1. MATERIAL ACCOUNTING POLICIES
A. Basis of Preparation
The financial statements of the Company have been
prepared in accordance with Indian Accounting Standards
(Ind AS) notified under the Companies (Indian Accounting
Standards) Rules, 2015 (as amended from time to time)
and presentation requirements of Division II of Schedule
III to the Companies Act, 2013 (as amended from time to
time), (Ind AS compliant Schedule III), as applicable to the
financial statements.
The financial statements have been prepared on
a historical cost basis, except for certain financial
instruments measured at fair value as explained in
accounting policy of fair value measurement (Note 2(D))
and financial instruments (Note 2 (O)) below.
The accounting policies adopted for preparation and
presentation of financial statement have been consistent
with the previous year. The financial statements are
presented in ' and all values are rounded to the nearest
crores, except when otherwise indicated.
B. Revenue
Revenue from contracts with customers:
Revenue from contracts with customers is recognised
when control of the goods or services are transferred to
the customer at an amount that reflects the consideration
to which the Company expects to be entitled in exchange
for those goods or services i.e. transaction price. The
Company has generally concluded that it is the principal
in its revenue arrangements, as it typically controls
the goods or services before transferring them to the
customer.
Sale of goods
Revenue from sale of goods is recognised at the point
in time when control of the asset is transferred to the
customer, as per terms of arrangement with dealer
which generally coincides with transfer of goods to the
transporters. The normal credit term is 7 to 60 days. In
determining the transaction price for the sale of goods, the
Company considers the effects of variable consideration
such as discounts to customers.
The Company considers whether there are other promises
in the contract that are separate performance obligations
to which a portion of the transaction price needs to be
allocated (e.g., preventive maintenance). The Company
provides preventive maintenance services on its certain
products at the time of sale. These maintenance services
are sold together with the sale of product. Contracts
for such sales of product and preventive maintenance
services comprise two performance obligations because
the promises to transfer the product and to provide the
preventive maintenance services are capable of being
distinct. Accordingly, a portion of the transaction price
is allocated to the preventive maintenance services and
recognised as a contract liability. Revenue is recognised
over the period in which the preventive maintenance
services are provided based on the time elapsed.
Warranty obligation
The Company typically provides warranties for general
repairs of defects that existed at the time of sale. These
assurance-type warranties are accounted for under Ind AS
37 Provisions, Contingent Liabilities and Contingent Assets.
Refer to the accounting policy on warranty provisions in
section N 'Provisions and Contingent Liabilities'.
Revenue from Services
Revenue from services such as post warranty period
services is recognised at the point in time when the
services are rendered. Revenue from maintenance
contracts is recognised over the period of contract on
time elapsed.
In case of retrofit maintenance contracts, revenue is
recognised over the period of time based on input
method where the extent of progress towards completion
is measured based on the ratio of costs incurred to date to
the total estimated costs at completion of performance
obligation.
Revenue from Construction Contracts
Performance obligation in case of long - term construction
contracts is satisfied over a period of time, since the
Company creates an asset that the customer controls as
the asset is created and the Company has an enforceable
right to payment for performance completed to date if
it meets the agreed specifications. Revenue from long
term construction contracts, where the outcome can be
estimated reliably and 20% of the project cost is incurred,
is recognised under the percentage of completion
method by reference to the stage of completion of the
contract activity.
The stage of completion is measured by input method
i.e. the proportion that costs incurred to date bear to
the estimated total costs of a contract. The total costs
of contracts are estimated based on technical and other
estimates. In the event that a loss is anticipated on a
particular contract, provision is made for the estimated
loss. If the consideration in the contracts includes price
variation clause, the Company estimates the amount of
consideration to which it will be entitled in exchange for
work performed as per contractual terms and consider
the same as part of contract price. Contract modifications
are accounted for when addition, deletion or changes are
approved by the customer either to the contract scope or
contract price.
