Summary of Material Accounting Policies followed
by the Company
1.1 System of Accounting
(i) The Company follows the mercantile system of
accounting and recognises income and expenditure
on an accrual basis except in case of significant
uncertainties. This note provides a list of the material
accounting policies adopted in the preparation of
these financial statements. These policies have been
consistently applied to all the years presented, unless
otherwise stated.
Use of Estimates, Judgement & Assumptions
(ii) Estimates, judgements and assumptions used
in the preparation of these financial statements
and disclosures made therein are based upon
Management's evaluation of the relevant facts
and circumstances as of the date of the financial
statements, which may differ from the actual results at
a subsequent date. The following are items which are
more likely to be materially adjusted due to estimates
and assumptions turning out to be different than
those originally assessed. Detailed information about
each of these estimates and judgments is included
in relevant notes together with information about
basis of calculation for each affected line item in the
financial statement.
(a) Provision for warranty claims
(b) Valuation of employee benefits
(c) Provision for tax expenses
(d) Provision for expected credit loss
(e) Provision for after sales activities
Estimates and judgments are regularly revisited.
Estimates are based on historical experience and other
factors, including futuristic reasonable information
that may have a financial impact on the company.
1.2 Revenue Recognition
(A) Sales
(i) Revenue is measured at the fair value of the
consideration received or receivable. Amounts
disclosed as revenue is presented exclusive of
Goods & Services tax. Post the applicability
of GST with effect from 1st July 2017, Sales
are required to be disclosed net of GST. The
Company recognises revenue when the
amount of revenue can be reliably measured
and it is probable that future economic
benefits will flow to the Company.
(ii) As per contract with the customers/dealers,
terms of sales is ex-factory. Hence, Company's
performance obligation gets complete on
vehicles being ready for dispatch. Sales is
recognised as and when performance obligation
of the company gets completed.
(iii) Export sales are recognised on completion
/ significant completion of performance
obligation of the company as per the terms of the
contract with customer.
(iv) Sale of Products:
The Company earns revenue primarily from sale
of automotive vehicles, parts and accessories.
Payment for the sale is made as per the credit terms in
the agreements with the customers. The credit period
is generally short term, thus there is no significant
financing component.
The Company's contracts with customers do not
provide for any right to returns, refunds or similar
obligations. The nature of contracts of the Company
are such that no material part performance
obligations would remain unfulfilled at the end of any
accounting period
The Company provides warranties for general repairs
of defects as per terms of the contract with ultimate
customers. These warranties are considered as
assurance type warranties and are accounted for
under Ind AS 37- Provisions, Contingent Liabilities and
Contingent Assets Refer Note 35.
Revenue is recognised when the performance
obligations are satisfied and the control of the product
is transferred, being when the goods are delivered as
per the relevant terms of the contract at which point
in time the Company has a right to payment for the
goods, customer has possession and legal title to the
asset, customer bears significant risk and rewards of
ownership and the customer has accepted the asset
or the Company has objective evidence that all criteria
for acceptance have been satisfied.
The Company, on behalf of its customers (dealers and
distributors), dispatch the goods to agreed locations for
an agreed fee. The Company has determined that the
performance obligation of the Company is to arrange
for those goods and services (Company is an agent)
to the dealers and hence the amount charged to the
customer offset by freight charges paid to the freight
service providers is shown as revenue and disclosed as
other operating income or other operating expenses,
depending upon the results of the offsetting.
(B) Export Incentives
Export incentives are accounted for on export of
goods if the entitlements can be estimated with
reasonable accuracy and conditions precedent to
claim are reasonably expected to be fulfilled.
(C) Other Income
The Company recognises income (including rent
etc.) on accrual basis. However, where the ultimate
collection of the same lacks reasonable certainty,
revenue recognition is postponed to the extent
of uncertainty.
1.3 Property, Plant and Equipment and Depreciation
(i) Capital work in process, Property, plant and
equipment except land are carried at historical cost
of acquisition, construction or manufacturing cost,
as the case may be, less accumulated depreciation
and impairment thereon if any. Freehold land is
carried at cost of acquisition. Cost represents all
expenses directly attributable to bringing the asset
to its working condition capable of operating in the
manner intended.
(ii) Costs incurred to manufacture property, plant and
equipment and intangible are charged to particular
property plant & equipment. Subsequent costs are
included in the asset's carrying amount or recognised
as a separate asset, as appropriate, only when it is
probable that future economic benefits associated
with the item will flow to the Company and the cost of
the item can be measured reliably.
(iii) Land and buildings acquired/constructed, not
intended to be used in the operations of the Company
and held for earning long-term rental yields or for
capital appreciation or both, and that is not occupied by
the Company, are categorised as investment property.
