NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2015 1. CORPORATE INFORMATION Escorts Limited is a public limited company domiciled in India and incorporated under the provisions of the Companies Act, 1956. The Company's shares are listed with Bombay Stock Exchange Limited, National Stock Exchange of India Limited and Delhi Stock Exchange Limited. The Company is engaged in the business of manufacturing of agricultural tractors, engines for agricultural tractors, round and flat tubes, heating elements, double acting hydraulic shock absorbers for railways coaches, center buffer couplers, automobile shock absorbers, telescopic front fork and Mcpherson struts, brake block, internal combustion engine and all types of brake used by railway's, construction, earth moving and material handling equipments. It also trades in oils and lubricants, implements, trailers, tractors, combrssor accessories and spares, construction, earth moving and material handling equipments and aero business. 2. BASIS OF brPARATION These financial statements are brpared in accordance with Indian Generally Accepted Accounting Principles (GAAP) under the historical cost convention on the accrual basis (except for certain plant and machinery, land and building which are carried at revalued amounts). GAAP comprises mandatory accounting standards as brscribed under Section 133 of the Companies Act, 2013('Act') read with Rule 7 of the Companies (Accounts) Rules, 2014, the provisions of the Act (to the extent notified) and guidelines issued by the Securities and Exchange Board of India (SEBI). Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use. 2.1 Summary of Significant Accounting Policies a. Change in Accounting Policy Effective April 01, 2014, the Company has with retrospective effect changed its policy of providing debrciation on fixed assets to Straight Line Method for all assets as against the earlier policy of providing debrciation on Straight Line Method for plant and machinery and Diminishing Balance Method for other assets. The Management believes that this change will result in more appropriate brsentation and will give a systematic basis of debrciation charge, rebrsentative of the time pattern in which the economic benefits will be derived from the use of these assets. b. Use of Estimates The brparation of financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that effect the reported amount of revenues, expenses, assets and liabilities and the disclosure of the contingent liabilities, at the end of the reporting period. Although, these estimates are based on the management's best knowledge of current events and actions, actual results could differ from these estimates, any revision to the accounting estimates is recognised in the period in which the results are known. c. Tangible Fixed Assets Fixed assets are stated at cost or at replacement cost in case of revaluation, less accumulated debrciation/amortisation and impairment losses, if any. Cost of acquisition or construction is inclusive of all incidentals and other attributable costs of bringing the asset to its working condition for its intended use and is net of available duty/tax credits. d. Intangible Fixed Assets Intangible Assets are valued at cost less accumulated amortisation and any impairment losses. e. Impairment of Assets Impairment is ascertained at each balance sheet date in respect of cash generating units as per Accounting Standard 28-'Impairment of Assets' issued by Institute of Chartered Accountants of India. An impairment loss is recognised in books of accounts in the financial year concerned whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their brsent value based on an appropriate discount factor. f. Debrciation and Amortisation Tangible Assets i. Debrciation on tangible assets is provided on the straight line method over the useful lives of assets brscribed in schedule of the Companies Act, 2013 except Leasehold Land, which is amortised over the lease period. ii. The debrciation on assets acquired/sold/discarded/demolished during the year is provided from/upto the month the asset is commissioned/sold or discarded. iii. Assets costing upto Rs. 5,000 are debrciated fully in the year of purchase. iv. Leasehold Improvements are written off over a lease period . Intangible Assets i. Prototypes including work-in-progress developed during Research and Development, tractors/construction equipment and parts thereof used for carrying R&D activities and advances given for tooling are written off over a period of four years. ii. Technical know-how fee and expenditure on major software products are written off over a period of six years. g. Inventory Valuation i. Raw Material and components, stores and machinery spares are stated at lower of cost and net realisable value. ii. Loose tools are stated at cost or under iii. Work in progress, finished and trading goods/spare parts are stated at lower of cost and net realisable value. iv. In determining the cost of raw materials and components, trading goods, tools, jigs and dies, stores and machinery spares weighted average cost method is used. v. Work in progress and finished goods include cost of conversion and other costs incurred in bringing the Inventories to their brsent location and condition. h. Revenue Recognition i. Dividend is accounted for an accrual basis when the right to receive the dividend is established. ii. Income recognition/provisions on non-performing assets is in accordance with the non-banking financial prudential norms (Reserve Bank) Directions, 2007. i. Research and Development Revenue expenditure incurred for research and development is charged to the statement of profit and loss. Fixed assets purchased for research and development activities are capitalised in the year the same are put to use. j. Employee Benefits i. Defined Contribution Plan : Employee benefits in the form of provident fund, employee state insurance and labour welfare fund are considered as defined contribution plans and the contributions are charged to the statement of profit and loss of the year when the contribution to respective funds are due. ii. Defined Benefit Plan : Retirement benefits in the form of Gratuity is considered as defined benefit obligations and are provided for on the basis of an actuarial valuation, using the projected unit credit method, as at the date of the balance sheet. Actuarial gain/losses are immediately recognised in the statement of profit and loss. iii. Other Long Term Benefits : Long term compensated absences are provided for on the basis of an actuarial valuation, using the projected unit credit method, as at the date of the balance sheet. Actuarial gain/losses are immediately recognised in the statement of profit and loss. k. Investments Investments intended to be held for less than one year are classified as current investments and are carried at lower of cost or market value. All other investments are classified as long-term investments