NOTES TO THE FINANCIAL STATEMENTS for the year ended December 31, 2015 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (A) Basis of Preparation The financial statements have been brpared to comply in all material respects with the Accounting Standards notified under Section 133 of the Companies Act, 2013 (‘the Act’) read with Rule 7 of the Companies (Accounts) Rules, 2014, accounting standards issued by Institute of Chartered Accountants of India (ICAI), other accounting principles generally accepted in India and the relevant provisions of the Companies Act, 2013. The financial statements have been brpared under the historical cost convention on an accrual basis except for certain financial instruments which are measured on a fair value basis. The accounting policies have been consistently applied by the Company and are consistent with those used in the brvious year. The financial statements are brsented in Indian rupees million rounded off to one decimal place. 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 to the Act. Based on the nature of the services and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as twelve months for the purpose of current or non-current classification of assets and liabilities. (B) Use of Estimates The brparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and disclosure of contingent liabilities at the date of the financial statements and 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. Any revision in accounting estimates is recognised prospectively in current and future periods. (C) Fixed Assets and Debrciation (i) Fixed assets are stated at cost of acquisition or construction (including directly attributable expenses thereto) or at revalued amounts, net of impairment loss if any, less debrciation / amortisation. Cost includes financing costs of borrowed funds attributable to acquisition or construction of qualifying fixed assets, up to the date the assets are put to use. Acquired intangible assets are recorded at its acquisition price and amortised over its estimated useful life as per the Company’s debrciation / amortisation policy. (ii) Debrciation / Amortisation: (a) Tangible assets: (i) Leasehold land is debrciated over the period of the lease except where the lease is convertible to freehold land under lease agreements at future dates. (ii) Pursuant to the Schedule II to the Act being applicable to Company with effect from January 1, 2015, debrciation is provided on straight line method and the Company has adopted the useful lives as specified in Part ‘C’ of Schedule II of the Act (refer note 10). (iii) Assets individually costing M 5,000 or less are debrciated fully in the year when the assets are put to use. (b) Intangible assets: These are amortised on straight line method over a period of three years. (D) Impairment The carrying amounts of assets are reviewed at each Balance Sheet date to determine if there is any indication of impairment based on internal / external factors. Assessment of indication of impairment of an asset is made at the year end and impairment loss, if any, recognised. An impairment loss is recognised 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 value in use. In assessing value in use, the Company measures its ‘value in use’ on the basis of discounted cash flows of projections estimated based on current prices. After impairment, debrciation is provided on the revised carrying amount of the asset over its remaining useful life. (E) Investments Investments that are readily realisable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long term investments. Current investments are valued at the lower of cost and fair value. Changes in the carrying amount of current investments are recognised in the Statement of Profit and Loss. Long-term investments are valued at cost, less any provision for diminution to recognise a decline, other than temporary, in the value of such investments; decline, if any, is charged to the Statement of Profit and Loss. Cost comprises cost of acquisition and related expenses such as brokerage and stamp duties. (F) Inventories Inventories are valued at the lower of cost and net realisable value. Cost is ascertained on a moving weighted average basis except for goods in transit which is ascertained on a specific identification basis. Work-inprogress and manufactured finished goods are valued on full absorption cost basis and include material, labour and factory overheads. (G) Foreign Currency Transactions 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 brvailing at the date of transaction. Conversion Foreign currency monetary items are reported using the closing rate. Exchange Differences Exchange differences arising on the settlement of monetary items or on reporting Company’s monetary items at rates different from those at which they were initially recorded during the year, or reported in brvious financial statements, are recognised as income or as expense in the year in which they arise. Derivatives (i) In case of forward contracts, to which AS-11, "The Effects of Changes in Foreign Exchange Rates" applies, the difference between the forward rate and the exchange rate on the date of the contract is recognised as income or expense over the life of the contract. Exchange differences on such a contract are recognised in the Statement of Profit and Loss in the period in which the exchange rates change. The gains / losses arising on settlement / cancellation of the contracts are recognised as income / expense in the Statement of Profit and Loss of the period of such settlement / cancellation. (ii) The Company enters into forward exchange contracts to cover its exposure in respect of highly probable transactions or firm commitments and no brmium or discount is recorded separately on such forward exchange contracts. (iii) The Company has adopted the principles of hedge accounting set out in Accounting Standard (AS)-30, ‘Financial Instruments: Recognition and Measurement’ issued by Institute of Chartered Accountants of India with effect from August 1, 2014 for the purpose of accounting of forward contracts entered into by the Company to hedge highly probable transactions on firm commitments which are outside the scope of AS-11. 