustment pursuant to associate companies becoming subsidiary/joint venture (previous year Rs.Nil) 2.40 Adjustment pursuant to change in share of net worth/prior year profits/(losses) (previous year Rs.Nil) (73.69) Add/(Deduct): Share in profit/(loss) [net] of associate companies - current year (3.80) Commitment to fresh infusion of equity Less: Dividend received from associate companies during the year Unrealised profits in respect of transactions with associate companies Provision for diminution in value Other fully paid equity shares Less: Provision for diminution in value Government and trust securities Bonds Mutual funds Current Investments Bonds Fully paid equity shares (previous year Rs crore) 0.62 Less: Provision for diminution in value 0.51 (previous year Rs.2.90 crore) Mutual Funds (previous year Rs crore) Less: Provision for diminution in value (previous year Rs.Nil) Note: Investments in Associates include Goodwill Rs.6.53 crore (previous year Rs.5.64 crore), net of cumulative amortisation of Rs.1.99 crore (previous year Rs.1.14 crore) in respect of an associate company. 153

10 Schedules forming part of Consolidated Accounts As at As at Schedule G Current Assets, Loans and Advances: Current Assets: Inventories: Stock-in-trade, at cost or net realisable value whichever is lower: Raw materials Components Construction materials Stores, spare parts and loose tools Finished goods Property development land Work-in-Progress: Manufacturing work-in-progress at cost or net realisable value whichever is lower Construction and project related work-in-progress At cost At estimated realisable value on sale Less: Progress bills raised Due from customers Total work-in-progress Stock on hire Sundry Debtors: Unsecured: Debts outstanding for more than 6 months Considered good Considered doubtful Other Debts: Considered good Less: Provision for doubtful debts Cash and Bank balances: Cash on hand Balances with scheduled banks: on current accounts (including cheques on hand Rs crore) on call deposit accounts including interest accrued thereon on fixed deposits including interest accrued thereon on margin money deposit accounts Balances with non-scheduled banks Other Current Assets: Interest accrued on investments Others Loans and Advances: Secured: Considered good: Loans against mortgage of house property Loans against pledge of shares Carried forward

11 Schedules forming part of Consolidated Accounts As at As at Schedule G (Contd.) Brought forward Unsecured: Considered good: Associate companies: Loans including interest accrued thereon Advances recoverable Advances paid towards equity commitment: Associate companies Others Inter-Corporate deposits: Associate companies Others Advances recoverable in cash or in kind Bills discounted Balance with customs, port trust, etc Lease receivables Considered doubtful: Deferred credit against sale of ships Advances recoverable in cash or in kind Less: Provision for doubtful loans and advances As at As at Schedule H Current Liabilities and Provisions: Liabilities: Acceptances Sundry Creditors: Due to: Small Scale Industries Others Due to customers: Progress bills raised Less: Construction and Project related work-in-progress [At cost: Rs crore (previous year Rs crore) At estimated realisable value: Rs crore (previous year Rs crore)] Advances from customers Items covered by Investor Education and Protection Fund:(See note below) Unpaid dividend Unpaid matured deposits Unpaid matured debentures/bonds Interest accrued on bonds Due to Directors (net) Interest accrued but not due on loans Pension payable under Voluntary Retirement-cum-Pension Scheme Provisions for: Current taxes Tax on fringe benefits Proposed dividend Additional tax on dividend Gratuity Leave encashment Pension scheme Other provisions (See Note No.23) Note: There are no amounts due and outstanding to be credited to the Investor Education and Protection Fund as at March 31,

