1 ACCOUNTING POLICIES I. BASIS OF ACCOUNTING The financial statements are brpared on historical cost convention and on the accounting principles of going concern, in accordance with Generally Accepted Accounting Principles ('GAAP'), comprising of the Accounting Standard notified by the Companies (Accounting Standard) Rules, 2006 and recommendatory Accounting Standards (AS)-30,Guidance Notes and other authoritative guidance etc. issued by the Institute of Chartered Accountants of India and the provisions of the Companies Act, 2013, on accrual basis, as adopted consistently by the Company. USE OF ESTIMATES: In brparation of the financial statements in confirmation with Generally Accepted Accounting Principle in India, management is required to make estimates & assumptions that affect the reported amount of assets & liabilities and the disclosures of contingent liabilities as at the financial reporting date. The amount of revenue & expenditure during the reported period and that of actual results could be different from those of estimates. Any revision to such estimates is recognized in the period in which the same are determined. CLASSIFICATION OF ASSETS AND LIABILITIES AS CURRENT AND NON CURRENT All assets and liabilities are classified as current or non-current as per the Company's normal 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, 12 months has been considered by the Company for the purpose of current/ non-current classification of assets and liabilities. II. REVENUE RECOGNITION a) Sales revenue is recognized when property in the goods with all significant risk and rewards as well as the effective control of goods usually associated with ownership are transferred to the buyer, at a price and includes excise duty. b) Promotional Benefits, Export Incentives and Export Growth Incentives are accounted for on accrual basis when reasonable certainty and their probable use within reasonable time in the normal course of business, is established. c) Claims and refunds due from Government authorities and parties, though receivable / refundable are not recognized in the accounts, if the amount thereof is not ascertainable. These are accounted for as and when ascertained or admitted by the concerned authorities / parties in favour of the Company. d) Claims lodged with insurance companies are recognized as Income on acceptance by the Insurance Company. The Excess / Shortfall of claims passed are adjusted in the year of receipt. e) The Interest Subsidy under Technology Up-gradation Fund Scheme of Government of India and Rajasthan Investment Promotion Schemes of Government of Rajasthan are recognized on accrual basis and adjusted against the respective expenses. f) Dividend from investment in shares are recognized when the right to receive dividend is established. III. GOVERNMENT GRANTS Government grant /subsidies are recognized on the reasonable assurance of receipt of subsidy and completion of all the conditions attached. If the grant/ subsidies is related to a particular expense then in that case, it is deducted from that expense in the year of recognition. Government Subsidies relating to debrciable Fixed Assets are treated as Deferred Income as per Accounting Standard (AS)-12, 'Accounting for Government Grants' which are recognized in Statement of Profit & loss over the useful life of the respective assets. The Capital Subsidy under Technology Up-gradation Fund Scheme from Government(s) on specified machinery is recognized on a systematic and rational basis by adopting Deferred Income Approach, in proportion of the applicable debrciation over the useful life of the respective assets, and is adjusted against the debrciation in the Statement of Profit and Loss IV. INVENTORY VALUATION a) Inventories are valued at historical cost and net realizable value whichever is lower on a consistent basis. Historical cost is determined on Actual / Weighted Average basis on relevant categories of Inventories. The net value is determined after providing for obsolete, slow moving and defective inventories, wherever necessary. b) The cost of Inventories comprise all costs of purchase, costs of conversion and other direct costs incurred in bringing the inventories to their brsent location and condition. V. INVESTMENTS Non-Current Investments are stated at cost. In case of diminution in value other than temporary, the carrying amount is reduced to recognize the decline. Current Investments are carried at cost or fair value whichever is lower. VI. TANGIBLE FIXED ASSETS, INTANGIBLE FIXED ASSETS AND CAPITAL WORK IN PROGRESS a) Cost of Fixed Assets comprises of its purchase price, including import duties and other non-refundable taxes or levies carrying amount of foreign exchange fluctuation on loans against Fixed Assets, expenditure