Summary of significant accounting policies and other explanatory information to the standalone financial statements as at and for the year ended 31 December 2015 CORPORATE INFORMATION ITD Cementation India Limited ('ITD Cem' or 'the Company') was incorporated in 1978 and is engaged in construction of a wide variety of structures like maritime structures, mass rapid transport systems (MRTS), dams & tunnels, airports, highways, bridges & flyovers and other foundations and specialist engineering work. The activities of the Company comprise only one business segment viz Construction. 1. SIGNIFICANT ACCOUNTING POLICIES A. Basis of accounting and brparation of standalone financial statements The standalone financial statements of the Company have been brpared to comply in all material respects with the accounting standards notified by the Companies (Accounting Standards) Rules, read with Rule 7 to the Companies (Accounts) Rules 2014 in respect of Section 133 to the Companies Act, 2013. The standalone financial statements are brpared under the historical cost convention, on an accrual basis of accounting. The accounting policies applied are consistent with those used in the brvious year. B. Accounting estimates The brparation of the standalone financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as at the date of standalone financial statements and the results of operation during the reported period. Although these estimates are based upon management's best knowledge of current events and actions, actual results could differ from these estimates. C. Fixed assets Tangible assets are stated at cost, less accumulated debrciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Borrowing costs relating to acquisition of fixed assets which takes substantial period of time to get ready for its intended use are also included to the extent they relate to the period till such assets are ready to be put to use. Subsequent expenditures related to an item of tangible 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. Capital work in progress rebrsents expenditure incurred in respect of capital projects under development and are carried at cost. Cost includes related acquisition expenses, construction cost and other direct expenditure. D. Debrciation on tangible fixed assets (i) Debrciation on tangible assets is provided on straight line basis at useful life brscribed in Schedule II to the Companies Act, 2013 on a pro-rata basis. However, certain class of plant and machinery are debrciated on the useful life different from the useful life brscribed in Schedule II to the Companies Act, 2013 having regard to useful life of those assets in construction projects based on the management's experience of use of those assets which is in line with industry practices. (ii) Leasehold improvements are amortized over the lease period or useful life whichever is lower. (iii) Debrciation for additions to/deductions from, owned assets is calculated pro rata from/to the month of additions/ deductions. E. Impairment of assets The carrying amounts of the Company's assets are reviewed at each balance sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets net selling price and its value in use. Impairment loss is recognized in the Statement of Profit and Loss or against revaluation surplus where applicable beyond the carrying value that would have brvailed by charging usual debrciation if there was no impairment. A brviously recognized impairment loss is increased or reversed depending on changes in circumstances. However the carrying value after reversal is not increased beyond the carrying value that would have brvailed by charging usual debrciation if there was no impairment. F. Investments Investments, which are readily realisable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as non-current investments. Current investments are carried in the standalone financial statements at lower of cost or fair value determined on an individual investment basis. Non-current investments are carried at cost and provision for diminution in value is made to recognise a decline other than temporary in the value of the investments. Investments in integrated Joint Ventures are carried at cost net of adjustments for Company's share in profits or losses as recognized. G. Inventories i. Construction materials are valued at cost. Cost is determined on a first-in, first-out method and comprises the purchase price including duties and taxes (other than those subsequently recoverable by the Company from the taxing authorities). ii. Tools and equipment are stated at cost less the amount amortised. Tools and equipment are amortised over their estimated useful lives ranging from 3 to 10 years. Cost is determined by the weighted average method. iii. Machinery spares that are of regular use are charged to the statement of profit and loss as and when consumed. iv. Unbilled work in progress: Work done remaining to be certified/billed is recognized as unbilled work in progress provided it is probable that they will be recovered in the accounts. The same is valued at the realizable value. H. Revenue recognition i) On contracts Revenue from construction contracts is recognised on the basis of percentage completion method. The stage of completion of a contract is determined by the proportion that contract costs incurred for work performed upto the reporting date bear to the estimated total contract costs. Contract revenue earned in excess of certification has been classified as "Unbilled work-in-progress" and certification in excess of contract revenue has been classified as "Other current liabilities" in the standalone financial statements. Amounts recoverable in respect of the price and other escalation, bonus claims adjudication and variation in contract work required for performance of the contract to the extent that it is probable that they will result in revenue. In addition, if it is expected that the contract will make a loss, the estimated loss is immediately provided for in the books of account. Contractual liquidated damages, payable for delays in completion of contract work or for other causes, are accounted for as costs when such delays and causes are attributable to the Company or when deducted by the client. ii) Accounting for Joint Venture Contracts a) Revenue from unincorporated joint ventures under profit sharing arrangements is recognized to the extent of the Company's share of profit in unincorporated joint ventures. The share of profit / loss is accounted based on the audited financial statements of Joint Ventures and is reflected as Investments in the Balance sheet. b) Revenue from long term construction contracts executed in unincorporated joint ventures under work sharing arrangements is recognized on the same basis as