12 Schedules forming part of Consolidated Accounts As at As at Schedule I Miscellaneous Expenditure: (to the extent not written off or adjusted) Voluntary Retirement-cum-Pension Schemes/Voluntary Retirement Schemes Preliminary expenses As at As at Schedule J Contingent Liabilities: (a) Claims against the Group not acknowledged as debts (b) Sales-tax liability that may arise in respect of matters in appeal (c) (d) (e) Excise duty/service tax liability that may arise in respect of matters in appeal /challenged by the Group in writ Customs duty demands against which the Group has filed appeals before appellate authorities which are pending disposal Income tax liability (including interest) that may arise in respect of which the Group is in appeal (f) Guarantees given on behalf of associate companies (g) Guarantees given on behalf of others Notes: 1. The Group does not expect any reimbursements in respect of the above contingent liablities 2. It is not practicable to estimate the timing of cash outflows, if any, in respect of matters at (a) to (e) above pending resolution of the arbitration / appellate proceedings. 3. In respect of matters at (f) above, the cash outflows, if any, could generally occur during the next two years, being the period over which the validity of the guarantees extends except in a few cases, where the cash outflows, if any, could occur any time during the subsistence of the borrowing to which the guarantees relate. Schedule K Sales & Service: Manufacturing, trading and property development activity Construction and project related activity Software development products and services Income from financing activity Facilitating charges for power plant Toll collection and related activity Servicing Commission Compensation, engineering and service fees

13 Schedules forming part of Consolidated Accounts Schedule L (i) Other Operational Income: Freight and pumping charges for ready mix concrete Equipment and property rentals Commercial leadership fees received from Integrated Joint Ventures Technical fees Property maintenance recoveries Profit on sale of fixed assets (net) Parking recoveries Schedule L (ii) Other Income: Income from long term investments Income from current investments Profit on sale of investments (net) [See Note No.15(i)] Profit on sale of fixed assets(net) Gain on extinguishment of debt [See Note No.15 (ii)] Miscellaneous income Schedule M Manufacturing, Construction and Operating Expenses: Raw materials and components consumed Add: Purchase of trading goods Less: Scrap sales Construction materials Sub contracts Stores, spares and tools Direct expenses on jobs (Increase)/Decrease in manufacturing and trading stocks: Closing stock: Finished goods Work-in-progress Less: Opening stock: Finished goods Work-in-progress (91.49) Value of materials, finished goods, tools and work-in-progress transferred on sale of undertaking (15.14) - Excise duty Power and fuel Royalty and technical knowhow fees Packing and forwarding Hire charges - Plant and machinery and others Repairs to plant and machinery and buildings Interest and other financing charges Software development expenses Cost of built up Technology Park space and Property Development Land

14 Schedules forming part of Consolidated Accounts Schedule N Staff Expenses: Salaries, wages and bonus Contribution to and provision for: Provident funds and pension fund Superannuation/Pension schemes Gratuity funds Leave encashment Welfare and other expenses Schedule O Sales, Administration and Other Expenses: Rent Rates and taxes Packing and forwarding Travelling and conveyance Telephone, postage and telegrams Advertising and publicity Stationery and printing Insurance Power and fuel Commission Bank charges General repairs and maintenance Miscellaneous expenses Provision for foreseeable losses on construction contracts Provision for doubtful debts, advances and non-performing assets (net) Bad debts and advances written off Less: Provision for doubtful debts and advances written back Discount on sales Other provisions (See Note No.23) Loss on reassumption of debt (See Note No.32) Schedule P Interest and Brokerage: Debentures and fixed loans Others Less: (i) Received on inter-corporate deposits, from associate companies, customers and others (ii) Income from long term investments: Interest on debentures, bonds and government securities (iii) Income from current investments: Interest on debentures, bonds and government securities