Contract revenue earned in excess of billing is reflected
under "contract asset", billing in excess of contract revenue
and amount received in advance before the related work
is performed are reflected under "contract liabilities".
Retention money receivable from project customers does
not contain any significant financing element and are
retained for satisfactory performance of contract.
In case of long - term construction contracts payment is
generally due upon completion of milestone as per terms
of contract. In certain contracts, short-term advances are
received before the performance obligation is satisfied.
Dividend and Interest Income
Dividend income is recognised when the right to receive
payment is established. Interest income is recognised
using the effective interest method.
C. Contract Balances
Contract Assets
A contract asset is initially recognised for revenue earned
from project business because the receipt of consideration
is conditional on successful completion of the work. Upon
completion ofthe work and acceptance by the customer, the
amount recognised as contract assets is reclassified to trade
receivables once the amounts are billed to the customer as
per the terms of the contract and no other performance
obligation is pending for receipt of consideration billed i.e.
the Company has unconditional rights to consideration.
Contract assets are subject to impairment assessment.
Refer to accounting policies on impairment of financial
assets in section O 'Financial Instruments.
Trade Receivables
A receivable represents the Company's right to an
amount of consideration that is unconditional (i.e., only
the passage of time is required before payment of the
consideration is due). Refer to accounting policies of
financial assets in section O Financial Instruments - initial
recognition, subsequent measurement, derecognition
and impairment of financial assets.
Contract Liabilities
A contract liability is the obligation to transfer goods
or services to a customer for which the Company has
received consideration (or an amount of consideration is
due) from the customer. If a customer pays consideration
before the Company transfers goods or services to the
customer, a contract liability is recognised when the
payment is made, or the payment is due (whichever is
earlier). Contract liabilities are recognised as revenue
when the Company performs under the contract.
D. Fair Value Measurement
Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability
takes place either:
(i) In the principal market for the asset or liability, or
(ii) I n the absence of a principal market, in the most
advantageous market for the asset or liability
The principal or the most advantageous market must be
accessible by the Company.
The fair value of an asset or a liability is measured using
the assumptions that market participants would use
when pricing the asset or liability, assuming that market
participants act in their economic best interest.
A fair value measurement of a non-financial asset takes
into account a market participant's ability to generate
economic benefits by using the asset in its highest and
best use or by selling it to another market participant that
would use the asset in its highest and best use.
The Company uses valuation techniques that are
appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximising the
use of relevant observable inputs and minimising the use
of unobservable inputs. External Valuers are involved for
valuation of assets such as investment properties and
unquoted financial assets.
All assets and liabilities for which fair value is measured
or disclosed in the financial statements are categorised
within the fair value hierarchy, described as follows, based
on the lowest level input that is significant to the fair value
measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active
markets for identical assets or liabilities.
Level 2 - Valuation techniques for which the lowest
level input that is significant to the fair value
measurement is directly or indirectly observable.
Level 3 - Valuation techniques for which the lowest
level input that is significant to the fair value
measurement is unobservable.
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Company determines
whether transfers have occurred between levels in the
hierarchy by re-assessing categorisation (based on the
lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting
period.
E. Employee Benefits
(a) Post-employment Benefits Cost and
Termination Benefits
(i) Defined Contribution Plans
Payments to defined contribution plans are
recognised as an expense when employees
have rendered service entitling them to
the contributions. The Company operates
following defined contribution plans:
Superannuation Fund: 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, when an
employee renders the related service. There
are no other obligations other than the
contribution payable to the Superannuation
Fund Trust.
(ii) Defined Benefit Plans
The Company's liabilities towards gratuity,
pension and post-retirement medical benefit
schemes are determined using the projected
unit credit method, with actuarial valuation
being carried out at the end of each annual
reporting period.
Provident and Pension Fund: The eligible
employees of the Company are entitled to
receive benefits under provident fund schemes
which are in substance, defined benefit plans,
in which both employees and the Company
make monthly contributions at a specified
percentage of the covered employees'
salary (currently 12% of employees' salary).