'The Effects of Changes in Foreign Exchange Rates'. These contracts are marked to market as at the year end and the resultant gain or loss (except relating to the effective portion of cash flow hedges) from these transactions are recognised in the Statement of Profit and Loss. The gain or loss on effective portion of cash flow hedges is recorded in the Hedging Reserve (reported under the head "Reserves and Surplus") which is transferred to the Statement of Profit and Loss in the same period in which the hedged item affects the Statement of Profit and Loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in hedging reserve is reclassified in the Statement of Profit and Loss. Also refer note 42. (H) Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. (i) Sale of goods is recognised on shipment or dispatch to customers when the risks and rewards of ownership are transferred to the customer. "Sales" are net of sales tax, value added tax, returns, trade discounts and volume rebates. (ii) Commission income on indenting business is recognised based on intimation received for sales made. (iii) Dividend income from investments is recognised when the Company’s right to receive payment is established. (iv) Interest income is accounted for on a time proportion basis taking into account the amount outstanding and the rate applicable. (v) Claims are accounted to the extent lodged with the appropriate authorities. Export incentives are accounted on accrual basis based on shipment. (vi) Rental Income is accounted for on accrual basis. (I) Employee Benefits (i) Short-term employee benefits: Employee benefits payable wholly within twelve months of rendering the service are classified as short term employee benefits and are recognised in the period in which the employee renders the related service. (ii) Post-employment benefits (defined benefit plans): All employees are covered under Employees’ Gratuity Scheme which is a defined benefit plan. The Company contributes to the Fund on the basis of the year-end liability actuarially determined in pursuance of the Scheme. All actuarial gains / losses arising during the accounting year are recognised immediately in the Statement of Profit and Loss as income or expense. The Company makes contributions, determined as a specified percentage of employee salaries, in respect of certain employees towards Provident Fund to a Company managed PF Trust. The contributions are charged to Statement of Profit and Loss as they accrue. The Company has an obligation to fund any shortfall in the Trust fund as determined on the basis of year-end actuarial valuation. (iii) Post-employment benefits (defined contribution plans): All other employees are covered under contributory provident fund benefit of a contribution of 12% of salary and certain allowances. Certain employees are also covered by a Company managed Superannuation fund benefit at a contribution of 15% of salary and certain allowances. Both are defined contribution schemes and the contributions are charged to the Statement of Profit and Loss of the year when the contributions to the respective funds are due. There are no obligations other than the contributions payable to the respective fund. (iv) Long-term employee benefits: Long term employee benefits comprise of compensated absences. These are measured on the basis of year-end actuarial valuation in pursuance of the Company’s leave rules. (J) Warranty Warranty expenses are accounted for based on actual experience of claims received during the last three years. (K) Income and Deferred Taxes 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 Indian Income Tax Act, 1961. Deferred income tax reflect 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 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 situations where the Company has unabsorbed debrciation or carry forward tax losses, 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 reassesses unrecognised deferred tax assets. It recognises unrecognised deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realised. (L) 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. Diluted EPS is computed by dividing the net profit attributable to the equity shareholders for the year by the weighted average number of equity and equivalent diluted equity shares outstanding during the year, except where the results would be antidilutive. (M) Operating Lease Lease, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased asset during the lease term, are classified as operating leases. Operating lease payments and receipts are recognised as an expense and income respectively in the Statement of Profit and Loss on a straight-line basis over the lease term. (N) Provisions and Contingencies A provision is recognized when an enterprise 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 and 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. A disclosure by way of a contingent liability is made when there is a possible obligation or a brsent obligation that may, but probably will not, require an outflow of resources. Contingent Assets are not recognised or disclosed in the financial statements. (O) Cash and Cash Equivalents Cash and cash equivalents in the cash flow statement comprise cash at bank and cash / cheques in hand and short term deposits with Banks. 2 Research and Development expenses under the respective heads aggregate to M120.9 million (Previous year M 97.7 million) including of capital nature Rs. Nil (Previous year Rs. 0.2 million). 3 The tax year for the Company being the year ending March 31, 2016, the provision for taxation for the year is the aggregate of the provision made for the three months ended March 31, 2015 and the provision based on the figures for the remaining nine months up to December 31, 2015 the ultimate tax liability of which will be determined on the basis of the figures for the period April 1, 2015 to March 31, 2016. The Company's international and domestic transactions with associated enterprises are at arm's length as per the independent accountant's report for the year ended March 31, 2015. The Company is in the process of updating the documentation for the international and domestic transactions entered into with the associated enterprises during the period subsequent to March 31, 2015. Management believes that the Company's international and domestic transactions with associated enterprises post March 31, 2015 continue to be at arm's length and that the transfer pricing legislation will not have any impact on the financial statements particularly on the amount of the tax expense for the year and the amount of the provision for taxation at the year end. 4 DUES TO MICRO, SMALL AND MEDIUM ENTERPRISES Under the Micro, Small and Medium Enterprises Development Act, 2006, (MSMED) which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. On the basis of the information and records available with the management, there are no outstanding dues to the Micro and Small enterprises as defined in the Micro, Small and Medium Enterprises Development Act, 2006. CORPORATE SOCIAL RESPONSIBILITY The Company has spent Rs.30.7 million during the current financial year which consists of capital expenditure amounting Rs. 14.9 million and revenue expenditure amounting Rs. 15.8 million. Out of Rs. 30.7 million, the Company has paid out Rs. 29.9 million in cash during the year and Rs. 0.8 million is yet to be paid. As per our report of even date attached For B S R & Co. LLP Chartered Accountants Firm's Reg. No. 101248W / W-100022 Vijay Mathur Partner Membership No. 046476 Mumbai: February 12, 2016 For and on behalf of the Board of Directors of FAG Bearings India Limited Avinash Gandhi Chairman Rajendra Anandpara Managing Director Satish Patel Chief Financial Officer Raj Sarraf Company Secretary Mumbai: February 12, 2016 |