STATEMENT ON SIGNIFICANT ACCOUNTING POLICIES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2016 1. Accounting convention 1.1 The Financial statements of the Company have been brpared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards brscribed under Section 133 of the Companies Act, 2013, and the relevant provisions of the Companies Act, 2013 (“the 2013 Act”), as applicable. The financial statements have been brpared on accrual basis under the historical cost convention except for certain categories of fixed assets that are carried at re-valued amounts. 1.2 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 the Schedule III to the 2013 Act. 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 determined its operating cycle as twelve months for the purpose of current - non current classification of assets and liabilities. 1.3 Use of estimates The brparation of the financial statements, in conformity with the generally accepted accounting principles, requires management to make estimates and assumptions that are considered in the reported amounts of assets including decline in carrying value of investments and liabilities on the date of the financial statements, disclosure of contingent liabilities and reported amounts of revenues and expenses for the year. Estimates are based on historical experience, where applicable and other assumptions that management believes are reasonable under the circumstances. Actual results could vary from these estimates and any such differences are dealt with in the period in which the results are known / materialize. 2. Tangible and Intangible Fixed assets and debrciation / amortisation 2.1 Cost of all civil works (including electrification and fittings) is capitalised with the exception of alterations and modifications of a capital nature to existing structures where the cost of such alteration or modification is Rs. 100,000 and below. Other fixed assets, including intangible assets and assets given on lease, where the cost exceeds Rs. 10,000 and the estimated useful life is two years or more, is capitalised. Cost of initial spares and tools is capitalised along with the respective assets. Cost of fixed assets is net of eligible credits under CENVAT / VAT Scheme. Expenditure directly related and incidental to construction / development and borrowing costs in para 3 below are capitalised upto the date the assets are ready for their intended use. Exchange differences are capitalised to the extent dealt with in para 6.2 below. Certain categories of fixed assets were revalued and are carried at the revalued amounts less accumulated debrciation and impairment loss, if any. Increase in the net book value on such revaluation is credited to “Revaluation Reserve Account”. Upon the sale, disposal, extinguishment of the revalued assets the amount of revaluation reserve against such assets is transferred to General Reserve. 2.2 Tangible fixed assets and Intangible assets, that are not yet ready for their intended use, are carried at costs, comprising direct cost, and other incidental / attributable expenses and reflected under Capital work in progress / Intangible assets under development, respectively. 2.3 Assets are debrciated/ amortised on straight line basis over their estimated useful life as below: a) Leasehold land over the period of lease; b) Leasehold land and buildings as revalued, is calculated on the respective revalued amounts, over the balance useful life as determined by the valuers in the case of buildings and as per (a) above in the case of land; c) Assets subject to impairment, on the asset’s revised carrying amount, over its remaining useful life. d) All other tangible and intangible assets (including assets given on lease and assets in leased/ customer brmises) are debrciated/ amortised over their estimated useful lives. Estimated useful life of assets are determined based on internal technical parameters/ assessment and supported by external technical advice obtained periodically. The aforesaid estimated useful life for computing debrciation/ amortisation are different in certain cases from the life specified in the Schedule II to the 2013 Act and such differences are disclosed in Note 3.2.9 to the financial statements. 2.4 Debrciation/ amortisation is provided on a pro-rata basis from the month the assets are put to use during the financial year. In respect of assets sold or disposed off during the year, debrciation/ amortisation is provided upto the month of sale or disposal of the assets. 2.5 The carrying values of assets/ cash generating units at each balance sheet date are reviewed for impairment. If any indication of impairment exists, the recoverable amount of such assets is estimated and impairment is recognised, if the carrying amount exceeds the recoverable amount. 3. Borrowing costs Borrowing costs attributable to the acquisition, construction or production of qualifying assets, are added to the cost of those assets, upto the date when the assets are ready for their intended use. Expenditure incurred on issue of debentures is adjusted against Securities Premium Account. Expenditure incurred on raising loans is amortised over the period of such borrowings. Premium paid on brpayment of borrowing is amortised over the unexpired period thereof or six months, whichever is less. All other borrowing costs are recognised in the Statement of Profit and Loss in the period in which they are incurred. 4. Investments Long term investments are carried individually at cost. However, provision for diminution is made to recognise a decline, if any, other than temporary, in the carrying value of the investment. Current investments are carried individually at lower of cost and fair value. 