The contributions are paid to the provident
funds and pension fund set up as irrevocable
trusts by the Company. The Company is
generally liable for annual contributions and
any shortfall in the fund assets based on the
government specified minimum rates of
return is recognised as an expense in the year
incurred.
Gratuity: The Company operates a defined
benefit gratuity plan in India, which requires
contributions to be made to a separately
administered fund set up as irrevocable
trusts by the Company. The Company also
provides similar gratuity benefits to overseas
employees, the gratuity benefits for overseas
employees are unfunded.
Post-retirement medical benefit: The
Company also provides certain additional post
employment healthcare benefits to certain
category of employees. These healthcare
benefits are unfunded.
Re-measurement, comprising actuarial
gains and losses and the return on plan
assets (excluding net interest), is reflected
immediately in the Balance Sheet with a charge
or credit recognised in other comprehensive
income in the period in which they occur.
Re-measurement recognised in other
comprehensive income is reflected
immediately in retained earnings and will not
be reclassified to the statement of profit and
loss.
Past service costs are recognised in the
statement of profit and loss on the earlier of.
• The date of the plan amendment or
curtailment, and
• The date that the Company recognises
related restructuring costs.
Net interest is calculated by applying
the discount rate at the beginning of
the period to the net defined benefit
liability or asset. Defined benefit costs are
categorised as follows:
• Service cost (including current service
cost, past service cost, as well as gains and
losses on curtailments and settlements);
• Net interest expense or income; and
• Remeasurement
The Company presents the first two
components of defined benefit costs in the
statement of profit and loss in the line item
"Employee Benefits Expenses". Curtailment
gains and losses are accounted for as past
service costs.
The defined benefit obligation recognised in
the Balance Sheet represents the actual deficit
or surplus in the Company's defined benefit
plans.
(b) Short term and other long term employee
benefits
Accumulated leave, which is expected to be utilised
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 recognises expected
cost of short-term employee benefit as an expense,
when an employee renders the related service.
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 reporting
date. Remeasurement gains/losses are immediately
taken to the statement of profit and loss and are not
deferred. The obligations are presented as current
liabilities in the balance sheet if the entity does not
have an unconditional right to defer the settlement
for at least twelve months after the reporting date.
The Company also provides long-term employee
benefits in the form of Long-Term Incentive Scheme
('the Scheme'). The Scheme provides benefits in
the form of Incentive to be paid in cash to certain
category of employees upon achievement of
certain performance criteria, whereby employee
renders services as consideration for the incentive
amount while continue to remain in employment
with the Company during the tenor of the Scheme.
The liability towards Long-Term Incentive Scheme
is determined using the Project Unit Cost Method,
with actuarial valuation being carried out at the end
of the reporting period. The cost of the Scheme is
recognised as expense in the statement of profit
and loss over the tenor of the Scheme during which
required performance criteria needs to be fulfilled.
F. Property, Plant and Equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and accumulated impairment
losses, if any. The cost of property, plant and equipment
comprises its purchase price, including import duties and
non-refundable taxes and any directly attributable cost of
bringing an asset to working condition and location for
its intended use. Such cost includes the cost of replacing
part of the plant and equipment and borrowing costs for
long-term construction projects if the recognition criteria
are met. Likewise, when a major inspection is performed,
its cost is recognised in the carrying amount of the plant
and equipment as a replacement if the recognition criteria
are satisfied. All other repair and maintenance costs are
recognised in profit or loss as incurred.
Projects under which the property, plant and equipment
is not yet ready for their intended use are carried as capital
work in progress at cost determined as aforesaid, net of
accumulated impairment loss, if any.