incurred in the course of construction or acquisition, Start-up, Reconditioning, Commissioning, test runs & experimental production and other attributable costs of bringing the assets to its working conditions for the purpose of use for the business. b) Borrowing cost directly attributable and/or funds borrowed generally and used for the purpose of acquisition/construction of an asset that necessarily takes a substantial period of time to get ready for its intended use are capitalized, at its capitalization rate to expenditure on that assets, for the period, until all activities necessary to brpare qualifying assets for its intended use are complete. c) Assets retired from active use and held for disposal are stated at the lower of their net book value and / or realizable value and are shown separately. Any subsequent revision in net realizable value is credited to statement of Profit and loss to the extent of amount written off in earlier years. d) Intangible Fixed assets acquired separately are measured on initial recognition at cost. Following initial reorganization, intangible assets are carried at cost less accumulated amortization and accumulated losses, if any. Internally generated Intangible assets are recognized, if and when the parameters laid down under Accounting Standard (AS)-26 'Intangible Assets' for recognition are satisfied. e) Goodwill acquired and/or arising upon amalgamation is amortized over a period of 5 years from the appointed date in accordance with paragraph 19 of Accounting Standard (AS) -14, 'Accounting for Amalgamations'. VII. LEASES Where the Company is the lessee Leases, where the lessor effectively retains substantially all the risks and benefits of the 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 the lessor Assets subject to operating leases are included in fixed assets. Lease income is recognized in the Statement of Profit and Loss on a straight-line basis over the lease term. Costs, including debrciation are recognized as an expense in the statement of Profit and Loss. Initial direct costs such as legal costs, brokerage costs, etc are recognized immediately in the Statement of Profit and Loss VIII. DEbrCIATION AND AMORTISATION Debrciation on Tangible Fixed Assets and Amortization on Intangible Assets has been provided as follows:- a) For Plant and Machinery of Textile Division, Company has internally assessed the useful life considering use of the same wherever applicable on triple shift basis, which has also been evaluated by an external expert. These useful lives are amortized on Straight Line Method. b) For Plant and Machinery of Power Generation Division also the useful life has been internally assessed, considering these assets use as a Continuous Process Plant and the same is also evaluated by an external expert. These useful lives are amortized on Straight Line Method. c) All other tangible assets other than as specified above, are debrciated over its useful life specified in Schedule II of Companies Act, 2013 by using Straight Line Method. d) Residual Value of All tangible and intangible assets is considered as 5%. e) Leased assets of the Company are amortized over the useful life/operating period of the lease following Accounting Standard (AS)-19 f) (i) Intangible assets acquired by the Company are amortized over their useful life determined by the management on technical evaluation on straight line method. (ii) Intangible assets arising out of irrevocable exclusive right to use under the Deposit Scheme of State Electricity Board guidelines and rules is also debrciated over its useful life determined by the management on technical evaluation /its residual period, on Straight Line Method. g) Goodwill acquired and/or arising upon amalgamation is amortized over a period of 5 years from the date of acquisition and/or appointed date in accordance with Para 19 of Accounting Standard (AS) -14, ‘Accounting for Amalgamation’ IX. IMPAIRMENT OF FIXED ASSETS Factors giving rise to any indication of Impairment of the carrying amounts of Company's Assets are appraised at each Balance Sheet date by the Management to determine and provide/reverse an impairment loss following Accounting Standard (AS) -28, 'Impairment of Assets'. X. FOREIGN EXCHANGE TRANSACTIONS/TRANSLATIONS a) (i) Export and Import transactions not covered by a hedging instrument are accounted for at the brvailing conversion rates on the transaction date. (ii) Monetary items denominated in Foreign Currency (except financial instruments designated as Hedge Instruments) and outstanding at year end are translated at year end conversion rates. (iii) Any income or expense on account of exchange difference either on settlement or on translation is recognized in the Statement of Profit and Loss. (iv) Borrowings in Foreign