Notes to the Financial Statements 1. General Information Ingersoll-Rand (India) Limited (the 'Company') is a public limited company incorporated in 1921 under provisions of the Companies Act, 1913 and existing under the provisions of the Companies Act, 1956/ Companies Act, 2013. The Company has a manufacturing plant in Naroda, Gujarat and is primarily engaged in the business of manufacturing and sales of industrial air combrssors of various capacities and related services. During the year, the Company also manufactured air conditioner package under contract manufacturing arrangement for its fellow subsidiary in India from a plant at Chennai, the business of which has since been discontinued (refer Note 40). The Company sells air combrssors primarily in India and also exports the products to North American, South American, Asian and European countries. The equity shares of the Company are listed on the Bombay Stock Exchange Limited, the National Stock Exchange of India Limited and the Ahmedabad Stock Exchange Limited. 2. Summary of significant accounting policies 2.1 Basis of Preparation These financial statements have been brpared in accordance with the generally accepted accounting principles in India under the historical cost convention on an accrual basis. Pursuant to Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014, till the standards of accounting or any addendum thereto are brscribed by Central Government in consultation and recommendation of the National Financial Reporting Authority, the existing Accounting Standards notified under the Companies Act, 1956 shall continue to apply. Consequently, these financial statements have been brpared to comply in all material aspects with the accounting standards notified under Section 211(3C) of the Companies Act, 1956 [Companies (Accounting Standards) Rules, 2006, as amended] and other relevant provisions of the Companies Act, 2013. All assets and liabilities have been classified as current or non-current as per the Company's operating cycle and other criteria set out in Schedule III to the Companies Act, 2013. Based on the nature of products and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current - non-current classification of assets and liabilities. 2.2 Tangible Assets Tangible Assets are stated at acquisition cost, net of accumulated debrciation and accumulated impairment losses, if any. Subsequent expenditures related to an item of fixed asset are added to its book value only if they increase the future benefits from the existing asset beyond its brviously assessed standard of performance. Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements under the head 'Other current assets'. Any expected loss is recognised immediately in the Statement of Profit and Loss. Losses arising from the retirement of and gains or losses arising from disposal of fixed assets which are carried at cost or revalued amount are recognised in the Statement of Profit and Loss. Based on a technical evaluation carried out by management, debrciation is provided on straight-line method (SLM) over the estimated useful life of the assets, which is similar to the useful life of fixed assets brscribed under Schedule II to the Companies Act, 2013. In respect of additions to/ deletions from the fixed assets, debrciation is provided for on a prorata basis, except in respect of fixed assets of a cost not exceeding Rs.5,000, where debrciation has been charged fully in the year of purchase. Leasehold land is amortised over period of lease on SLM. The estimated useful life of fixed assets given on lease is two years. In respect of fixed assets which are not directly connected with the production activity, such as Research and Development assets, the useful life is estimated at one year. 2.3 Intangible Assets (a) Computer Software: Operating software is capitalised along with the related fixed assets. Other computer software (i.e., major application software), is stated at acquisition cost, net of accumulated amortisation and accumulated impairment losses, if any, and are amortised on a straight line basis over their estimated useful life of three years. Gains or losses arising from the retirement or disposal of computer software is determined as the difference between the net disposal proceeds and the carrying amount of the asset and recognised as income or expense in the Statement of Profit and Loss. (b) Research and development cost: Capital expenditure on Development is capitalised as fixed assets and debrciated in accordance with debrciation policy of the Company. Revenue expenditure incurred during the research phase is expensed as incurred. Development expenditure incurred on an individual project is recognised as an intangible asset when all of the following criteria are met: - It is technically feasible to complete the intangible asset so that it will be available for use or sale. - There is an intention to complete the asset. - There is an ability to use or sell the asset. - The asset will generate future economic benefits. - Adequate resources are available to complete the development and to use or sell the asset. - The expenditure attributable to the intangible asset during development can be measured reliably. Following the initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be 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 and it is amortised on SLM over the estimated useful life. Expenditure that cannot be distinguished between research phase and development phase is expensed as incurred. 