(iv) Other expenses incurred relating to project, net of
income earned during the project development
stage prior to its intended use, are considered as
pre-operative expenses and disclosed under Capital
Work-in-Progress.
(v) Assets in the course of construction are capitalised
in the assets under construction account. At the
point when an asset is operating at Management's
intended use, the cost of construction is transferred
to the appropriate category of property, plant and
equipment and depreciation commences. Costs
associated with the commissioning of an asset are
capitalised where the asset is available for use.
1.3.1 Depreciation and Amortisation Methods, Estimated
Useful Lives and Residual Value
On Tangible Assets
(a) Depreciation is calculated on a pro rata basis on the
straight line method to allocate the cost, over the
estimated useful lives of the assets.
(b) Useful life of assets are determined by the Management
by internal technical assessments and such useful life
is in conformity with Schedule - II of companies act.
Depreciation on additions is being provided on pro
rata basis from the month of such additions.
(c) Depreciation on assets sold, discarded or demolished
during the year is being provided up to the month in
which such assets are sold, discarded or demolished.
The property taken under operating lease is
depreciated over the lease term if there is no
reasonable certainty that the Company will obtain
ownership at the end of the lease term.
1.3.2 Impairment of Assets
Assets are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount
may not be recoverable. An impairment loss is recognised for
the amount by which the asset's carrying amount exceeds
its recoverable amount. The recoverable amount is the
higher of an asset's fair value less cost of disposal and value
in use. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately
identifiable cash inflows which are largely independent of
the cash inflows from other assets or groups of assets (cash
generating units).
1.4 Intangible Assets
(a) Product Development Cost
Product Development Cost incurred on new vehicles
platforms, variants on existing platforms and new
vehicles aggregates are recognized as intangible assets
and are included under Property Plant and Equipment.
These amounts are amortized over sixty months from
the commencement of commercial production.
(b) SAP Implementation Charges
Expenses incurred for implementation of SAP are
recognized as intangible assets and are included
under Property Plant and Equipment. The
amounts are amortized over sixty months from the
implementation of SAP.
1.5 Investment Property
Property that is held for long-term rental yields or for
capital appreciation or both, and that is not occupied by the
Company, is classified as investment property. Investment
property is measured initially at its cost, including related
transaction costs. Subsequent expenditure is capitalised to
the asset's carrying amount only when it is probable that
future economic benefits associated with the expenditure
will flow to the Company and the cost of the item can be
measured reliably. All other repairs and maintenance costs
are expensed when incurred.
Depreciation on investment property is provided on a pro
rata basis on straight line method over the estimated useful
lives. Useful life of assets, as assessed by the Management,
corresponds to those prescribed in Part 'C' Schedule II
of companies act.
1.6 Investments , Financial Assets and Financial Liability
(a) Investment in Subsidiary
Interest in Subsidiary is recognised at cost and not
adjusted to fair value at the end of each reporting
period. Cost represents amount paid for acquisition of
the said investments. The Company assesses at the end
of each reporting period, if there are any indications
that the said investments may be impaired. If so, the
Company estimates the recoverable value/amount of
the investment and provides for impairment, if any i.e.
the deficit in the recoverable value over cost.
(b) Other Investments and Financial Assets
(i) Classification
The Company classifies its financial assets in the
following measurement categories:
• Those to be measured subsequently at fair
value (either through other comprehensive
income, or through profit or loss), and those
measured at amortised cost.
• The classification is done depending
upon the Company's business model for
managing the financial assets and the
contractual terms of the cash flows. For
assets measured at fair value, gains and
losses will be recorded in profit or loss.
(ii) Measurement
At initial recognition, the Company measures a
financial asset at its fair value.
Fair value through Profit or Loss: Assets that
do not meet the criteria for amortised cost, are
measured at fair value through profit or loss e.g.
investments in mutual funds.
(iii) Impairment of Financial Assets
The Company assesses on a forward looking basis
the expected credit losses associated with its
assets carried at amortised cost. The impairment
methodology applied depends on whether there
has been a significant increase in credit risk and if
so, assess the need to provide for the same in the
Statement of Profit and Loss.
(iv) Derecognition of Financial Assets
A financial asset is derecognised only when
Company has transferred the rights to receive
cash flows from the financial asset. Where the
entity has transferred an asset, the Company
evaluates whether it has transferred substantially
all risks and rewards of ownership of the
financial asset. In such cases, the financial asset
is derecognised.
(v) Income Recognition
Dividend
Company recognises dividend in the statement
of Profit & Loss only when the right to receive
payment is established, it is probable that the
economic benefits associated with the dividend
will flow to the company and the amount of the
dividend can be measured reliably.