Currency have been recorded initially at the brvailing exchange rate on the date of availment. The Gain / Loss on Renewal / Payment of the Forward contract booking is accounted for in the Statement of Profit and Loss for the period. Premium or discounts arising on amount covered under Forward Contracts / Fixed Rate Contracts are amortized as expenses or income over the life of such contracts. The exchange gain / loss on un-hedged exposure are valued at the exchange rates brvailing at each balance sheet date. b) Pursuant to The Institute of Chartered Accountants of India (ICAI) announcement "Accounting for Derivatives" on the early adoption of Accounting Standard (AS)-30 "Financial Instruments: Recognition and Measurement", the Company had early adopted the Accounting Standard (AS)-30 with effect from July 1, 2011, to the extent that such adoption does not conflict with existing mandatory accounting standards and other authoritative pronouncements, Company law and other regulatory requirements. The Company holds foreign currency forward contracts, designated as hedges of expected future sales of yarn/fabric to customers in countries other than India, for which the Company has highly probable forecasted transactions. As permitted by the risk management policy of the Company, the Company also has foreign currency forward contracts outstanding at end of the year designated as hedges of expected future purchases from suppliers in countries other than India for which the company has firm commitments. Foreign currency forward contracts and cross currency forward contracts are being used to hedge the foreign currency risk of the firm commitments. The terms of the foreign currency forward contracts have been negotiated to match the terms of the commitments. Whenever there are highly probable transactions for which hedge accounting is claimed, and where significant element of hedge ineffectiveness occurs, the same is recognized in the Statement of Profit & Loss. A financial instrument is designated as an effective hedge after the management objectively evaluates, at the inception of each contract as to whether the instrument is effective in offsetting the cash flows attributable to the hedged risk. The same evaluation is carried out at the end of each reporting period. In the absence of such hedge being identified or being continued to be identified as an effective hedge, the value thereof is taken to the Statement of Profit & Loss. Exchange difference relating to effective cash flow hedge is accumulated in a Hedging Reserve account. Amounts from hedging reserve account are transferred in the Statement of Profit and Loss when- I) the forecast transaction materializes, or ii) the hedging instrument expires or is sold, terminated or exercised (except for the replacement or rollover of a hedging instrument into another hedging instrument where such replacement or rollover is part of the instrument's hedging strategy), or iii) the hedge no longer meets the criteria for hedge accounting in Accounting Standard (AS)- 30, Financial Instruments, Recognition and Measurement. iv) The Company revokes the designation. Exchange difference relating to Fair Value Hedge effectiveness is measured on the reporting date and exchange difference of fair value hedge is recognized in the Statement of Profit & Loss. Hedge effectiveness of financial instruments designated as Hedging instruments is evaluated at the end of each financial reporting period as per the risk management policy of the Company framed under requirements of Accounting Standard (AS) -30, 'Financial Instruments', Recognition and Measurement and Para 14A.9 of Foreign Exchange Management Act, 1999. XI. REPLENISHMENT Indigenous raw materials are to be used on occasions, for exports, to be subsequently replenished under Duty Free Entitlement Schemes of the Government of India. The cost of such indigenous raw materials is accounted for at its equivalent imported / duty free prices by adjusting the value of such entitlements granted for neutralization of the import duties and levies. XII. EMPLOYEE BENEFITS a) Defined Contribution Plan: The Company makes defined contribution to Provident Fund and Superannuation Fund, which are accounted on accrual basis. Defined Benefit Plan: The Company's Liabilities on account of Gratuity and Earned Leave on retirement of employees are determined at the end of each financial year on the basis of actuarial valuation certificates obtained from Registered Actuary in accordance with the measurement procedure as per revised Accounting Standard (AS)-15, 'Employee Benefits'. These liabilities are funded on year-to-year basis by contribution to respective funds. The costs of providing benefits under these plans are also determined on the basis of actuarial