Financial Statements Standalone 92 for the year ended March 31, 2016 NOTE 1. CORPORATE INFORMATION Bharat Forge Limited ( the Company ) is a public company domiciled in India. Its shares and debentures are listed on two stock exchanges in India. The Company is engaged in the manufacturing and selling of forged components. The Company caters to both domestic and international markets. The Company s CIN is L25209PN1961PLC012046. NOTE 2. BASIS OF PREPARATION These financial statements of the Company have been prepared in accordance with the generally accepted accounting principles in India (the accounting standards notified under Indian GAAP). The Company has prepared these financial statements to comply in all material aspects with the accounting standards notified under Section 133 of the Companies Act 2013, read together with Rule 7 of the Companies (Accounts) Rules 2014. The financial statements have been prepared on an accrual basis under the historical cost convention except for derivative financial instruments which have been measured at fair value. The Company has ascertained its operating cycle as 12 months for the purpose of current/non-current classification of assets and liabilities. The accounting policies adopted in the preparation of financial statements are consistent with those of previous year. 2.1 Summary of significant accounting policies a) Use of estimates The preparation of financial statements in conformity with Indian GAAP requires the management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. Although these estimates are based on the management s best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods. b) Tangible fixed assets Fixed assets are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met, the cost of replacing part of the fixed assets and directly attributable cost of bringing the asset to its working condition for the intended use. Each part of an item of fixed assets with a cost that is significant in relation to the total cost of the item is depreciated separately. When significant parts of fixed assets are required to be replaced at intervals, the Company recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the fixed assets as a replacement if the recognition criteria are satisfied. Any trade discounts and rebates are deducted in arriving at the purchase price. Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure are charged to the statement of profit and loss for the period during which such expenses are incurred. The Company adjusts exchange differences arising on translation/settlement of long-term foreign currency monetary items pertaining to the acquisition of a depreciable asset to the cost of the asset and depreciates the same over the remaining life of the asset. In accordance with MCA circular dated August 9, 2012, exchange differences adjusted to the cost of fixed assets are total differences, arising on long-term foreign currency monetary items pertaining to the acquisition of a depreciable asset, for the period. In other words, the Company does not differentiate between exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost and other exchange difference. Gains or losses arising from derecognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized. c) Depreciation on tangible assets i. Leasehold land: Premium on leasehold land is amortized on a straight-line basis over the period of lease i.e. 95 years. ii. Power line: Expenditure on power line is amortized on a straight-line basis over a period of six years.
Financial Statements Standalone 93 2.1 Summary of significant accounting policies (Contd.): c) Depreciation on tangible assets (Contd.): iii. Other fixed assets: Depreciation on fixed assets is calculated on a straight-line (SLM) basis and written down value (WDV) basis using the rates arrived at based on the useful lives estimated by the management. The identified components are depreciated over their useful lives; the remaining asset is depreciated over the life of the principal asset. The Company has used the following rates to provide depreciation on its fixed assets: Type of assets Method Schedule II life (years) Useful lives estimated by the management (years) Building - Factory SLM 30 30 3.34% Buildings Others (including roads) SLM 5 to 60 5 to 60 1.63%, 19% Plant and machinery SLM 15 10 to 21 4.75%, 7.13%, 9.50% Plant and machinery - Windmill SLM 25 19 5.28% Others (Computers) WDV 3 3 63.16% Office equipment WDV 5 5 45.07% Railway sidings SLM 15 10 10.34% Electrical installation SLM 10 10 9.50% Factory equipments WDV 10 10 9.50% Furniture and fixtures WDV 10 10 9.50% Vehicles WDV 8 8 11.88% Aircraft SLM 20 6 to 18 5.67%, 15.83% The management has estimated, supported by independent assessment by professionals, the useful lives of the following classes of assets. The useful lives of certain plant and machinery are estimated as 21 years. These lives are higher than those indicated in Schedule II. Certain plant and machinery, railway sidings and aircrafts are depreciated over the estimated useful lives of 10/19 years, 10 years and 18 years, respectively, which are lower than those indicated in Schedule II. Depreciation on account of increase/decrease due to revaluation of foreign currency loan is been provided at rates of depreciation over the remaining useful life of said