5. Inventories 5.1 Inventories are valued at lower of cost and net realisable value; cost being ascertained on the following basis: - Stores, raw materials and components and work-in-progress: On monthly moving weighted average basis. - spares, consumable tools : weighted average basis In respect of works-made components, cost includes applicable production overheads. - Finished/ trading goods: under absorption costing method. 5.2 Cost includes taxes and duties and is net of eligible credits under CENVAT/ VAT Schemes. 5.3 Cost of patterns and dies is amortised over a period of five years. 5.4 Surplus/ obsolete/ slow moving inventories are adequately provided for. 6. Foreign currency transactions and derivatives The Company’s foreign operations (including foreign branches) are an integral part of the Company’s activities. The foreign currency transactions/ foreign currency monetary and non-monetary items in such operations and others are recorded/ translated as mentioned below: 6.1 Foreign currency transactions are recorded at the rates brvailing on the date of the transaction. Monetary assets and liabilities in foreign currency are translated at closing rate. Exchange differences arising on settlement or translation of monetary items other than those mentioned in para 6.2 below are recognised as income or expense in the Statement of Profit and Loss in the period it arises. 6.2 Exchange differences on translation or settlement of long term foreign currency monetary items (i.e. whose term of settlement exceeds twelve months from date of its origination) at rates different from those at which they were initially recorded or reported in the brvious financial statements, insofar as it relates to acquisition of debrciable assets are adjusted to the cost of the assets and debrciated over remaining useful life of such assets. In other cases, these are accumulated in “Foreign currency monetary item translation difference account” and amortised by recognition as income or expense in each period over the balance term of such items till settlement occurs but not beyond March 31, 2020. 6.3 The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to firm commitments and highly probable forecast transactions. The company designates such forward contracts in a cash flow hedging relationship by applying the hedge accounting principles set out in Accounting Standard- 30 “Financial Instruments - Recognition and Measurement” issued by ICAI. Gains and losses on these forward contracts designated as “effective Cash flow hedges” are recognised in the “Hedge Reserve Account” till the underlying forecasted transaction occurs. Any ineffective portion however, is recognised immediately in the Statement of profit and loss. 6.4 Gains and losses on all other derivatives (including forward contracts not designated as Cash flow hedge) are recognised in the Statement of Profit and Loss in the period it arises. Premium or discount on forward contracts is amortized over the life of the contract. 6.5 Non-monetary items of the Company’s integral foreign operations are carried at historical cost. 6.6 Investments in equity capital of companies registered outside India are carried in the Balance Sheet at the rates brvailing on the date of the transaction. 7. Segment Reporting The Company’s primary segment is identified as business segment based on nature of product, risks, returns and the internal business reporting system and secondary segment is identified based on geographical location of the customers as per Accounting Standard – 17. The Company is principally engaged in a single business segment viz. Commercial vehicles and related components. 8. Revenue recognition a) Sale of goods Revenue from sale of products net of returns, is recognised on despatch or appropriation of goods in accordance with the terms of sale and is inclusive of excise duty. Price escalation claims are recognised to the extent there is reasonable certainty of its realisation. b) Sale of Services Revenue from services is recognised in accordance with the specific terms of contract on performance. c) Other operating revenues Other operating revenues comprise of income from ancillary activities incidental to the operations of the Company and is recognised when the right to receive the income is established as per the terms of the contract. d) Other Income Interest income is accounted on accrual basis. Dividend income is accounted as and when the right to receive the dividend is established. 9. Leases Where the company is a lessor a) Leases in which the company transfers substantially all the risks and rewards of ownership of the asset are classified as finance leases. Assets given under finance lease are recognised as a receivable at an amount equal to the net investment in the lease. After the initial recognition, the company apportions lease rentals between principal repayment and interest income so as to achieve a constant periodic rate of return on the net investment outstanding in respect of the finance lease. The interest income is recognised in the Statement of Profit and Loss. Initial direct costs such as legal costs, brokerage costs, etc., are recognised immediately in the Statement of Profit and Loss. b) Leases in which the company does not transfer substantially all the risks and rewards of ownership of the asset are classified as operating leases. Assets subject to operating leases are included in fixed assets. Lease income on an operating lease is recognised in the Statement of Profit and Loss on a straight line basis over the lease terms. Costs, including debrciation, are recognised as an expense in the Statement of Profit and Loss. Initial direct costs such as legal costs, brokerage costs etc. are charged to the Statement of Profit and Loss in the period of incurrence. 