valuation at each year end. Actuarial gains and losses for defined benefit plans are recognized in full in the period in which they occur in Statement of Profit & Loss. XIII. TAXES ON INCOME a) Taxes on Income are computed using Tax Deferral Assets or Liability Method where taxes accrue in the same period as the respective revenues and expenses arises. The differences that result between the profit offered for Income Tax and the profit as per financial statements are identified for recognition as Deferred Tax Liability being timing difference, that originate in one accounting period and reverse in another, based on the tax effect of the brvailing enacted regulations in force. b) Deferred Tax Assets are recognized subject to prudence, only if there is virtual certainty that they will be realized and are subject to appropriate reviews at each balance sheet date. For the purpose of measurement of Deferred Tax Liability or Assets, the applicable tax rates and enacted regulations expected to apply in the year in which the temporary differences are expected to be recovered or settled are applied and due consideration of the relief available under the provisions of Chapter VI A of the Income Tax Act, are appropriately considered. c) The Minimum Alternate Tax credit available is adjusted against the Deferred Tax Liability / Current Tax payable as per provision of the Income Tax Act, 1961 XIV. PROVISIONS AND CONTINGENT LIABILITIES / ASSETS a) Provisions are made when the brsent obligation of a past event gives rise to a probable outflow, embodying economic benefits on settlement, and the amount of obligation can be reliably estimated. b) Contingent Liability is disclosed after careful evaluation of facts, uncertainties and possibility of reimbursement, unless the possibility of an outflow of resources embodying economic benefits is remote. c) Provisions and Contingent Liabilities are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. d) Contingent Assets are neither accounted for nor disclosed in the financial statements. XV. EARNINGS PER SHARE Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders (after deducting brference dividends and attributable taxes) among the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as a fraction of an equity shares to the extent that they were entitled to participate in dividends relative to a fully paid equity share during the reporting period. The weighted average number of equity shares outstanding during the period is adjusted for events of bonus issue, bonus element in a Rights issue to existing shareholders, share split, and reverse share split (consolidation of shares). XVI. CASH & BANK BALANCES Cash and bank balances for the purpose of cash flow statement comprise cash at bank, cash in hand, cheques in hand and other permissible instruments as per Accounting Standard (AS)-3, 'Cash flow statement. 2 Jodhpur Bench of Hon’ble Rajasthan High Court, in its interim order on constitutional validity of the levy of Entry Tax, had directed the Company to pay 50% of the assessed entry tax and provide solvent guarantee for the balance assessed and non-assessed tax and interest thereon till the date of payment. In its final order dated 11th December, 2014 the said Court dismissed the petition and discharged the interim order. The said Final Order was challenged in the Hon’ble Subrme Court, which in its interim order dated 30th January, 2015 directed to pay 50% of the arrears of the tax/demand within 6 weeks and provide bank guarantee for the balance amount. Subsequently, the Government of Rajasthan announced an Amnesty Scheme on 18th March, 2015, allowing waiver of interest & penalty if an assessee paid full amount of Entry Tax due and withdrew all legal proceedings from Courts. Company applied for amnesty under the scheme after withdrawing its petition from the Hon’ble Subrme Court and paid a sum of Rs.975.87 lac during the year towards outstanding liability of Entry Tax. Accordingly, provision for outstanding liability of Interest amounting to Rs.367.95 has been written back. 3 Foreign Trade Policy 2009-2014 introduced Status Holder Incentive Scheme (SHIS), under which an Exporter is entitled for scripts @1% of FOB Value of Exports. These scripts can be used within 18 months of the date of script, for payment of Import /Excise duties on capital goods and spare parts and are freely transferable. Based on opinion obtained from an expert, the full face value of SHIS Scripts receivable aggregated to Rs.1005.95 lac at the end of brvious years, upon ascertaining it’s probable use in the normal course of business based on projects approved by the Board. Out of aforesaid SHIS scripts for a value of Rs.1005.95 lac, scripts for a value of Rs.981.99 lac were used during the current financial