Depreciable amount for assets is the cost of an asset, less
its estimated residual value. Depreciation is recognised
so as to write off the depreciable amount of assets
(other than freehold land and assets under construction)
over the useful lives using the straight-line method. The
estimated useful lives are as follows:
The useful life as estimated above is aligned to the
prescribed useful life specified under Schedule II of the
Companies Act, 2013 except in respect of following
category of assets located in India, the Company, based
on technical assessment made by technical expert and
management estimate, depreciates certain items of
plant and equipment over estimated useful lives which
are different from the useful life prescribed in Schedule II
to the Companies Act, 2013. The management believes
that these estimated useful lives are realistic and reflect
fair approximation of the period over which the assets are
likely to be used.
An item of property, plant and equipment and any
significant part initially recognised is derecognised
upon disposal or when no future economic benefits are
expected from its use or disposal. Any gain or loss arising
on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying
amount of the asset) is included in the statement of profit
and loss when the asset is derecognised.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end and adjusted
prospectively, if appropriate.
. Investment Property
Investment property comprises property (land or a
building or part of a building or both) that is held, or to be
held, to earn rentals or for capital appreciation or both.
Investment properties are measured initially at cost,
including transaction costs. Subsequent to initial
recognition, investment properties are stated at cost less
accumulated depreciation and accumulated impairment
loss, if any.
The cost includes the cost of replacing parts and
borrowing costs for long-term construction projects if
the recognition criteria are met. When significant parts
of the investment properties are required to be replaced
at intervals, the Company depreciates them separately
based on their specific useful lives. All other repair and
maintenance costs are recognised in profit or loss as
incurred.
The estimated useful lives of investment are as follows:
The useful life as estimated above is aligned to the
prescribed useful life specified under Schedule II of the
Companies Act, 2013.
An investment property is derecognised upon disposal or
when the investment property is permanently withdrawn
from use and no future economic benefits are expected
from the disposal. Any gain or loss arising on derecognition
of the property (calculated as the difference between the
net disposal proceeds and the carrying amount of the
asset) is included in the statement of profit and loss in the
period in which the property is derecognised.
Though the Company measures investment property
using cost-based measurement, the fair value of
investment property is disclosed in the notes. Fair values
are determined based on an annual evaluation performed
by an accredited external independent valuer applying
a valuation model recommended by the International
Valuation Standards Committee.
Transfers are made to (or from) investment properties
only when there is a change in use. Transfers between
investment property and property, plant and equipment
do not change the carrying amount of the property
transferred and they do not change the cost of that
property for measurement or disclosure purposes.
H. Intangible Assets
Intangible assets acquired separately are measured on
initial recognition at cost. Following initial recognition,
intangible assets are carried at cost less any accumulated
amortisation and accumulated impairment loss, if any.
Intangible assets are amortised over the useful economic
life and assessed for impairment whenever there is an
indication that the intangible asset may be impaired.
Amortisation is recognised on a straight-line basis over
their estimated useful lives. The estimated useful life
and amortisation method are reviewed at the end of
each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis.
Estimated useful life of intangible assets are as follows:
- Manufacturing Rights and Technical Know-how :
6 years
- Software: 5 years
An intangible asset is derecognised upon disposal (i.e., at
the date the recipient obtains control) or when no future
economic benefits are expected from its use or disposal.
Any 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 recognised in the statement of profit and
loss when the asset is derecognised.
The Company also provides long-term employee benefits
in the form of Long-Term Incentive Scheme ('the Scheme').
The Scheme provides benefits in the form of Incentive
to be paid in cash to certain category of employees
upon achievement of certain performance criteria,
whereby employee renders services as consideration
for the incentive amount while continue to remain in
employment with the Company during the tenor of
the Scheme. The liability towards Long-Term Incentive
Scheme is determined using
I. Research and Development Costs
Research costs are expensed as incurred. Development
expenditures on an individual project are recognised as
an intangible asset when the Company can demonstrate:
• The technical feasibility of completing the intangible
asset so that the asset will be available for use or sale
• Its intention to complete and its ability and intention
to use or sell the asset
• How the asset will generate future economic
benefits
• The availability of resources to complete the asset
• The ability to measure reliably the expenditure
during development
Following initial recognition of the development
expenditure as an asset, the asset is carried at cost
less any accumulated amortisation and accumulated
impairment losses. Amortisation of the asset begins when
development is complete, and the asset is available for
use. It is amortised over the period of expected future
benefit. Amortisation expense is recognised in the
statement of profit and loss unless such expenditure
forms part of carrying value of another asset. During the
period of development, the asset is tested for impairment
annually.