assets. d) Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Intangible assets are amortized on a straight line basis over the estimated useful economic life. The Company uses a rebuttable presumption that the useful life of an intangible asset will not exceed ten years from the date when the asset is available for use. If the persuasive evidence exists to the affect that useful life of an intangible asset exceeds ten years, the Company amortizes the intangible asset over the best estimate of its useful life. Such intangible assets and intangible assets not yet available for use are tested for impairment annually, either individually or at the cash-generating unit level. All other intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method are reviewed at least at each financial year end. If the expected useful life of the asset is significantly different from previous estimates, the amortization period is changed accordingly. If there has been a significant change in the expected pattern of economic benefits from the asset, the amortization method is changed to reflect the changed pattern. Such changes are accounted for in accordance with AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized. The summary of amortization policy applied to the Company s intangible assets is as below: Type of asset Useful Life (years) Rate Computer software 3 33% Rates Annual Report 2015-16
Financial Statements Standalone 94 for the year ended March 31, 2016 (Contd.): 2.1 Summary of significant accounting policies (Contd.): d) Intangible assets (Contd.): Research and development expenditure Research expenditure are expensed under the natural heads of account in the year in which it is incurred. Development expenditure incurred on an individual project is recognized as an intangible asset when the Company can demonstrate all the following: The technical feasibility of completing the intangible asset so that it will be available for use or sale Its intention to complete the asset Its ability to use or sell the asset How the asset will generate future economic benefits The availability of adequate resources to complete the development and to use or sell the asset The ability to measure reliably the expenditure attributable to the intangible asset during development. Following the initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized on a straight line basis over the period of expected future benefit from the related project, i.e., the estimated useful life of ten years. Amortization is recognized in the statement of profit and loss. During the period of development, the asset is tested for impairment annually. Tangible fixed assets purchased for research and development are accounted for in the manner stated in Note 2.1 (b) above. e) Inventories Cost of inventories have been computed to include all cost of purchases, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. Raw materials and components, stores and spares and loose tools are valued at lower of cost and net realizable value. However, materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. Costs are determined on weighted average basis. Work-in-progress and finished goods are valued at the lower of cost and net realisable value. Cost includes direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Cost of finished goods includes excise duty. Cost of work-in-progress and finished goods are determined on a weighted average basis. Scrap is valued at net realizable value. Dies are amortized over their productive life. Expenditure incurred to repair the dies from time to time is charged to statement of profit and loss. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. f) Foreign currency translation Foreign currency transactions and balances i. Initial recognition Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. ii. Conversion Foreign currency monetary items are retranslated using the exchange rate prevailing at the reporting date. Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction.
Financial Statements Standalone 95 2.1 Summary of significant accounting policies (Contd.): f) Foreign currency translation (Contd.): iii. Exchange differences g) Investments The Company accounts for exchange differences arising on translation/settlement of foreign currency monetary items as below: a) Exchange differences arising on long-term foreign currency monetary items related to acquisition of a fixed asset are capitalized and depreciated over the remaining useful life of the asset. b) Exchange differences arising on other long-term foreign currency monetary items are accumulated in the Foreign Currency Monetary Item Translation Difference Account and amortized over the remaining life of the concerned monetary item. c) All other exchange differences are recognized as income or as expenses in the period in which they arise. For the purpose of (a) and (b) above, the Company treats a foreign monetary item as long-term foreign currency monetary item, if it has a term of 12 months or more at the date of its origination. In accordance with MCA circular dated August 9, 2012, exchange differences for this purpose, are total differences arising on long-term foreign currency monetary items for the period. In other words, the Company does not differentiate between exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost and other exchange difference. Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as long-term investments. On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties. If an investment is acquired, or partly acquired, by the issue of shares or other securities, the acquisition cost is the fair value of the securities issued. If an investment is acquired in exchange for another asset, the acquisition is determined by reference to the fair value of the asset given up or by reference to the fair value of the investment acquired, whichever is more clearly evident. Current investments are carried in the financial statement at lower of cost of acquisition and fair value determined on an individual investment basis. Long-term investments are carried at cost. However provision for diminution in value of investments is made to recognize a decline other than temporary in the value of investment. On disposal of an investment, the difference between its carrying amount and net disposal proceeds is charged or credited to the statement of profit and loss. h) Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: i. Sale of products a) Revenue from domestic sales are recognized when all the significant risks and rewards of ownership of the goods have been passed to the buyer, usually on dispatch from the point of sale, consequent to property in goods being transferred. The Company collects sales taxes and value added taxes (VAT) on behalf of the government and, therefore, these are not economic benefits flowing to the Company. Hence, they are excluded from revenue. Excise duty deducted from revenue (gross) is the amount that is included in the revenue (gross) and not the entire amount of liability arising during the year. b) Revenue from export sales are recognized when all the significant risks and rewards of ownership of the goods have been passed to the buyer, usually on the basis of dates of bill of lading. Annual Report 2015-16
Financial Statements Standalone 96 for the year ended March 31, 2016 (Contd.): 2.1 Summary of significant accounting policies (Contd.): h) Revenue recognition (Contd.): ii. Export incentives Revenue from export incentives are accounted for on export of goods if the entitlements can be estimated with reasonable assurance and conditions precedent to claim is fulfilled. iii. Sale of services Revenues from sales of services are recognized pro-rata over the period of the contract as and when services are rendered. The Company collects service tax on behalf of the government and, therefore, it is not an economic benefit flowing to the Company. Hence, it is excluded from revenue. iv. Die design and preparation charges Revenues from die design and preparation charges are recognized as per the terms of the contract as and when the significant risks and rewards of ownership of dies are transferred to the buyers. The Company collects excise duty and value added tax (VAT) on behalf of the government and, therefore, it is not an economic benefit flowing to the Company. Hence, it is excluded from revenue. Excise duty deducted from revenue (gross) is the amount that is included in the revenue (gross) and not the entire amount of liability arising during the year. v. Sale of electricity Windmill Revenue from sales of electricity is recognized when all the significant risks and rewards of ownership have been passed to the buyer, usually on transmission of electricity based on the data provided by the electricity department. vi. Interest income Interest income is recognized on a time proportion basis taking into account the amount outstanding and the applicable interest rate. vii. Dividend income Dividend income is recognized when the Company s right to receive is established by the reporting date. viii. Profit / loss on sale of investment Profit/loss on sale of investment is recognized when all the significant risks and rewards of ownership in investment is transferred. ix. Certified emission reduction units / renewal energy certificates Revenue from certified emission reduction units / renewal energy certificates is recognized when there is reasonable assurance that the entity will comply with the conditions attached to it and the grants will be received. At a minimum, these conditions will only be met when the actual emission reductions have been realized and the entity has reasonable assurance these reductions will be confirmed during the verification and certification process by the respective independent authority. i) Retirement and other employee benefits i. Provident fund The Company operates two plans for its employees to provide employee benefit in the nature of provident fund. Eligible employees receive benefits from a provident fund, which is a defined benefit plan. Both the employee and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee s salary. The Company contributes a part of the contributions to the Bharat Forge Company Limited Staff Provident Fund Trust. The rate at which the annual interest is payable to the beneficiaries by the trust is being administered by the government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate. The guidance note on implementing AS-15 (revised 2005) Employee Benefits, states that benefits involving employer established provident funds, which requires interest shortfalls to be provided, are to be considered as defined benefit plans.