and are carried at cost. Investments in foreign companies are stated at the exchange rates brvailing on the date of investment. A provision for diminution is made to recognise a decline other than temporary in the value of long term investments. l. Foreign Currency Transactions Transactions in foreign currency are recorded at the exchange rates brvailing at the dates of the transactions. Gains/ losses arising out of fluctuation in exchange rates on settlement are recognised in the statement of profit and loss. Foreign currency monetary assets and liabilities are restated at the exchange rate brvailing at the year-end and the overall net gain/ loss is adjusted to the statement of profit and loss. In case of forward exchange contracts, the difference between the forward rate and the exchange rate at the date of transaction is recognised in the statement of profit and loss over the life of the contract. m. Tax Expense Tax expense comprises 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 and tax laws brvailing in the respective tax jurisdictions where the company operates. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Current income tax relating to items recognized directly in equity is recognized in equity and not in the Statement of Profit and Loss. 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. In the year in which the company recognizes MAT credit as an asset in accordance with the Guidance Note on Accounting for Credit Available in respect of Minimum Alternative Tax under the Income-tax Act, 1961, the said asset is created by way of credit to the statement of profit and loss and shown as "Minimum Alternative Tax Entitlement". The company reviews the "Minimum Alternative Tax 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. Deferred tax is recognised, subject to consideration of prudence, on timing differences, rebrsenting the difference between the taxable income/(loss) and accounting income/(loss) that originated in one period and are capable of reversal in one or more subsequent periods. Deferred tax assets and liabilities are measured using tax rates and the tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets viz. unabsorbed debrciation and carry forward losses are recognised if there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. n. Borrowing Costs Borrowing costs that are attributable to the acquisition, construction of qualifying assets are capitalised as part of cost of such assets up to the date the assets are ready for its intended use. All other borrowing costs are recognised as an expense in the year in which they are incurred. o. Unamortised Expenditure Development expenditure rebrsents project related development expenditure/business process re-engineering consultancy and market research. Such expenditure is written off over a period of six years. p. Employee Stock Option Scheme In respect of stock options granted pursuant to employees stock option scheme, the intrinsic value of the options (excess of market price of the share over the exercise price of the options) is accounted as employee compensation cost over the vesting period. q Leases i. Asset acquired under leases where the company has substantially all the risks and rewards of ownership are classified as finance leases. Such assets are capitalised at the inception of the lease at the lower of the fair value or the brsent value of minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic rate of interest on the outstanding liability for each period. ii. Assets acquired on leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Lease rentals are charged to the statement of profit and loss on accrual basis. r. Government Grants Government grants are recognised when there is a reasonable assurance that the same will be received. Cash subsidies and capital grants relating to specific assets are reduced from the gross value of the respective assets, other capital grants and cash subsidies are credited to capital reserve. s. Provisions and Contingent Liabilities and Contingent Assets Provisions are recognised for liabilities that can be measured only by using a substantial degree of estimation, if i. the company has a brsent obligation as a result of a past event, ii. a probable outflow of resources is expected to settle the obligation, iii. the amount of obligation can be reliably estimated. Reimbursements expected in respect of expenditure required to settle a provision is recognised only when it is virtually certain that the reimbursement will be received. Contingent liability is disclosed in case of i. A brsent obligation arising from the past event, when it is not probable that an outflow of resources will be required to settle the obligation; ii. A possible obligation, of which the probability of outflow of resources is remote. Contingent assets are neither recognised nor disclosed. Provisions, contingent liabilities and contingent assets are reviewed at each balance sheet date. t. 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) by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they are 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 such as bonus issue, bonus element in a rights issue, share split and reverse share split that have changed the number of equity shares outstanding, without a corresponding change in resources. 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. NOTE 3: The Company has not received information from vendors regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence disclosure relating to amounts unpaid as at the year end together with interest paid/ payable under this Act have not been given. NOTE 4: The Scheme of Compromise and Arrangement pending before the Delhi High Court to bail out the fixed deposit holders of Escorts Finance Limited stands disposed-off vide order dated March 4, 2011. On the interim directions of the said High Court, fixed deposit liability of X 130.32 crores has already been discharged by the Hardship Committee constituted under the directions of the said High Court for discharging the unclaimed deposit, balance 2,401,050 shares have been transferred to Escorts Benefit Trust (Trust) and the Hardship Committee has been dissolved. The Hon'ble High Court has confirmed that Escorts Limited has no outstanding liability towards payment to Escorts Finance Limited deposit holders. NOTE 5: Escorts Benefit and Welfare Trust holds 37,300,031 equity share of Escorts Limited, the sole beneficiary of which is the company. The Dividend received by the Trust on these shares is recognised in the statement of profit and loss account in Notes No: 4 - Reserves and Surplus NOTE6: Accounting for Leases (AS-19). Details as per Annexure - II NOTE 7: Figures have been rounded off to the nearest lakh rupees. Previous period figures regrouped/rearranged wherever necessary. NOTE 10: The brvious accounting period is for 18 months (from October 1, 2012 to March 31, 2014) and is not comparable with the current year. |