J. Foreign Currencies
The Company's financial statements are presented in
', which is also the Company's functional currency.
Income and expenses in foreign currencies are recorded at
exchange rates prevailing on the date of the transaction.
Foreign currency denominated monetary assets and
liabilities are translated at the exchange rate prevailing
on the Balance Sheet date and exchange gains and losses
arising on settlement and restatement are recognised in
the Statement of Profit and Loss. Non-monetary items
denominated in a foreign currency are measured at
historical cost and translated at exchange rate prevalent
at the date of transaction.
K. Leases
The Company assesses at contract inception whether
a contract is, or contains, a lease. That is, if the contract
conveys the right to control the use of an identified asset
for a period of time in exchange for consideration.
Company as a Lessee
The Company applies a single recognition and
measurement approach for all leases, except for short¬
term leases. The Company recognises lease liabilities to
make lease payments and right-of-use assets representing
the right to use the underlying assets.
(a) Right-of-Use Assets
The Company recognises right-of-use assets at the
commencement date of the lease (i.e., the date the
underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated
depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The
cost of right-of-use assets includes the amount
of lease liabilities recognised, initial direct costs
incurred, and lease payments made at or before
the commencement date less any lease incentives
received. Right-of-use assets are depreciated on
a straight-line basis over the shorter of the lease
term and the estimated useful lives of the assets, as
follows:
(b) Lease Liabilities
At the commencement date of the lease, the
Company recognises lease liabilities measured at
the present value of lease payments to be made
over the lease term. The lease payments include
fixed payments (including in substance fixed
payments) less any lease incentives receivable,
variable lease payments that depend on an index
or a rate, and amounts expected to be paid under
residual value guarantees. The lease payments also
include the exercise price of a purchase option
reasonably certain to be exercised by the Company
and payments of penalties for terminating the lease,
if the lease term reflects the Company exercising the
option to terminate. Variable lease payments that
do not depend on an index or a rate are recognised
as expenses (unless they are incurred to produce
inventories) in the period in which the event or
condition that triggers the payment occurs.
I n calculating the present value of lease payments,
the Company uses its incremental borrowing rate at
the lease commencement date because the interest
rate implicit in the lease is not readily determinable.
After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of
interest and reduced for the lease payments made.
In addition, the carrying amount of lease liabilities
is remeasured if there is a modification, a change
in the lease term, a change in the lease payments
(e.g., changes to future payments resulting from a
change in an index or rate used to determine such
lease payments) or a change in the assessment of an
option to purchase the underlying asset.
(c) Short-term leases assets
The Company applies the short-term lease
recognition exemption to its short-term leases of
office premises and storage locations (i.e., those
leases that have a lease term of 12 months or less
from the commencement date and do not contain
a purchase option).
Lease payments on short-term leases assets are
recognised as expense on a straight-line basis over
the lease term.
Company as a Lessor
Leases in which the Company does not transfer
substantially all the risks and rewards of ownership of
an asset are classified as operating leases. Rental income
arising is accounted on a straight-line basis over the lease
terms. Initial direct costs incurred in negotiating and
arranging an operating lease are added to the carrying
amount of the leased asset and recognised over the lease
term on the same basis as rental income. Contingent rents
are recognised as revenue in the period in which they are
earned.
L. Inventories
Inventories are valued at the lower of cost and net
realisable value. Cost includes all charges for bringing
the goods to their present location and condition. Costs
incurred in bringing each product to its present location
and condition are accounted for as follows:
• Raw materials: cost includes cost of purchase and
other costs incurred in bringing the inventories
to their present location and condition. Cost is
determined on weighted average basis.