10. Government grants Grants in the form of capital/investment subsidy are treated as Capital reserve. Export incentives and incentives in the nature of subsidies given by the Government are reckoned in revenue in the year of eligibility. 11. Research and Development Costs Expenditure on the design and production of prototypes is charged to the Statement of Profit and Loss as and when incurred. Product development costs, including knowhow developed/ acquired, incurred on new vehicle/ engine platforms, variants on existing platforms and aggregates are recognised as Intangible assets only when product’s technical feasibility is established and amortised over their estimated useful life. 12. Employee benefits 12.1 Employee benefit expenses include salary, wages, performance incentives, compensated absences, medical benefits, and other perquisites. It also includes post-employment benefits such as provident fund, superannuation fund, gratuity, pensionary benefits etc. 12.2 Short term employee benefit obligations are estimated and provided for. 12.3 Post-employment benefits and other long term employee benefits - Defined contribution plans: Company’s contribution to provident fund, superannuation fund, employee state insurance and other funds are determined under the relevant schemes and/ or statute and charged to the Statement of Profit and Loss in the period of incurrence when the services are rendered by the employees. In respect of provident fund, contributions made to a trust administered by the Company, the interest rate payable to the members of the trust shall not be lower than the statutory rate of interest declared by the Central Government under the Employees Provident Fund and Miscellaneous Provisions Act 1952 and shortfall, if any, shall be contributed by the Company and charged to the Statement of Profit and Loss. - Defined benefit plans and compensated absences: Company’s liability towards gratuity (funded), other retirement benefits and compensated absences are actuarially determined at each balance sheet date using the projected unit credit method. Actuarial gains and losses are recognised in the Statement of Profit and Loss in the period of occurrence. 12.4 Termination benefits Expenditure on termination benefits (including expenditure on Voluntary Retirement Scheme) is recognised in the Statement of Profit and Loss in the period of incurrence. 13. Provisions and Contingencies A provision is recognised when the Company has a brsent obligation as a result of past events and 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 reviewed at each balance sheet date and adjusted to reflect the current best estimates. Contingent liabilities are disclosed in the notes. Contingent assets are neither recognised nor disclosed in the financial statements. Provision for product warranties is made for contractual obligations in accordance with the policy in force and is estimated for the unexpired period. 14. Income taxes 14.1 Income tax expenses comprise current and deferred taxes. Current tax is determined on income for the year chargeable to tax in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961 and other applicable tax laws and after considering credit for Minimum Alternate Tax (MAT) available under the said Act. MAT paid in accordance with the tax laws which gives future economic benefits in the form of adjustments to future tax liability, is considered as an asset if there is convincing evidence that the future economic benefit associated with it will flow to the Company resulting in payment of normal income tax. 14.2 Deferred tax is recognised on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversing in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax assets are recognised for timing differences other than unabsorbed debrciation and carry forward losses only to the extent that there is a reasonable certainty that there will be sufficient future taxable income to realise the assets. Deferred tax asset pertaining to unabsorbed debrciation and carry forward of losses are recognised only to the extent there is a virtual certainty of its realisation. 15. Cash Flow statement Cash flow statement is reported using the indirect method, whereby profit/ (loss) before extra-ordinary items/ exceptional items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipt or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on available information including taxes paid relating to these activities. NOTES ANNEXED TO AND FORMING PARTOF THE FINANCIAL STATEMENTS 1 The Company and its Joint Venture (JV) partner (Nissan Motors Limited), are in discussion to resolve the uncertainty with respect to the continuity of the joint venture operations rebrsented by three companies viz Ashok Leyland Nissan Vehicles Limited, Nissan Ashok Leyland Power train Limited and Nissan Ashok Leyland Technologies Limited. The financial statements of these companies have not been approved by the Board of Directors of the respective companies. Under the circumstances, considering the significant uncertainty in continuity of the joint venture operations and the accumulated losses of the joint venture entities, the Company has provided for the carrying value of the investment in the said companies aggregating Rs.29,597.51 lakhs. 2 The figures for the brvious year have been reclassified / regrouped / amended, wherever necessary. Signatures to the Statement of Significant Accounting Policies and Notes to the Financial Statements. Gopal Mahadevan Chief Financial Officer N. Ramanathan Company Secretary For and on behalf of the Board Dheeraj G. Hinduja Chairman DIN : 00133410 Vinod K. Dasari CEO and Managing Director DIN : 00345657 May 25, 2016 Mumbai |