year. script valuing Rs.12.83.lac could not be used on account of expiry of validity and loss on such script is accounted for in the current period. During the year, Company also purchased SHIS scripts of a face value of Rs.1048.17 lac at a price of Rs.416.33 lac .Out of this purchased SHIS scripts, scripts of the face value of Rs.1022.43 lac (Cost Rs.404.04 lac) were utilized for payment of applicable duty and difference of face value of scripts used and its cost of acquisition amounting to Rs.618.39 lac has been recognized as Other Income. SHIS script for the face value of Rs.36.87 lac (Cost Rs.12.29 lac) inclusive of own eligibility and purchase, are in hand as on 31st March, 2015 valid for utilisation within next 3 months, Utilisation thereof within the next 3 month has been ascertained. 33 After commissioning of Thermal Power Plant at Banswara in 2007, HFO fuelled Wartsila power generators at various units considered as standby, became redundant. During financial year 2012-2013, company had also invested under Group Captive Scheme in a Special Purpose Vehicle (SPV) viz. LNJ Power Ventures Limited, which on 29th March 2013 commissioned a 20 MW Wind Power Unit in Rajasthan. As per Power Purchase Agreement signed by Company with SPV, 100% power generated by SPV starting 29th March, 2013 is available for use by company for 20 years at a fixed price. Considering very high cost of retention of Wartsila Power generators and uneconomical power generation, Company decided to retire them from active use and sell them at all locations, retaining only one at Denim Unit at Mayur Nagar as back-up for use in case of extreme emergency. Pending disposal of these assets, estimated realizable value of Wartsila Generators Rs.1068.46 lac was transferred to “Assets held for sale” as on 31.03.2013. During financial year 2013-2014, Generators having carrying value of Rs.358.53 had been sold out at a value of Rs.201.69 lac, resulting into a further loss of Rs.156.64 lac. Remaining generators had been accounted for at estimated realizable value of Rs.532.33 lac as on 31st March, 2014. Out of above estimated realizable value as on 31st March, 2014, during the year Generator with carrying value of Rs.297.37 lac was sold at a value of Rs.264.19 lac resulting into further loss of Rs.33.18 lac. For remaining one generator carrying value of Rs.234.96 lac, there is a confirmed order of sale at the value of Rs.280.00 lac therefore it has been accounted for at estimated realizable value of Rs.280 lac as on 31st March, 2015. 35 The Company has adopted Accounting Standard (AS)-30 ‘Financial Instruments: Recognition and Measurement’ and the gain on account of change in effective portion of such forward contracts is taken into Hedging Reserve Rs.65.03lac as on 31/03/2015, (Previous year Rs.188.92 lac) and gain of Rs.54.76 lac on ineffective portion of hedge is taken into Statement of Profit & Loss (Previous year Loss of Rs.18.31 lac). (Refer Note 45) 36 A The loans & advances, debtors and other current assets are reviewed annually and their value in the ordinary course of business will not be less than the amount at which they are stated in the Balance Sheet as assessed by the management. However, balance confirmation from parties is under process. 36 B Response to the letter(s) sent by Company requesting confirmation of balances has been insignificant. Company notes that the Marketing and Accounting team has a system of periodical verification of balances and required adjustments are carried-on that basis regularly. In view of the above, management considered that impact of reconciliation, on receipt of balance confirmation would not be significant on the same. 37 In view of legal opinion and various reliefs available under Income Tax Act, 1961 provision for taxation has been considered adequate. 38 The figures for the brvious year have been regrouped and/or rearranged wherever found necessary to make these comparable with those of the current year. 42 ACCOUNTING STANDARD (AS) –19, ‘LEASES’ There is no disclosure under Accounting Standard (AS) 19, as there are no cancellable lease. Figures in brackets and italic in aforesaid note rebrsent brvious year figures For S. Bhargava Associates Chartered Accountants Firm Regn. No. 003191C Per SUNIL BHARGAVA Partner M. No. 70964 For S.S. Kothari Mehta & Co. Chartered Accountants Firm Regn. No. 000756N Per K. K. TULSHAN Partner M. No. 085033 Ravi Jhunjhunwala Chairman DIN No. 00060972 Arun Churiwal Managing Director &Chief Executive Officer DIN No. 00001718 Riju Jhunjhunwala Managing Director DIN No. 00061060 Prakash Maheshwari Executive Director DIN No. 02388988 B. M. Sharma Chief Financial Officer M. No. FCA 35012 Surender Gupta Company Secretary M. No. FCS 2615 Place: Kharigram, Rajasthan Date: 8th May 2015 |