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 the date of the shipped
on board signifying transfer of risks and rewards of
ownership to the buyer as per terms of sale and initially
recorded at the relevant exchange rates prevailing on
the date of the transaction.
(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 34.
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 Intangible Assets.
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
Intangible Assets. 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.
|