2.4 Impairment Assessment is done at each Balance Sheet date as to whether there is any indication that an asset (tangible and intangible) may be impaired. For the purpose of assessing impairment, the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets, is considered as a cash generating unit. If any such indication exists, an estimate of the recoverable amount of the asset/ cash generating unit is made. Assets whose carrying value exceeds their recoverable amount are written down to the recoverable amount. Recoverable amount is higher of an asset's or cash generating unit's net selling price and its value in use. Value in use is the brsent value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Assessment is also done at each Balance Sheet date as to whether there is any indication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased. An impairment loss is reversed to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had brviously been recognised. 2.5 Investments Investments that are readily realisable, and are intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. Current investments are carried at cost or fair value, whichever is lower. All other investments are classified as long-term investments. Long-term investments are carried at cost. However, provision for diminution is made to recognise a decline, other than temporary, in the value of the investments, such reduction being determined and made for each investment individually. 2.6 Inventories Inventories are stated at lower of cost and net realisable value. Cost is determined using the first-in first-out (FIFO) method. The cost of finished goods and work in progress includes raw materials, direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. 2.7 Current and Deferred Tax Tax expense for the period, comprising current tax and deferred tax, are included in the determination of the net profit or loss for the period. Current tax is provided at the amount expected to be paid to the tax authorities in accordance with the taxation laws brvailing in the respective jurisdictions. Deferred tax is recognised for all the timing differences, subject to the consideration of prudence in respect of deferred tax assets. Deferred tax assets are recognised and carried forward only to the extent that there is a reasonable certainty or virtual certainty, as may be applicable, that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. In situations, where the Company has unabsorbed debrciation or carried forward losses under tax laws, all deferred tax assets are recognised only to the extent that there is virtual certainty supported by convincing evidence that they can be realised against future taxable profits. At each Balance Sheet date, the Company reassesses unrecognised deferred tax assets, if any. Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle the asset and the liability on a net basis. Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off assets against liabilities rebrsenting current tax and where the deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws. 2.8 Foreign Currency Transactions Initial Recognition: On initial recognition, all foreign currency transactions are recorded by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. Subsequent Recognition: As at the reporting date, non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate as indicated in Initial Recognition. All monetary assets and liabilities denominated in foreign currency are restated at the rates ruling at the end of the reporting period and exchange gains/losses arising there from are adjusted to the Statement of Profit and Loss. Forward Exchange Contracts: The brmium or discount arising at the inception of forward exchange contract entered into to hedge an existing asset/liability is amortised as expense or income over the life of the contract. Exchange differences on such a contract are recognised in the Statement of Profit and Loss in the reporting period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of such a forward exchange contract are recognised as income or as expense for the period. 2.9 Revenue Recognition Sale of goods: Sales are recognised when goods are despatched (in accordance with the terms of sale) and when significant risks and rewards are transferred. Sales (gross) are recorded inclusive of excise duty but exclude trade discounts and sales tax. Sale of services: Service Revenue is recognised as and when services are performed and are recognised exclusive of service tax. Revenue from extended warranty services is recognised rateably over the extended warranty period. Revenue from services contract is recognised rateably over the period in which such services are rendered. 2.10 Other Income and Other Operating Revenue Interest income is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable. Income from export incentives is recognised on an accrual basis. 2.11 Leases As a lessee: Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the Statement of Profit and Loss on a straight-line basis over the period of the lease. As a lessor: Leases where the Company has substantially retained all the risks and rewards of ownership are classified as operating leases. Lease income on such operating leases are recognised in the Statement of Profit and Loss on a straight line basis over the lease term, which is rebrsentative of the time pattern in which benefit derived from the use of the leased asset is diminished. Initial direct costs are recognised as an expense in the Statement of Profit and Loss in the period in which they are incurred. 