similar contracts independently executed by the Company. (iii) Service Income from Joint ventures Service income is accounted on accrual basis in accordance with the terms of agreement with unincorporated Joint ventures. (iv) Insurance claims Insurance claims are recognized as income based on certainty of receipt. (v) Interest Income and other income Interest and other income are accounted for on accrual basis except where the receipt of income is uncertain in which case it is accounted for on receipt basis. I. Advances from customers, progress payments and retention Advances received from customers in respect of contracts are treated as liabilities and adjusted against progress billing as per terms of the contract. Progress payments received are adjusted against amount receivable from customers in respect of the contract work performed. Amounts retained by the customers until the satisfactory completion of the contracts are recognised as receivables. Where such retention has been released by customers against submission of bank guarantees, the amount so released is adjusted against receivable from customers and the value of bank guarantees is disclosed as a contingent liability. J. Foreign currency transactions i. 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 at the date of the transaction. ii. Conversion Foreign currency monetary items are reported using the closing rate. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction. iii. 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 standalone financial statements, are recognized as income or as expenses in the year in which they arise. iv. Forward exchange contracts not intended for trading or speculation purposes The brmium or discount arising at the inception of forward exchange contracts is amortized as expense or income over the life of the contract. Exchange differences on such contracts are recognized in the statement of profit and loss in the year in which the exchange rates change. Any profit or loss arising on cancellation or renewal of forward exchange contract is recognized as income or as expense for the year. K. Employee benefits i. Defined benefit plan In terms of the Guidance on implementing Accounting Standard (AS) 15 - Employee Benefits, issued by the Accounting Standards Board of the Institute of Chartered Accountants of India, the Provident Fund set up by the Company is treated as a defined benefit plan. This is administered through trusts of the Company. The Company has to meet the interest shortfall, if any. Accordingly, the contribution paid or payable and the interest shortfall, if any, is recognised as an expense in the period in which services are rendered by the employee. Further, the pattern of investments for investible funds is as brscribed by the Government. Accordingly, other related disclosures in respect of provident fund have not been made. Further company has defined benefit plans for post-employment benefits in the form of Gratuity. The Company has taken an insurance policy under the Group Gratuity Scheme with the insurance company to cover the Gratuity Liability. The liability for Defined Benefit Plans is provided on the basis of valuations, as at the Balance Sheet date, carried out by an independent actuary. The obligations are measured as the brsent value of estimated future cash flows discounted at rates reflecting the brvailing market yields of Indian Government securities as at the Balance Sheet date for the estimated term of the obligations. The estimate of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors. The expected rate of return of plan assets is the Company's expectation of the average long-term rate of return expected on investments of the fund during the estimated term of the obligations. Plan assets are measured at fair value as at the Balance Sheet date. The actuarial valuation method used by independent actuary for measuring the liability is the Projected Unit Credit method. ii. Defined contribution plan: The certain employees of the Company are also participant in the superannuation plan, employee state insurance scheme and Labour Welfare Fund scheme which is a defined contribution plan. The Company has no obligations to the Plan beyond its contributions. The company's contributions to Defined Contribution Plans are charged to the Statement of Profit and Loss as incurred. iii. Other employee benefits The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefit for the measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuations using the projected unit credit method at the period end. Accumulated leave which is expected to be utilised within next 12 months, is treated as short-term employee benefit. Actuarial gains and losses in respect of the defined benefit plans are recognised in the Statement of Profit and Loss in the period in which they arise. L. Earnings Per Share Basic earnings per share is calculated by dividing the net profit or loss after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The number of shares used in computing diluted earnings per share comprises the weighted average number of shares considered for deriving basic earnings per share and also the weighted average number of shares which could have been issued on conversion of all dilutive potential equity shares. M. Taxation Current tax Provision for current tax is recognized based on the estimated tax liability computed after taking credit for allowances and exemptions in accordance with the Income Tax Act, 1961. Minimum Alternative Tax (MAT) credit is recognised as an asset only when and to the extent there is convincing evidence that the company will pay normal income tax during the specified period. In the year in which the MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in Guidance Note issued by the Institute of Chartered Accountants of India, the said asset is created by way of a credit to the Statement of Profit and Loss and shown as MAT Credit Entitlement. The Company reviews the same at each balance sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the effect that Company will pay normal Income Tax during the specified period. Deferred tax Deferred tax assets and liabilities are recognized for the future tax consequences attributable to timing differences between the standalone financial statements' carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates or tax rates that are substantively enacted at the balance sheet dates. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in the period that includes the enactment date. Where there is unabsorbed debrciation or carry forward losses, deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realised against future taxable profits. Other deferred tax assets are recognized only to the extent there is reasonable certainty of realization in the future. Such assets are reviewed at each balance sheet date to reassess realization. Timing differences originating and reversing during the tax holiday period are not considered for the purpose of computing deferred tax assets and liabilities. N. Leases Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased term, are classified as operating leases. Operating lease payments are recognized as an expense in the Statement of Profit and Loss account on a straight-line basis over the lease term. O. Provisions and Contingent Liabilities A provision is recognized 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 not discounted to their brsent value and are determined based on management's best estimates 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. Contingent Liabilities are disclosed in respect of possible obligations that arise from past events, whose existence would be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company. Contingent assets are neither recognised nor disclosed in the standalone financial statements. P. Cash and cash equivalents Cash and cash equivalents comprise of cash at bank and cash in hand. The Company considers all highly liquid investments with an original maturity of three month or less from date of purchase, to be cash equivalents. 1 Trade receivables and Unbilled Work-in-progress as at 31 December 2015 include amounts aggregating Rs.3,033 lakhs (31 December 2014 – Rs.2,655 lakhs) and Rs.479 lakhs (31 December 2014 - Rs.1,584 lakhs) respectively, which have been outstanding for a substantial period of time . The Company has been actively negotiating for recovery and also pursuing legal action of the balance receivables. In view thereof, management is reasonably confident of their recovery. 2 (a) Long-term trade receivables at 31 December 2015 include variation claims of Rs.309 lakhs (31 December 2014 - Rs.309 lakhs) for which the Company had received an arbitration award in its favour which has subsequently been upheld by the District Court. The customer has challenged this Court Order. However, based on the above arbitration award, Court Order and legal opinion, management is reasonably confident of recovery of these amounts. (b) Long-term trade receivables and unbilled work-in-progress at 31 December 2015 include Rs.1,140 lakhs (31 December 2014 - Rs.1,140 lakhs ) and Rs.2,756 lakhs (31 December 2014 - Rs.2,756 lakhs) respectively, in respect of a contract which has been rescinded by the Company and long-term trade receivables and unbilled work-in-progress as at 31 December 2015 includes Rs.1,414 lakhs (31 December 2014 - Rs.1,414 lakhs) and Rs.5,922 lakhs (31 December 2014 - Rs.5,922 lakhs) respectively, in respect of another contract where the Company has received a notice from the customer withdrawing from the Company the balance works to be executed under the contract for which the Company has also issued guarantees aggregating Rs.1,497 lakhs (31 December 2014 - Rs.1,497 lakhs). The Company has made claims against the customer to recover these amounts and has initiated legal action. Based upon legal opinion received, management is reasonably confident of recovery of these amounts of long term trade receivable and unbilled work-in-progress and consequently no changes have been made to the values and classification of these amounts in the standalone financial statements. 3 (a) During the year ended 31 December 2015, the Company has signed a definitive agreement with the National Highways Authority of India (NHAI) under which both parties have agreed to settle all awards received, claims under consideration at various forums, pending disputes and amounts outstanding in the Company's and joint venture's books of account under trade receivables and unbilled work-in-progress in respect of all the contracts executed by the company and Joint Venture. Pursuant to this settlement the Company including its share in Joint Venture has accounted for the resultant loss on the settlement of Rs.12,397 lakhs which has been disclosed as an exceptional item. (b) During the year ended 31 December 2014, the Company had, with retrospective effect, changed its method of providing debrciation on fixed assets from the 'Written Down Value' method to the 'Straight Line' method effective 1 October 2014. The change in the above accounting policy has resulted in a surplus of Rs.9,553 lakhs relating to the debrciation already charged upto the period ended 30 September 2014 which has been disclosed as an exceptional item in brvious year. 4 Micro and Small Enterprises There are no Micro and Small Enterprises, to whom the Company owes dues, which are outstanding for more than 45 days as at 31 December 2015. This information as required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006, has been determined to the extent such parties have been identified on the basis of information available with the Company. There is no interest paid or pavable during the year. 5 Operating lease (Contd..) c) General descriptions of non-cancellable lease terms : - Lease rentaLs are charged on the basis of agreed terms. - Assets are taken on lease over a period of 3-5 years. - The Company did not sublease any of its assets and hence did not receive any sub lease payments during the current or brvious year. 6 Company has unabsorbed business Loss during the year which is available for set off against future taxable income under the Income Tax Act. The Company has recognized deferred tax asset on such unabsorbed business loss amounting Rs.13,630 lakhs on the basis of profitable binding contract in hand. Management believes that the profitable binding contract in hand satisfies the test of virtual certainty with convincing evidence as required by Accounting Standard (AS) -22 on Accounting for taxes on income. 7 The tax year for the Company being the year ending 31 March, the provision for taxation for the year is the aggregate of the provision made for the three months ended 31 March 2015 and the provision based on the figures for the remaining nine months up to 31 December 2015, the ultimate tax liability of which will be determined on the basis of the figures for the period 1 April 2015 to 31 March 2016. 8 Previous year figures have been regrouped or reclassified, to conform to the current year's brsentation wherever considered necessary. For Walker Chandiok & Co LLP (formerly Walker, Chandiok & Co) Chartered Accountants Firm Registration No. 001076N/N500013 Sudhir N. Pillai Partner Membership No: 105782 For and on behalf of the Board of Directors Adun Saraban Managing Director DIN No.01312769 P. Chakornbundit Director DIN No.00254312 S. Ramnath Chief Financial Officer FCA No. 030663 R. C. Daga Company Secretary ACS No.576 PLace : Mumbai Date: 24 February 2016 |