15 Schedules forming part of Consolidated Accounts Schedule Q SIGNIFICANT ACCOUNTING POLICIES 1. Basis of Accounting The Company maintains its accounts on accrual basis following the historical cost convention in accordance with generally accepted accounting principles [ GAAP ] except for the revaluation of certain fixed assets, and in compliance with the Accounting Standards referred to in Section 211(3C) and other requirements of the Companies Act, However, certain escalation and other claims, which are not ascertainable/acknowledged by customers, are not taken into account. 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 life of fixed assets and intangible assets, provision for doubtful debts/advances, future obligations in respect of retirement benefit plans, etc. Actual results could differ from these estimates. The accounts of all subsidiaries, joint ventures and Indian associates have been prepared in compliance with Accounting Standards referred to in Section 211(3C) and other requirements of the Companies Act, 1956, and those of the foreign associates have been prepared in compliance with the local laws and applicable Accounting Standards. 2. Revenue Recognition a) Sales and service include excise duty and adjustments made towards liquidated damages, price variation and charges paid for discounting of receivables arising from construction/project contracts on a non-recourse basis, wherever applicable. b) Revenue is recognised based on the nature of activity when consideration can be reasonably measured and there exists reasonable certainty of its recovery. i) Revenue from sale of goods is recognised when the substantial risks and rewards of ownership is transferred to the buyer under the terms of the contract. ii) iii) Revenue from construction/project related activity and contracts for supply/commissioning of complex plant and equipment is recognised as follows: (a) Cost plus contracts: Contract revenue is determined by adding the aggregate cost plus proportionate margin as agreed with the customer. (b) Fixed price contracts received up to March 31, 2003: Contract revenue is recognised by applying percentage of completion to the contract value. Percentage of completion is determined as follows: (i) in the case of item rate contracts, as a proportion of the progress billing to contract value; and (ii) in the case of other contracts, as a proportion of the cost incurred-to-date to the total estimated cost. (c) Fixed price contracts received on or after April 1, 2003: Contract revenue is recognised by adding the aggregate cost and proportionate margin using the percentage completion method. Percentage of completion is determined as a proportion of cost incurred-to-date to the total estimated contract cost. Full provision is made for any loss in the period in which it is foreseen. Revenue from property development activity is recognised when all significant risks and rewards of ownership in the land and/or building are transferred to the customer and a reasonable expectation of collection of the sale consideration from the customer exists. iv) Revenue from service related activities is recognised using the proportionate completion method or completed service contract method. v) Commission income is recognised as and when the terms of the contract are fulfilled. vi) Revenues from construction/project related activity and contracts executed in Joint Ventures under work-sharing arrangement [being Jointly Controlled Operations, in terms of Accounting Standard (AS) 27 Financial Reporting of Interests in Joint Ventures ], is recognised on the same basis as similar contracts independently executed by the Company. vii) Other income is accounted on accrual basis as and when the right to receive arises. c) Profit/Loss on contracts executed by Integrated Joint Ventures under profit-sharing arrangement [being Jointly Controlled Entities, in terms of Accounting Standard (AS) 27 Financial Reporting of Interests in Joint Ventures ], is accounted as and when the same is determined by the Joint Venture. Revenue from services rendered to such Joint Ventures is accounted on accrual basis. d) Revenue from software development is recognised based on software developed or time spent in person hours or person weeks, and billed to customers as per the terms of specific contracts. e) Toll collections from users of facility are accounted when the amount is due and recovery is certain. Licence fees for way-side amenities are accounted on accrual basis. f) Income from hire purchase and lease transactions is accounted on accrual basis, pro-rata for the period, at the rates implicit in the transaction. Income from bill discounting, advisory and syndication services and other financing activities is accounted on accrual basis. g) Facilitation earnings are recognised based on the availability of the facilities for generation of electricity and steam. 3. Principles of Consolidation a) The financial statements of the Parent Company and its Subsidiaries have been consolidated on a line-by-line basis by adding together the book values of the like items of assets, liabilities, income and expenses, after eliminating intra-group balances and the unrealised profits/losses on intra-group transactions, and are presented to the extent possible, in the same manner as the Company s independent financial statements. b) Investments in associate companies have been accounted for, by using equity method whereby investment is initially recorded at cost and the carrying amount is adjusted thereafter for post acquisition change in the Company s share of net assets of the associate. c) The Company s interests in joint ventures are consolidated as follows: Type of Joint Venture Jointly Controlled Operations Jointly Controlled Assets Accounting treatment Company s share of revenues, common expenses, assets and liabilities are included in revenues, expenses, assets and liabilities respectively. Share of the assets and share of the liabilities are shown as part of gross block and liabilities respectively according to their nature. Share of expenses incurred on maintenance of the assets is accounted as expense. Monetary benefits, if any, from use of the assets are reflected as income. 159