Financial Statements Standalone 97 2.1 Summary of significant accounting policies (Contd.): i) Retirement and other employee benefits (Contd.): i. Provident fund (Contd.): Actuarial valuation of this provident fund interest shortfall has been done as per the guidance note issued in this respect by the Institute of Actuaries of India. Separate actuarial valuation is carried out using the Black Scholes Option Pricing Model. The employee which are not covered under the above scheme, their portion of provident fund is contributed to the government administered pension fund which is a defined contribution scheme. The Company has no obligation, other than the contribution payable to the provident fund. The Company recognizes contribution payable to the provident fund scheme as expenditure, when an employee renders the related service. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognized as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the balance sheet date, then excess is recognized as an asset to the extent that the pre payment will lead to, for example, a reduction in future payment or a cash refund. ii. Gratuity The Company operates two defined benefits plan for its employees viz. gratuity and special gratuity scheme. Payment for present liability of future payment of gratuity is being made to approved gratuity funds. The special gratuity scheme is unfunded. The cost of providing benefits under these plans is determined on the basis of actuarial valuation at each year end. Separate actuarial valuation is carried out for each plan using the project unit credit method. Actuarial gains and losses for both defined benefit plans are recognized in full in the period in which they occur in the statement of profit and loss. iii. Superannuation Retirement benefit in the form of superannuation plan is a defined contribution plan. Defined contributions to Life Insurance Corporation for employees covered under Superannuation scheme are accounted at the rate of 15% of such employees basic salary. The Company recognizes expense toward the contribution paid / payable to the defined contribution plan as and when an employee renders the relevant service. If the contribution already paid exceeds the contribution due for service before the balance sheet date, the Company recognise that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or cash refund. If the contribution already paid is lower than the contribution due for service before the balance sheet date, the Company recognises that difference excess as a liability. The Company has no obligation, other than the contribution payable to the superannuation fund. iv. Privilege leave benefits Accumulated leave, which is expected to be utilized within the next 12 months, is treated as short-term employee benefit. The Company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date. The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefit for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains/losses are immediately taken to the statement of profit and loss and are not deferred. The Company presents the leave as a current liability in the balance sheet, to the extent it does not have an unconditional right to defer its settlement for 12 months after the reporting date. Where the Company has the unconditional legal and contractual right to defer the settlement for a period beyond 12 months, the same is presented as non-current liability. v. Termination benefits The Company recognizes termination benefit as a liability and an expense when the Company has a present obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. j) Borrowing costs Borrowing cost includes interest and amortization of ancillary costs incurred in connection with the arrangement of borrowings. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur. Annual Report 2015-16
Financial Statements Standalone 98 for the year ended March 31, 2016 (Contd.): 2.1 Summary of significant accounting policies (Contd.): k) Income taxes Tax expense comprises current and deferred tax. Current income-tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income-tax Act, 1961 enacted in India and tax laws prevailing in the respective tax jurisdictions where the Company operates. The tax rates and tax laws used to compute the amount are those that are enacted, at the reporting date. Current income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit and loss. Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and reversal of timing differences for the earlier years. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted at the reporting date. Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit and loss. Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the Company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits. In the situations where the Company is entitled to a tax holiday under the Income-tax Act, 1961 enacted in India or tax laws prevailing in the respective tax jurisdictions where it operates, no deferred tax (asset or liability) is recognized in respect of timing differences which reverse during the tax holiday period, to the extent the Company s gross total income is subject to the deduction during the tax holiday period. Deferred tax in respect of timing differences which reverse after the tax holiday period is recognized in the year in which the timing differences originate. However, the Company restricts recognition of deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realized. For recognition of deferred taxes, the timing differences which originate first are considered to reverse first. At each reporting date, the Company re-assesses unrecognized deferred tax assets. It recognizes unrecognized deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realized. The carrying amount of deferred tax assets are reviewed at each reporting date. The Company writes-down the carrying amount of deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred taxes relate to the same taxable entity and the same taxation authority. Minimum alternate tax (MAT) paid in a year is charged to the statement of profit and loss as current tax. The Company recognizes MAT credit available as an asset only to the extent that there is convincing evidence that the Company will pay normal income tax during the specified period, i.e. the period for which MAT credit is allowed to be carried forward. In the year in which the Company recognizes MAT credit as an asset in accordance with the guidance note on Accounting for Credit Available in respect of Minimum Alternative Tax under the Income-tax Act, 1961, the said asset is created by way of credit to the statement of profit and loss and shown as MAT Credit Entitlement. The Company reviews the MAT credit entitlement asset at each reporting date and writes down the asset to the extent the Company does not have convincing evidence that it will pay normal tax during the specified period. l) Provisions A provision is recognized when the Company has a present obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of profit and loss net of any reimbursement.
