|1. Corporate information
ABB India Limited ('the Company') has served utility and industry
customers for over six decades with the complete range of engineering,
products, solutions and services in areas of Automation and Power
technology. The Company has extensive installed base for manufacturing
and a countrywide marketing and service presence. Besides catering to
Indian domestic market, the Company is also playing an increasing role
in the global market.
2.1 Basis of preparation of financial statements
The financial statements of the Company have been prepared in
accordance with the generally accepted accounting principles in India
(Indian GAAP). The Company has prepared these financial statements to
comply in all material respects 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 and under the historical cost
convention except certain derivative financial instruments which have
been measured at fair value.
The accounting policies adopted in the preparation of financial
statements are consistent with those used in the previous year.
2.2 Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent liabilities as at the
date of the financial statements and reported amount of revenues and
expenses during the reporting period. Actual results could differ from
these estimates. Any revision to accounting estimates is recognized
prospectively in current and future periods.
2.3 Change in useful lives of assets
Pursuant to the requirements of Schedule II of the Companies Act, 2013
("the Act"), the management has reassessed and changed, wherever
necessary the useful lives to compute depreciation from January 1,
2015, which is the effective date for application of Schedule II for
the Company. Accordingly, the carrying amount as at January, 1 2015 is
being depreciated over the revised remaining useful life of the assets.
The carrying value of Rs, 8.94 crores (net of deferred tax of Rs, 4.73
crores), in case of assets with nil revised remaining useful life as at
January 1, 2015 is reduced from the retained earnings. Further, had the
Company continued with the previously assessed useful lives, charge for
depreciation for the year would have been lower and the profit for the
year would have been higher by Rs, 37.96 crores.
2.4 Tangible and intangible assets
Fixed assets are stated at the cost of acquisition, less accumulated
depreciation / amortization and accumulated impairment losses, if any.
Cost of fixed assets comprises purchase price, duties, levies and any
directly attributable cost of bringing the asset to its working
condition for the intended use. Own manufactured assets are capitalized
at cost including an appropriate share of overheads. Borrowing costs
related to the acquisition or construction of the qualifying fixed
assets for the period up to the completion of their acquisition or
construction are capitalized, if capitalization criteria are met. Cost
of fixed assets not ready for their intended use before balance sheet
date are disclosed under capital work in progress.
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 and cost of replacing parts, are
charged to the statement of profit and loss for the period during which
such expenses are incurred.
Gains or losses arising from de-recognition 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.
Capitalized software includes costs on Enterprise Resource Planning
(ERP) Project and other costs relating to software, which provide
significant future economic benefits. ERP Project costs comprise
license fees and cost of system integration services. All costs
relating to up gradations / enhancements are generally charged off as
revenue expenditure unless they bring significant additional benefits
of lasting nature.
2.5 Depreciation / amortization
Depreciation on assets (except those described below) is provided on
the straight-line method at the rates and in the manner given in
Schedule II of the Companies Act, 2013, which management considers as
being representative of the useful economic lives of such assets.
Depreciation is provided from the date of capitalization till the date
of sale of assets.
The following assets are depreciated / amortized on the straight line
method over a period of their estimated useful lives:
- Leasehold land and leasehold improvements over the period of the
lease. - Technical know-how fees over the period of three to six
years. - Capitalized software costs over a period of five years.
Goodwill on business acquisition is not amortized but tested for
2.6 Impairment of assets
The carrying amounts of assets are reviewed at each balance sheet date
if there is any indication of impairment based on internal / external
factors. An impairment loss is recognized wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the asset's net selling price and value in use. 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 risks
specific to the assets. 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.
Impairment losses, including impairment on inventories, are recognized
in the statement of profit and loss. After impairment, depreciation is
provided on the revised carrying amount of the assets over its
remaining useful life.
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.
Investments that are readily realizable and intended to be held for not
more than a year are classified as current investments. All other
investments are classified as long-term investments. Current
investments are carried at lower of cost and fair value determined on
an individual investment basis. Long-term investments are carried at
cost. However, provision for diminution in value is made to recognize a
decline other than temporary in the value of the investments.
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.
Inventories are stated at the lower of cost and net realizable value.
The cost of various categories of inventories is arrived at as follows:
- Stores, spares, raw materials, components and traded goods - at rates
determined on the moving weighted average method. - Goods in Transit -
at actual cost.
- Work-in-progress and finished goods - at full absorption cost method
which includes direct materials, direct labour and manufacturing
overheads. Cost is determined on weighted average method. Excise duty
is included in the value of finished goods inventory.
Provision for obsolescence is made wherever necessary.
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.
