Notes to Financial Statements for the year ended March 31, 2016 1. Corporate information Blue Star Limited ("The Company") is into the business of central air conditioning and commercial refrigeration. The Company is also into distribution and maintenance of imported professional electronics and industrial systems. During the year, Blue Star Infotech Limited (BSIL) and Blue Star Infotech Business Intelligence & Analytics Private Limited (BSIBIA) were amalgamated with the Company w.e.f April 1, 2015. BSIL and BSIBIA were mainly engaged in the Information technology and software services business. The Company has subsequently sold its IT Business as explained in note 4 to the Financial Statement w.e.f January 1, 2016. The financial statements have been brpared in accordance with the generally accepted accounting principles in India (Indian GAAP). The Company has brpared these financial statements to comply in all material respects with the accounting standard notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014. The financial statements have been brpared on an accrual basis and under the historical cost convention. The accounting policies adopted in the brparation of financial statements are consistent with those of the brvious year. All assets and liabilities have been classified as current or non-current as per the Company's normal operating cycle and other criteria set out in Schedule III of Companies Act, 2013. Based on the nature of business and the time between acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as twelve months for the purpose of current/non-current classification of assets and liabilities. 2.1 Summary of Significant Accounting Policies (a) Use of estimates The brparation of financial statements in conformity with Indian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period. Although these estimates are based upon management's best knowledge of current events and actions, actual results could differ from these estimates. (b) Tangible fixed assets and Capital WIP Fixed assets are stated at cost, less accumulated debrciation and impairment losses if any. Cost comprises the purchase price and directly attributable cost of bringing the asset to its working condition for its intended use. Borrowing costs relating to acquisition of fixed assets which takes substantial period of time to get ready for their intended use are also included in the cost of the assets to the extent these relate to the period up to the date such assets are ready to be put to use. Expenditure (including interest) incurred during the construction period is included in Capital work-in-progress and the same is allocated to respective fixed assets on completion of the construction. (c) Debrciation on tangible fixed assets Cost of Leasehold land is amortized on a straight line basis over the period of lease. Debrciation on fixed assets is calculated on written down value basis using the rates arrived at based on useful lives as those brscribed under the schedule II to the Companies Act, 2013 except plant and machinery. The Company has used the following useful lives to provide debrciation on its fixed assets. Useful lives (years) (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. Research and Development Cost: Research costs are expensed as incurred. Development expenditure incurred on an individual project is recognized as an intangible asset when the recognition criteria are met. Development expenditure capitalized is amortized over the period of expected future sales from the related project not exceeding ten years. Amortization of Intangible fixed assets: - Software is amortized on written down value of assets effectively over a period 6 years. - Technical knowhow is amortized on straight line basis over a period of 6 years. (e) Impairment The carrying amounts of assets are reviewed at each balance sheet date to assess 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 its value in use. In assessing value in use, the estimated future cash flows are discounted to their brsent value using a br-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. (f) 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 lessor: Assets given on operating lease have been included under Investment Property of the Company. Lease income has been recognized on straight line basis over the primary period of lease. (g) Government grants and subsidies Grants and subsidies from the government are recognized when there is reasonable assurance that the grant/ subsidy will be received and all attaching conditions will be complied with. Capital subsidy received from the government is credited to capital reserve and treated as part of the shareholders' funds. Where the grant or subsidy relates to an asset, its value is deducted in arriving at the carrying amount of the related assets. (h) Investments All investments intended to be held for more than one year from the date of the purchase are classified as Long term investments. Long-term investments are carried at cost. A provision for diminution in value is made to recognise a decline other than temporary in the value of the investments. Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Investment Property An investment in land or buildings, which is not intended to be occupied substantially for use by, or in the operations of, the company, is classified as investment property. Investment properties are stated at cost, net of accumulated debrciation and accumulated impairment losses, if any. Debrciation on building component of investment property is calculated on a written down value basis using the rate arrived at based on the useful life (60 years) as those brscribed under the schedule II to the Companies Act, 2013. (i) Inventories Inventories are valued as follows: (i) Raw materials, stores and components are valued at lower of cost or 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. Cost is determined on a weighted average basis. (ii) Work-In-Progress and Finished goods are valued at 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 is determined on a weighted average basis. (iii) 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. (j) Revenue Recognition (i) Revenue from long - term contracts, where the outcome can be estimated reliably, is recognized under the percentage of completion method by reference to the stage of completion of the contract activity. The stage of completion is measured by calculating 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. When the current estimate of total costs and revenue is a loss, provision is made for the entire loss on the contract irrespective of the amount of work done. (ii) Contract revenue earned in excess of billing has been reflected under "Other Current Assets" and billing in excess of contract revenue is reflected under "Other Current Liabilities" in the balance sheet. Contract Work-in-Progress is stated at cost till such time as the outcome of the project cannot be ascertained reliably and has been reflected under "Other Current Assets'! (iii) Revenues from annual maintenance contracts are recognized pro-rata over the period of the contract. (iv) Revenue from sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, which is generally on dispatch of goods. Sales taxes and Value added taxes (VAT) 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. (v) Commission income is recognized as and when the terms of the contracts are fulfilled. (vi) Claims recoverable are accrued only to the extent it is probable that they will result in revenue and they are capable of being reliably measured. (vii) Export incentive receivable is accrued for when the right to receive the credit is established and there is no significant uncertainty regarding the ultimate collection. (viii) Dividend income is recognized when the right to receive dividend is established. (ix) Interest income is recognized on accrual basis. (x) Revenue from software development/sale of services with respect to time and material contracts has been recognized as related costs are incurred and services are performed in accordance with the terms of specific contracts. (xi) Revenue from fixed price contracts relating to software development has been recognized based on the milestones achieved as specified in the contracts and for interim stages, until the next milestone is achieved, on the basis of proportionate completion method. Provisions for estimated losses on incomplete contracts have been recorded in the period in which such losses become probable based on the current estimates. (xii) Revenue from sale of traded software licenses and traded hardware has been recognized on delivery to the customer. (k) Foreign Exchange Transactions (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 restated at the exchange rate brvailing on the balance sheet date. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction. (iii) Exchange difference Exchange differences arising on the settlement of monetary items or on reporting such monetary items of the Company at rates different from those at which they were initially recorded during the year, or reported in brvious financial statements, are recognized as income or as expenses in the year in which they arise. (iv) Forward Exchange Contracts entered into to hedge foreign currency risk of an existing Asset/Liabilities The brmium or discount arising at the inception of forward exchange contracts is amortised as expense or income over the life of the contract. Exchange differences on such contracts are recognised in the statement of profit and loss in the year in which the exchange rates change. Any profit or loss arising on cancellation or renewal of forward exchange contract is recognised as income or as expense for the year. (v) Exchange difference arising on financing activities is reflected under the head 'finance costs' as Exchange difference on Borrowing (net). (l) Retirement and other Employee Benefits (i) Defined Contribution Plan The Company's liability towards Superannuation scheme administered through the Trusts maintained by the Company, are considered as Defined Contribution Plan. The Company's contributions paid/payable towards this defined contribution plan is recognised as expense in the Statement of Profit and Loss during the period in which the employee renders the related service. There are no other obligations other than the contributions payable to the Trust. (ii) Defined Benefit Plan Provident Fund: Eligible employees receive benefit from a provident fund, which is a defined benefit plan. Both the employee and the Company make monthly contribution 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 Blue Star Employees Provident Fund Trust. The trust invests in specific designated instruments as permitted by the statute. The remaining portion is contributed to the government administered pension fund. 