Financial Statements Standalone 99 2.1 Summary of significant accounting policies (Contd.): m) Impairment of tangible and intangible assets The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or cash-generating unit s (CGU) net selling price and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining net selling price, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. The Company bases its impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of the Company s CGU to which the individual assets are allocated. These budgets and forecast calculations are generally covering a period of five years. For longer periods, a long term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses including impairment on inventories, are recognized in the statement of profit and loss, except for previously revalued tangible fixed assets, where the revaluation was taken to revaluation reserve. In this case, the impairment is also recognized in the revaluation reserve up to the amount of any previous revaluation. After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life. An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset s or cash-generating unit s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit and loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase. n) Leases Where the Company is the lessee Leases, where the lessor 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. Where the Company is the lessor Leases in which the Company does not transfer substantially all the risks and benefits of ownership of the asset, are classified as operating leases. Assets subject to operating leases are included in fixed assets. Lease income on an operating lease is recognized in the statement of profit and loss on a straight-line basis over the lease term. Costs, including depreciation, are recognized as an expense in the statement of profit and loss. Initial direct costs such as legal costs, brokerage costs, etc. are recognized immediately in the statement of profit and loss. o) Government grants and subsidies Grants and subsidies from the government are recognized when there is reasonable assurance that (i) the Company will comply with the conditions attached to them, and (ii) the grant/subsidy will be received. When the grant or subsidy relates to revenue, it is recognized as income on a systematic basis in the statement of profit and loss over the periods necessary to match them with the related costs, which they are intended to compensate. Where the grant relates to an asset, it is recognized as deferred income and is released to statement of profit and loss over the periods and in the proportions in which depreciation on those assets is charged. Where the Company receives non-monetary grants, the asset is accounted for on the basis of its acquisition cost. In case a nonmonetary asset is given free of cost, it is recognized at a nominal value. Government grants of the nature of promoters contribution are credited to capital reserve and treated as a part of the shareholders funds. Annual Report 2015-16
Financial Statements Standalone 100 for the year ended March 31, 2016 (Contd.): 2.1 Summary of significant accounting policies (Contd.): p) Earnings per share Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they are entitled to participate in dividends relative to a fully paid equity share during the reporting period. The weighted average number of equity shares outstanding during the period is adjusted for events such as bonus issue, bonus element in a rights issue, share split, and reverse share split (consolidation of shares) that have changed the number of equity shares outstanding, without a corresponding change in resources. For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares. q) Contingent liabilities A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the financial statements. r) Cash and cash equivalents Cash and cash equivalents for the purposes of cash flow statement comprise cash at bank and in hand and short-term investments with an original maturity of three months or less. s) Derivative instruments and hedge accounting The Company uses derivative financial instruments, such as, foreign currency forward contracts to hedge foreign currency risk arising from future transactions in respect of which firm commitments are made or which are highly probable forecast transactions. The Company designates these forward contracts in a hedging relationship by applying the hedge accounting principles of AS 30 Financial Instruments: Recognition and Measurement. For the purpose of hedge accounting, hedges are classified as: i. Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment; ii. Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Company will assess the effectiveness of changes in the hedging instrument s fair value in offsetting the exposure to changes in the hedged item s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedges that meet the strict criteria for hedge accounting are accounted for as described below: Fair value hedges The change in the fair value of a hedging derivative is recognized in the statement of profit and loss. The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in the statement of profit and loss. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the statement of profit and loss.