Interest Income
• Interest income from fixed deposits and
overdue amount receivable from dealers
are recognised using the effective interest
rate method. The effective interest rate is
the rate that exactly discounts estimated
future cash receipts through the expected
life of the financial asset to the gross
carrying amount of a financial asset. When
calculating the effective interest rate, the
Company estimates the expected cash
flows by considering all the contractual
terms of the financial instrument but does
not consider the expected credit losses.
• Interest on Inter Corporate Deposit
is recognised as per agreement with
respective Group Companies.
Corporate Guarantee Fees
Corporate Guarantee Fees are recorded as per
terms of contract.
(c) Financial Liability
(i) Classification as Debt or Equity
Debt and Equity instruments issued by the
Company are classified either as financial
liabilities or as equity in accordance with the
substance of the contractual arrangements
and the definition of a financial liability and an
equity instrument.
An equity instrument is any contract that
evidences a residual interest in the assets of an
entity after deducting all of its liabilities.
(ii) Initial Recognition and Measurement
All financial liabilities are recognised initially at
fair value and, in the case of loans and borrowings
and payables, net of directly attributable
transaction costs. The Company's financial
liabilities include trade and other payables.
(iii) Subsequent Measurement
The measurement of financial liabilities depends
on their classification, as described below:
Trade and Other Payable
These amounts represent obligations to pay for
goods or services that have been acquired in
the ordinary course of business from suppliers.
These payable are classified as current liabilities
if payment is due within one year or less
otherwise they are presented as non-current
liabilities. Trade and payables are subsequently
measured at amortised cost using the effective
interest rate method.
Derecognition
Liability is removed from the balance sheet
when the obligation specified in the contract is
discharged, cancelled or expired. The difference
between the carrying amount of a financial
liability that has been extinguished or transferred
to another party and the consideration paid,
including any non-cash assets transferred or
liabilities assumed, is recognised in profit or loss
as other gains/ (losses).
When an existing financial liability is replaced by
another from the same lender on substantially
different terms, or the terms of an existing liability
are substantially modified, such an exchange
or modification is treated as the derecognition
of the original liability and the recognition of a
new liability. The difference in the respective
carrying amounts is recognised in the statement
of profit or loss.
Liability is classified as current liabilities unless
the Company has an unconditional right to
defer settlement of the liability for at least
12 months after the reporting period. Where
there is a breach of a material provision of a
long-term loan arrangement on or before the
end of the reporting period with the effect
that the liability becomes payable on demand
on the reporting date, the entity does not
classify the liability as current, if the lender
agreed, after the reporting period and before
the approval of the financial statements
for issue, not to demand payment as a
consequence of the breach.
1.7 Foreign Currency Transactions
(i) Items included in the financial statements are
measured using the currency of the primary economic
environment in which the Company operates ('the
functional currency'). The financial statements are
presented in Indian rupee (?), which is Company's
functional and presentation currency.
(ii) On initial recognition, all foreign currency transactions
are recorded at foreign exchange rate on the date
of transaction.
(iii) Monetary items of current assets and liabilities in
foreign currency outstanding at the close of financial
year are revalued at the appropriate exchange rates
prevailing at the close of the year.
(iv) The gain or loss on decrease/increase in reporting
currency due to fluctuations in foreign exchange
rates, in case of monetary current assets and liabilities
in foreign currency, are recognised in the Statement of
Profit and Loss.
1.8 Inventories
Cost of inventories have been computed to include all costs
of purchases (including materials), cost of conversion and
other costs incurred, as the case may be, in bringing the
inventories to their present location and condition.
(i) Finished stocks of vehicles are valued at cost
of manufacturing or net realisable value
whichever is lower.
(ii) Raw materials, Stores, Packing Materials, Tools and
Components are valued at cost arrived at on moving
average basis or net realisable value, whichever is
lower, as circumstances demand. However, obsolete
and slow moving items are valued at cost or estimated
realisable value whichever is lower.
(iii) Goods in transit are stated at actual cost incurred up to
the date of Balance Sheet.
Net realisable value is the estimated selling price in
the ordinary course of business, less estimated costs
of completion and the estimated costs necessary
to make the sale.
1.9 Research & Development Expenditure
Research & Development expenditure is charged to revenue
under the natural heads of account in the year in which it
is incurred. Expenditure on development which does not
meet the criteria for recognition as an intangible asset is
recognized as an expense when it is incurred.
1.10 Taxation
Provision for tax is made for the current accounting
period (reporting period) on the basis of the taxable
profits computed in accordance with the Income-tax
Act, 1961 and the Income Computation and Disclosure
Standards prescribed therein. The tax rates and tax laws
used to compute the amount are those that are enacted or
substantively enacted, at the reporting date.
Deferred taxes are recognised for all deductible temporary
differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those
temporary differences.
Current and Deferred Tax is recognised in profit or loss,
except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. In this
case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
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