• Finished goods and work in progress: cost includes
cost of direct materials and labour and a proportion
of manufacturing overheads based on the normal
operating capacity but excluding borrowing costs.
Cost is determined on weighted average basis.
• Traded goods: cost includes cost of purchase and
other costs incurred in bringing the inventories
to their present location and condition. Cost is
determined on weighted average basis.
Net realisable value represents the estimated selling price
for inventories less all estimated costs of completion and
costs necessary to make the sale.
M. Taxes
Current Income Tax
Current income tax assets and liabilities are measured
at the amount expected to be recovered from or paid to
the taxation authorities in accordance with Income Tax
Act, 1961. The tax rates and tax laws used to compute the
tax are those that are enacted or substantively enacted at
the reporting date. Current income tax relating to items
recognised outside profit or loss is recognised outside
profit or loss (either in other comprehensive income or in
equity). Current tax items are recognised in correlation to
the underlying transaction either in OCI or directly in equity.
Deferred Tax
Deferred Tax is provided using the balance sheet approach
on temporary differences between the tax bases of assets
and liabilities and their carrying amounts for financial
reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable
temporary differences, except:
• When the deferred tax liability arises from the initial
recognition of goodwill or an asset or liability in a
transaction that is not a business combination
and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss and
does not give rise to equal taxable and deductible
temporary differences;
• In respect of taxable temporary differences
associated with investments in subsidiaries,
associates and interests in joint ventures, when the
timing of the reversal of the temporary differences
can be controlled and it is probable that the
temporary differences will not reverse in the
foreseeable future
Deferred tax assets are recognised for all deductible
temporary differences, the carry forward of unused tax
credits and any unused tax losses. Deferred tax assets are
recognised to the extent that it is probable that taxable
profit will be available against which the deductible
temporary differences, and the carry forward of unused
tax credits and unused tax losses can be utilised except:
• When the deferred tax asset relating to the
deductible temporary difference arises from
the initial recognition of an asset or liability in a
transaction that is not a business combination
and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss and
does not give rise to equal taxable and deductible
temporary differences;
• In respect of deductible temporary differences
associated with investments in subsidiaries,
associates and interests in joint ventures,deferred
tax assets are recognised only to the extent that it is
probable that the temporary differences will reverse
in the foreseeable future and taxable profit will be
available against which the temporary differences
can be utilised.
The carrying amount of deferred tax assets is reviewed at
each reporting date and reduced to the extent that it is
no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be
utilised. Unrecognised deferred tax assets are re-assessed
at each reporting date and are recognised to the extent
that it has become probable that future taxable profits will
allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset
is realised or the liability is settled, based on tax rates (and
tax laws) that have been enacted or substantively enacted
at the reporting date.
Deferred tax relating to items recognised outside profit
or loss is recognised outside profit or loss (either in other
comprehensive income or in equity). Deferred tax items
are recognised in correlation to the underlying transaction
either in OCI or directly in equity.
The Company offsets deferred tax assets and deferred
tax liabilities if and only if it has a legally enforceable right
to set off current tax assets and current tax liabilities and
the deferred tax assets and deferred tax liabilities relate
to income taxes levied by the same taxation authority
on either the same taxable entity which intends either to
settle current tax liabilities and assets on a net basis, or to
realise the assets and settle the liabilities simultaneously,
in each future period in which significant amounts of
deferred tax liabilities or assets are expected to be settled
or recovered.
Goods and Service Tax (GST) paid on acquisition of assets
or on incurring expenses
Expenses and assets are recognised net of the amount of
GST paid, except:
• When the tax incurred on a purchase of assets
or services is not recoverable from the taxation
authority, in which case, the tax paid is recognised
as part of the cost of acquisition of the asset or as
part of the expense item, as applicable
• When receivables and payables are stated with the
amount of tax included
The net amount of tax recoverable from, or payable to,
the taxation authority is included as part of other current
assets/ liabilities in the balance sheet.
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