Financial Statements Standalone 101 2.1 Summary of significant accounting policies (Contd.): s) Derivative instruments and hedge accounting (Contd.): NOTE 3. Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognized directly under shareholders fund in the hedging reserve, while any ineffective portion is recognized immediately in the statement of profit and loss. The Company uses foreign currency forward contracts as hedges of its exposure to foreign currency risk in forecasted transactions and firm commitments. The ineffective portion relating to foreign currency contracts is recognized immediately in the statement of profit and loss. Amounts recognized in the hedging reserve are transferred to the statement of profit and loss when the hedged transaction affects profit or loss, such as when the hedged income or expense is recognized or when a forecast sale occurs. If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognized in the hedging reserve is transferred to the statement of profit and loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognized in the hedging reserve remains in the hedging reserve until the forecast transaction or firm commitment affects profit or loss. SHARE CAPITAL March 31, 2016 March 31, 2015 Authorised shares (No.) 300,000,000 (March 31, 2015: 300,000,000) equity shares of ` 2/- each 600.00 600.00 43,000,000 (March 31, 2015: 43,000,000) cumulative non convertible preference 430.00 430.00 shares of ` 10/- each 2,000,000 (March 31, 2015: 2,000,000) unclassified shares of ` 10/- each 20.00 20.00 Issued (No.) 232,970,666 (March 31, 2015: 232,970,666) equity shares of ` 2/- each 465.94 465.94 Subscribed and fully paid-up (No.) 232,794,316 (March 31, 2015: 232,794,316) equity shares of ` 2/- each 465.59 465.59 Add: 172,840 (March 31, 2015: 172,840) forfeited equity shares comprising of 15,010 0.09 0.09 equity shares (March 31, 2015: 15,010) of ` 2/- each (amount partly paid ` 1/- each) and157,830 equity shares (March 31, 2015: 157,830) of ` 2/- each (amount partly paid ` 0.50/- each) [Also refer note 3(f)] Total issued, subscribed and fully paid-up share capital 465.68 465.68 (a) Reconciliation of the shares outstanding at the beginning and at the end of the reporting period Equity shares March 31, 2016 March 31, 2015 No. No. At the beginning of the year 232,794,316 465.59 232,794,316 465.59 Issued during the year - - - - Outstanding at the end of the year 232,794,316 465.59 232,794,316 465.59 (b) Terms/rights attached to equity shares The Company has only one class of issued equity shares having a par value of ` 2/- per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. During the year ended March 31, 2016, the amount of per share interim dividend recognised as distributions to equity shareholders was ` 7.00 (March 31, 2015: ` 3.00). During the year ended March 31, 2016, the amount of per share proposed final dividend recognised as distributions to equity shareholders is ` 0.50 (March 31, 2015: ` 4.50). In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders. (c) Shares held by holding/ultimate holding company and/or their subsidiaries/associates The Company being ultimate holding company, there are no shares held by any other holding, ultimate holding company and their subsidiaries/associates. Annual Report 2015-16
Financial Statements Standalone 102 for the year ended March 31, 2016 (Contd.): NOTE 3. SHARE CAPITAL (Contd.): (d) Aggregate number of bonus shares issued, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date There are no bonus shares issued, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date. (e) Details of shareholders holding more than 5% shares in the Company (f) Name of Shareholder * March 31, 2016 March 31, 2015 No. % of Holding No. % of Holding Equity shares of ` 2/- each fully paid Kalyani Investment Company Limited 31,656,095 13.60 31,656,095 13.60 Sundaram Trading and Investment Private Limited 29,907,087 12.85 29,907,087 12.85 KSL Holdings Private Limited 23,142,870 9.94 23,142,870 9.94 Life Insurance Corporation of India 16,394,383 7.04 4,862,620 2.09 * The shareholding information is based on legal ownership of shares and has been extracted from the records of the Company including register of shareholders/members. Shares reserved for issue under options 2,340 (March 31, 2015: 2,340) equity shares of ` 2/- each out of the previous issue of equity shares on a right basis together with 234 (March 31, 2015: 234) detachable warrants entitled to subscription of 1,170 (March 31, 2015: 1,170) equity shares of ` 2/- each, have been kept in abeyance and reserve for issue pending adjudication of title to the pre right holding. March 31, 2016 No. March 31, 2015 No. 3,510 3,510 (g) Global depository receipts The Company had issued 3,636,500 equity shares of ` 10/- each (later sub-divided into 18,182,500 equity shares of ` 2/- each) in April and May 2005 represented by 3,636,500 Global Depository Receipts (GDR) (on sub division 18,182,500 GDRs) evidencing Master