2.9 Retirement and other employee benefits
Contribution to Superannuation Fund, a defined contribution scheme, is
made at pre-determined rates to the Superannuation Fund Trust and is
charged to the statement of profit and loss during the period in which
the employee renders the related services. There are no other
obligations other than the contribution payable to the Superannuation
Contributions to the recognized Provident Fund / Gratuity Fund, defined
benefits scheme, and provision for other long term employee benefits -
leave are made on the basis of actuarial valuations using the projected
unit credit method made at the end of each financial year and are
charged to the statement of profit and loss during the year.
Accumulated leave, which is expected to be utilized within the next 12
months, is treated as short-term employee benefits. 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 presents the entire
accumulated leave as a current liability in the balance sheet, since it
does not have an unconditional right to defer its settlement for 12
months after the reporting date.
Actuarial gains / losses are immediately taken to the statement of
profit and loss and are not deferred.
Expenses incurred towards voluntary retirement scheme are charged to
the statement of profit and loss immediately.
2.10 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
- Sales of products and services are recognized when significant risks
and rewards of ownership of products are passed on to customers or when
the service has been provided. In case of large transformers, revenue
is recognized on achievement of contractual milestone. Revenue
recognized in excess of billing has been reflected under "Other current
assets" as unbilled revenue. Net sales are stated at contractual
realizable values, net of excise duty, sales tax, service tax, value
added tax and trade discounts.
- Revenues from long-term contracts are recognized on the percentage of
completion method, in proportion that the contract costs incurred for
work performed up to the reporting date bear to the estimated total
contract costs. Contract revenue earned in excess of billing has been
reflected under "Other current assets" and billing in excess of
contract revenue has been reflected under "Other current liabilities"
in the balance sheet. Full provision is made for any loss in the year
in which it is first foreseen.
- Liquidated damages / penalties are provided for as per the contract
terms wherever there is a delayed delivery attributable to the Company.
- Commission income is recognized as per contract terms and when
- Income from development services are recognized on rendering of
service as per contract terms.
- Dividend income is recognized when the right to receive dividend is
- Interest income is recognized on a time proportion method.
2.11 Provisions, contingent liabilities and contingent assets
A provision is recognized when the Company has a present obligation as
a result of past event and it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation,
in respect of which a reliable estimate can be made based on technical
evaluation and past experience. Provisions are not discounted to its
present value and are determined based on management estimate required
to settle the obligation at the balance sheet date. These are reviewed
at each balance sheet date and adjusted to reflect the current
Disclosures for contingent liability are made when there is a possible
or present obligation for which it is not probable that there will be
an outflow of resources. When there is a possible or present obligation
in respect of which the likelihood of outflow of resources is remote,
no disclosure is made.
Contingent assets are neither recognized nor disclosed in the financial
2.12 Foreign currency transactions
Foreign currency transactions are recorded by applying the daily
exchange rates. Exchange differences arising on foreign currency
transactions settled during the year are recognized in the statement of
profit and loss for the year.
All foreign currency denominated monetary assets and liabilities are
translated at the exchange rates prevailing on the balance sheet date.
The resultant exchange differences are recognized in the statement of
profit and loss for the year. 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.
Non-monetary items, which are measured at fair value or other similar
valuation denominated in a foreign currency, are translated using the
exchange rate at the date of transaction.
The Company uses derivative financial instruments such as forward
exchange contracts to hedge its risks associated with foreign currency
Gain or loss on restatement of forward exchange contracts for hedging
underlying outstanding at the balance sheet date are recognized in the
statement of profit and loss for the year in which it occurs. The
premium or discount on such contracts is recognized in the statement of
profit and loss over the period of the contract.
Gain or loss on fair valuation of forward exchange contracts for
hedging highly probable forecasted transactions not covered under
Accounting Standard (AS) 11 "The effect of changes in foreign exchange
rates" are recognized in the statement of profit and loss for the year
in which it occurs.
The Company does not follow hedge accounting.
Tax expense comprises current tax and deferred tax.
The current charge for income tax is measured at the amount expected to
be paid to the tax authorities in accordance with the Indian Income Tax
Act including probable adjustments, if any, for international
transactions with associated enterprises.
The deferred tax for timing differences between the book and tax
profits for the year is accounted for using the tax rates and laws that
have been enacted or substantively enacted as of the balance sheet
date. Deferred tax assets arising from timing differences are
recognized to the extent there is reasonable certainty that the assets
can be realized in future. Deferred tax assets are reviewed at each
balance sheet date for its reliability. The Company writes-down the
carrying amount of deferred tax assets to the extent it is no longer
reasonably certain of its realization.
2.14 Operating leases
Leases, where the less or effectively retains substantially all the
risks and benefits of ownership of the leased item, are classified as
operating leases. Operating lease payments are recognized as an expense
in the statement of profit and loss on a straight-line basis over the
2.15 Operating cycle
A portion of the Company's activities (primarily long-term construction
activities) has an operating cycle that exceeds one year. Accordingly,
assets and liabilities related to these long-term contracts, which will
not be realized/paid within one year, have been classified as current.
For all other activities, the operating cycle is twelve months.