2.12 Employee Benefits Provident Fund: Contribution towards provident fund for certain employees is made to the regulatory authorities. Such benefits are classified as Defined Contribution Schemes as the Company does not carry any further obligations, apart from the contributions made on a monthly basis. In respect of other employees, Provident Fund contributions are made to a Trust administered by the Company. The Company's liability is determined by an independent actuary (using the Projected Unit Credit method) at the end of the year, and any shortfall in the fund size maintained by the Trust is additionally provided for by the Company. Gratuity: The Company provides for gratuity, a defined benefit plan (the "Gratuity Plan") covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee's salary and the tenure of employment. The Company's liability is determined by an independent actuary (using the Projected Unit Credit method) at the end of each year. Compensated Absences: Accumulated compensated absences, which are expected to be availed or encashed beyond 12 months from the end of the year end are treated as other long term employee benefits. The Company's liability is determined by an independent actuary (using the Projected Unit credit method) at the end of each year. Actuarial losses/gains are recognised in the Statement of Profit and Loss in the year in which they arise. Accumulated compensated absences, which are expected to be availed or encashed within 12 months from the end of the year end are treated as short term employee benefits. The obligation towards the same is measured at the expected cost of accumulating compensated absences as the additional amount expected to be paid as a result of the unused entitlement as at the year end. Termination Benefits: Termination benefits in the nature of voluntary retirement benefits are recognised in the Statement of Profit and Loss as and when incurred. Other short term benefits: Liability towards short term employee benefits like performance bonus, which are expected to be paid within 12 months after the period in which the employees rendered related services, are recognised as expense during the period employee perform the services. 2.13 Borrowing Costs Borrowing costs include interest, other costs incurred in connection with borrowing and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to the interest cost. General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in Statement of Profit and Loss in the period in which they are incurred. 2.14 Provisions Provisions are recognised when there is a brsent obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and there is a reliable estimate of the amount of the obligation. Provisions are measured at the best estimate of the expenditure required to settle the brsent obligation at the Balance Sheet date and are not discounted to its brsent value. 2.15 Contingent Liabilities Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a brsent obligation, that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made. 2.16 Earnings per Share Basic earnings per share is 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 is adjusted for the effects of all dilutive potential equity shares. 2.17 Segment Reporting The accounting policies adopted for segment reporting are in conformity with the accounting policies adopted for the Company. Revenue and expenses have been identified to segments on the basis of their relationship to the operating activities of the segment. Revenue and expenses, which relate to the Company as a whole and are not allocable to segments on a reasonable basis, have been included under "Unallocated corporate expenses/ income". 2.18 Cash and Cash Equivalents In the cash flow statement, cash and cash equivalents include cash on hand, demand deposits with banks and other short-term highly liquid investments with original maturities of three months or less. 3. During the brvious year, pursuant to the ultimate holding company acquiring the 'Centrifugal Combrssor Division (CC Division) of Cameron International Corporation, USA, the Company had acquired the CC Division of Cameron Manufacturing (India) Private Limited by way of an 'Asset Transfer' arrangement with effect from January 1, 2015 for a net consideration of Rs.16.69 million. 4. The Company had a long standing dispute with the Department of Commercial Taxes, Government of Karnataka (the "Department"), in connection with the classification of certain road construction equipment manufactured and sold by the Company (that business has since been transferred/ sold to an independent third party as a part of global divestiture). The Department disputed the classification of the products under the Karnataka Sales Tax Act, 1957, and demanded sales tax at a higher rate than what was charged by the Company to its customers. The Company had remitted the differential tax "under protest", and charged the amounts to the Statement of Profit and Loss in the financial year 2002-03. The dispute, which was lying under appeal with various appellate authorities, was ruled in favour of the Company by the High Court of Karnataka in the year 2012-13 and thereafter the Company had filed an application to the Department seeking refund of tax in the year 2013-14. The Company had received a recomputation statement from the Sales tax authorities confirming the excess tax paid aggregating to Rs.96.35 (March 31, 2015: Rs.96.35), which was recognised as income and disclosed as an 'Exceptional Item' in the Statement of Profit and Loss for the year ended March 31, 2015. During the year, the Company realised Rs.73.62 (March 31, 2015: Nil) from the Department. Subsequent to March 31, 2016, the Company has received a letter from the Department stating that no further amounts are due to the Company. In light of this development subsequent to the year end, the Company has reassessed the recoverability of the remaining refund and provided for Rs.16.87 (March 31, 2015: Nil), which has been disclosed under 'Exceptional item' in the Statement of Profit and Loss. 5. Prior Year Figures Prior year's figures have been regrouped/ reclassified wherever necessary to conform to current year's classification. For and on behalf of Board of Directors For Price Waterhouse & Co Bangalore LLP Firm Registration No. (FRN): 007567S/S-200012 Chartered Accountants SHIVAKUMAR HEGDE Partner Membership Number: 204627 ROMAN STEINHOFF Chairman G. MADHUSUDHAN RAO Vice President - Finance P. R. SHUBHAKAR Gen. Manager - Corp. Finance and Company Secretary H. C. ASHER Director AMAR KAUL Vice President and General Manager Place: Mumbai Date: May 26, 2016 |