GDR Certificates at a price of USD 27.50 per GDR (including premium). GDRs outstanding at the close of the year are 9,200 (March 31, 2015: 9,200). The funds raised had been utilized towards the object of the issue. NOTE 4. RESERVES AND SURPLUS March 31, 2016 March 31, 2015 Capital reserves Special capital incentive (Under the 1988 Package Scheme of Incentives) Balance as per the last financial statements 2.50 2.50 Closing balance 2.50 2.50 Warrants subscription money [Refer note 4(a)] Balance as per the last financial statements 13.00 13.00 Closing balance 13.00 13.00 Closing balance 15.50 15.50 Capital redemption reserve Balance as per the last financial statements 300.00 300.00 Closing balance 300.00 300.00 Securities premium account Balance as per the last financial statements 7,096.48 7,096.48 Closing balance 7,096.48 7,096.48 Debenture redemption reserve [Refer note 4(b)] Balance as per the last financial statements 1,065.00 1,852.71 Add: Amount transferred from surplus in the statement of profit and loss - 87.29 Less: Amount transferred to surplus in the statement of profit and loss - (875.00) Closing balance 1,065.00 1,065.00 carried over 8,476.98 8,476.98
Financial Statements Standalone 103 NOTE 4. RESERVES AND SURPLUS (Contd.): March 31, 2016 March 31, 2015 brought over 8,476.98 8,476.98 Foreign Currency Monetary Item Translation Difference Account (FCMITDA) [Refer note 38] Balance as per the last financial statements (661.05) (671.47) Add: Arising during the year (441.06) (243.96) Less: Adjusted during the year 402.85 254.38 Closing balance (699.26) (661.05) Hedge reserve [Refer note 2.1(s)] Balance as per the last financial statements 5,117.34 1,785.97 Add: Arising during the year (151.27) 3,716.20 Less: Adjusted during the year (3,271.95) (384.83) Closing balance 1,694.12 5,117.34 General reserve Balance as per the last financial statements 2,958.78 2,648.90 Add: Amount transferred from surplus balance in the statement of profit and loss 100.00 719.00 Less: Adjusted during the year [Refer note 4(c)] - (409.12) Closing balance 3,058.78 2,958.78 Surplus in the statement of profit and loss Balance as per the last financial statements 18,599.01 13,439.31 Add: - Net profit for the year 7,010.62 7,189.84 - Transfer from debenture redemption reserve [Refer Note 4(b)(ii)] - 875.00 7,010.62 8,064.84 Less: Appropriations - Transfer to debenture redemption reserve - (87.29) - Transfer to general reserve (100.00) (719.00) - Interim equity dividend (1,629.56) (698.38) - Tax on interim equity dividend (331.74) (139.64) - Proposed final equity dividend (116.40) (1,047.57) - Tax on proposed final equity dividend (23.70) (213.26) (2,201.40) (2,905.14) Closing balance 23,408.23 18,599.01 35,938.85 34,491.06 (a) Capital reserves The Company had issued and allotted to Qualified Institutional Buyers, 10,000,000 equity shares of ` 2/- each at a price of ` 272/- per share aggregating to ` 2,720 million on April 28, 2010, simultaneous with the issue of 1,760, 10.75% Non Convertible Debentures (NCD) of a face value of ` 1,000,000/- at par, together with 6,500,000 warrants at a price of ` 2/- each entitling the holder of each warrant to subscribe for 1 equity share of ` 2/- each at a price of ` 272/- at any time within 3 years from the date of allotment. Following completion of three years term, the subscription money received on issue of warrants was credited to capital reserve as the same is not refundable/adjustable. Further the warrants had lapsed and ceased to be valid from April 28, 2013. (b) Debenture redemption reserve (i) Debenture redemption reserve has been created in accordance with circular No. 9/2002 dated April 18, 2002 issued by the Department of Company Affairs, Ministry of Law, Justice and Company Affairs, Government of India and Section 117(C) of the Companies Act, 1956 at 25% of the maturity amount equally over the terms of the debentures privately placed. Pursuant to MCA circular No. 04/2013 dated February 11, 2013, the Company had created reserve as per the erstwhile Companies Act, 1956. (ii) During the previous year, the Company had redeemed 3,500-10.75% Redeemable secured non-convertible debentures (Seventeenth series) of ` 1,000,000/- each in full. The Debenture redemption reserve created with respect to this series has been transferred to surplus in the statement of profit and loss after redemption in full of the said debentures. (c) General reserve Pursuant to the Companies Act, 2013 ( the Act ), the Company had, during the previous year, revised depreciation rates on certain fixed assets as per the useful life specified in Schedule II of the Act or as re-assessed by the Company. Due to this, based on transitional provision as per Note 7(b) of the Schedule II, an amount of ` 354.75 million (net of deferred tax of ` 182.67 million) had been adjusted to general reserves in previous year. The adjustment to reserve include ` 54.37 million in relation to deferred tax adjustment of earlier years. Annual Report 2015-16