16 Schedules forming part of Consolidated Accounts Schedule Q (Contd.) Jointly Controlled Entities The Company s interest in Jointly Controlled Entities are consolidated on a line-by-line basis by adding together the book values of assets, liabilities, income and expenses, after eliminating the unrealised profits/losses on intra-group transactions. Joint venture interests accounted as above are included in the segments to which they relate. 4. Research and Development Revenue expenditure on research and development is charged under respective heads of account. Capital expenditure on research and development is included as part of fixed assets and depreciated on the same basis as other fixed assets. 5. Retirement Benefits Provisions for/contributions to retirement benefits schemes are made as follows: a) Provident fund on actual liability basis. b) Superannuation/Pension schemes on the basis of actual liability/actuarial valuation. c) Gratuity based on actual liability/actuarial valuation. d) Leave encashment benefit on retirement on actual liability/actuarial valuation basis. Liability in respect of medical benefits provided to retired employees (net of reimbursements received from the insurance company) is accounted on cash basis. 6. Fixed Assets Fixed assets are stated at original cost net of tax / duty credits availed, if any, less accumulated depreciation, accumulated amortisation and cumulative impairment and those which were revalued as on October 1,1984 are stated at the values determined by the valuers less accumulated depreciation, accumulated amortisation and cumulative impairment. Assets acquired on hire purchase basis are stated at their cash values. Specific know-how fees paid, if any, relating to plant and machinery is treated as part of cost thereof. Revenue expenses incurred in connection with project implementation insofar as such expenses relate to the period prior to the commencement of commercial production are treated as part of project cost and capitalised. Own manufactured assets are capitalised at cost including an appropriate share of overheads. (Also refer to policy on Leases, Borrowing Costs, Impairment of Assets and Foreign Currency Transactions, infra) 7. Leases a) Lease transactions entered into prior to April 1, 2001: Assets leased out are stated at original cost. Lease equalisation adjustment is the difference between capital recovery included in the lease rentals and depreciation provided in the books. Lease rentals in respect of assets acquired under leases are charged to Profit and Loss Account. b) Lease transactions entered into on or after April 1, 2001: i. Assets acquired under leases where the Company has substantially all the risks and rewards of ownership are classified as finance leases. Such assets are capitalised 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. 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 Profit and Loss Account on accrual basis. iii. Assets given under a finance lease are recognised as a receivable at an amount equal to the net investment in the lease. Lease income is recognised over the period of the lease so as to yield a constant rate of return on the net investment in the lease. iv. Assets leased out under operating leases are capitalised. Rental income is recognised on accrual basis over the lease term. v. Initial direct costs relating to assets given on finance leases are charged to Profit and Loss Account. (Also refer to policy on Depreciation, infra) 8. Depreciation (A) Indian Companies (I) (II) Owned assets a) Revalued Assets: Depreciation is provided for based on straight line method on the values and at the rates given by the valuers. The difference between depreciation provided based on revalued amount and that on historical cost is transferred from Revaluation Reserve to Profit and Loss Account. b) Assets carried at historical cost: Depreciation on assets carried at historical cost is provided for on the written down value basis on assets acquired up to March 31, 1968 (at the rates prescribed under Schedule XIV to the Companies Act, 1956) and on straight line basis on assets acquired subsequently at the rates prevailing at the time of their acquisition on assets acquired upto September 30, For the assets acquired thereafter, depreciation is provided on straight line basis, at the rates prescribed under Schedule XIV or at higher rates in line with the estimated useful life of the assets except in respect of assets of certain subsidiaries, where depreciation is provided on written down value basis. Assets constructed on land not owned by the Company are amortised over the period of the right as per concession agreements with the respective authorities. c) Depreciation for additions to/deductions from owned assets is calculated pro-rata from/to the month of additions/deductions. Extra shift depreciation is provided for on a location basis. d) Depreciation charge for impaired assets is adjusted in future periods in such a manner that the revised carrying amount of the asset is allocated over its remaining useful life. Leased assets i. Lease transactions entered into prior to April 1, 2001: Assets given on lease are depreciated over the primary period of the lease. Accordingly, while the statutory depreciation on such assets is provided for on straight line method as per Schedule XIV to the Companies Act, 1956, the difference is adjusted through lease equalisation and lease adjustment account. 160