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. Gratuity: Company's liability towards gratuity is considered as a Defined Benefit Plan. The brsent value of the obligations towards Gratuity and additional gratuity are determined based on actuarial valuation using the projected unit credit method at the end of each financial year. The obligation is measured at the brsent value of estimated future cash flows using a discount rate that is determined by reference to market yields on Government securities at the balance sheet date, and adjusted for salary escalations and attrition rate. Actuarial gains and losses are recognized in full in the period in which they occur in the statement of profit and loss. (iii) Other Employee Benefits: Accumulated leave, which is expected to be utilized within the next 12 months, is treated as short-term employee benefit. Short term compensated absences are provided for based on estimates. Long term compensated absences are provided for based on actuarial valuation at the year end. The actuarial valuation is done as per projected unit credit method. Actuarial gains/losses are taken to the statement of profit and loss. The Company brsents the entire 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 period. (iv) Voluntary Retirement Scheme The cost incurred under the Voluntary Retirement Scheme is charged to the statement of Profit and loss in the month of separation of the employee. (m) Employee stock compensation cost Employees (including senior executives) of the company receive remuneration in the form of share based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). In accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and the Guidance Note on Accounting for Employee Share-based Payments, the cost of equity-settled transactions is measured using the intrinsic value method. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the company's best estimate of the number of equity instruments that will ultimately vest. The expense or credit recognized in the statement of profit and loss for a period rebrsents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in employee benefits expense. (n) Excise Duty Excise duty on direct sales by the manufacturing units is reduced from the sales. Excise Duty liability on closing stock of finished goods lying at the manufacturing units is accounted based on the estimated duty payable as at the close of the year. (o) Taxes on Income Tax expense comprises of 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. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. 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 tax liabilities relate to the taxes on income levied by same governing taxation laws. Deferred tax assets are recognised 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 realised. In situation where the Company has unabsorbed debrciation or carry forward losses, all deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that they can be realised against future taxable profits. At each balance sheet date, the Company re-assesses unrecognised deferred tax assets. It recognises deferred tax assets to the extent that it has become reasonably 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 balance sheet date. The Company writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain that sufficient future taxable income will be available against which deferred tax asset can be realised. Any such write-down is reversed to the extent that it becomes reasonably certain that sufficient future taxable income will be available. 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. 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. (p) Segment Reporting Policies (i) Identification of segments: The Company's operating businesses are organized and managed separately according to the nature of products and services provided, with each segment rebrsenting a strategic business unit that offers different products and serves different markets. Allocation of common costs/assets & liabilities: Common allocable costs/assets and liabilities are consistently allocated amongst the segments on appropriate basis. (ii) Unallocated items: Includes general corporate income and expense items which are not allocated to any business segment (iii) Segment Policies: The Company brpares its segment information in conformity with the accounting policies adopted for brparing and brsenting the financial statements of the company as a whole. (q) 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. 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. (r) Provisions A provision is recognized when the Company has a brsent obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its brsent value and are determined based on best 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 best estimates. (s) Contingent Liability 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 brsent obligation that is not recognised 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 recognised because it cannot be measured reliably. The Company does not recognise a contingent liability but discloses its existence in the financial statements. (t) 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. (u) Borrowing Costs 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. Provision for warranties A provision is recognised for standard warranty claims based on turnover during the year and extended warranty on the basis of turnover for brceding two to four years as per terms of warranty. The company estimates the future cost of warranty based on historical experience of the level of repairs and returns. The estimates of such warranty cost are revised annually. 3 During the year, the Hon'ble Bombay High Court had sanctioned the Scheme of Amalgamation of Blue Star Design and Engineering Limited ("BSDEL") with Blue Star Engineering & Electronics Limited ("BSEEL") and their respective shareholders and creditors on December, 18, 2015. BSDEL and BSEEL are wholly-owned subsidiaries of the Company. 1,46,25,000 equity share of Rs.2 each of the BSEEL have been issued to the Company in liue of 9,75,000 shares of BSDEL. 4 Previous Year Comparatives Previous year's figures have been regrouped where necessary to conform to this year's classification. As per our report of even date For S R B C & CO LLP Chartered Accountants ICAI Firm Registration No. 324982E/E300003 per Sudhir Soni Partner Membership No. 41870 For and on behalf of the Board of Directors of Blue Star Limited Ashok M Advani Vir S Advani Shailesh Haribhakti Neeraj Basur Vijay Devadiga Chairman Managing Director Director Chief Financial Officer Company Secretary Place : Mumbai date : May 30, 2016 |