STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES 1.1 Basis of brparation of financial statements The fi nancial statements have been brpared on accrual basis under the historical cost convention and in accordance with generally accepted accounting principles in India and materially comply with the Mandatory Accounting Standards notifi ed by the Central Government of India under the Companies (Accounting standards) Rules, 2006 and with the relevant provisions of the Companies Act, 1956 1.2 Use of estimates The brparation of fi nancial statements in conformity with Indian Generally Accepted Accounting Policies (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure relating to contingent liabilities as at the date of the fi nancial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods. 1.3 Fixed assets and debrciation Fixed assets are carried at cost of acquisition less accumulated debrciation. The cost of fixed assets includes freight, duties, taxes and other incidental expenses relating to acquisition. Duties and taxes where MODVAT and VAT are applicable have been appropriately treated. Where fi xed assets have been acquired from a country outside India, the cost of these fixed assets also includes exchange differences (favorable and unfavorable) arising in respect of foreign currency loans on other liabilities incurred specifically for the purpose of their acquisition. Borrowing costs related to the acquisition or construction of the qualifying fixed assets for the period up to the completion of their acquisition or constructions are capitalized. Debrciation is provided on the Straight Line Method from the day in which the asset is put to use. The rates of debrciation brscribed in Schedule XIV to the Companies Act, 1956 are considered as the minimum rates. If the management's estimate of the useful life of a fixed asset at the time of acquisition of the asset or of the remaining useful life on a subsequent review is shorter than that envisaged in the aforesaid schedule, debrciation is provided at a higher rate based on the management's estimate of the useful life or remaining useful life. Pursuant to this policy, debrciation on assets has been provided at the rates based on the estimated useful lives of fixed assets Debrciation on fi xed Assets sold or scrapped during the year is provided up to the date in which such assets are sold or scrapped. Debrciation on additions to Fixed Assets is calculated on prorate basis from the date of addition. Assets individually costing Rs 5,000 or less are debrciated at the rate of 100%. Debrciation is charged on a proportionate basis for all assets purchased and sold during the year. 1.4 Impairment of assets In accordance with Accounting Standard 28 (AS 28) on Impairment of assets, where there is an indication of Impairment of the Company's assets, the carrying amount of the Company's assets are reviewed at each balance sheet date to determine whether there is any impairment on the assets based on internal/external factors. Any impairment loss, if any, is recognized in the profi t & loss statement, wherever the carrying amount of an asset exceeds its estimated recoverable amount which is estimated at the higher of its net selling price and its value in use. In assessing the value in use, the estimated future cash fi ows are discounted to the brsent value at the weighted average cost of capital. After impairment, debrciation is provided on the revised carrying amount of the assets over its remaining useful life. Previously recognized impairment loss is further provided or reversed depending on changes in circumstances. 1.5 Revenue recognition Revenue from sale of manufactured goods, including scrap, is recognized on transfer of all significant risks and rewards of ownership to the buyer which is generally on dispatch of goods. Domestic sales inclusive of sales tax, Excise duty, net of sales returns and quantity discounts on accrual basis. Export sales are accounted on the basis of dates of invoicing from the factory. Job work and other service revenues is recognized as and when services are rendered. Income from Investments/other income is recognized on accrual basis. Interest on deployment of surplus funds is recognized using the time proportionate method based on underlying interest rates. 1.6 Inventories Inventories are carried at the lower of cost and net realizable value. The comparison of cost and net realizable value is made on an item-by-item basis. Cost comprises purchase price and all incidental expenses incurred in bringing the inventory to its brsent location and condition. The method of determination of cost is as follows: • Spares and Consumables are valued at cost. • Raw-Materials & Intermediates are valued at weighted cost - (net of MODVAT) • Work-in-Process is valued at material cost plus direct Manufacturing Expenses. • Finished Goods are valued at the lower of cost or net Realisable value. Cost includes cost of conversion and other expenses incurred in bringing the goods to their location and condition inclusive of Excise Duty. • Saleable / disposable stock of scrap is valued at estimated realizable value. Provision for inventory obsolescence is assessed annually and is provided as and when considered necessary. 1.7 Foreign exchange transactions Foreign currency transactions are recorded at the rates of exchange brvailing on the dates of the respective transaction. Exchange differences arising on foreign exchange transactions settled during the year are recognized in the profi t and loss statement of the year, except that exchange differences related to acquisition of fi xed assets from a country outside India are adjusted in the carrying amount of the related fixed assets. Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date are translated at the closing exchange rates on that date; the resultant exchange differences are recognized in the profit and loss statement except those related to acquisition of fixed assets from a country outside India which are adjusted in the carrying amount of the related fixed assets. Where an underlying import/ export is covered, it is recognized at the rate at which the exchange is covered. Where the transaction remains uncovered, it is recognized on mark to market basis as on 31st March 2014. Net exchange fi uctuation gain is accounted as other income and loss is accounted as other expenses. 1.8 Provisions and contingent liabilities The Company recognizes a provision when there is a brsent obligation as a result of a past event that probably requires an outfi ow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a brsent obligation that may, but probably will not, require an outfi ow of resources. Where there is a possible obligation or a brsent obligation that the likelihood of outfi ow of resources is remote, no provision or disclosure is made. Provisions for onerous contracts, i.e. contracts where the expected unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it, are recognized when it is probable that an outflow of resources embodying economic benefits will be required to settle a brsent obligation as a result of an obligating event, based on a reliable estimate of such obligation. 1.9 Income taxes Income-tax expense comprises current tax (i.e. amount of tax for the period determined in accordance with the income-tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the year) provided in the books of accounts. 6. Deferred Tax Liability Deferred Tax resulting from timing difference between book and Tax profit is accounted for under liability method, at the current rate of tax, to the extent, the timing differences are expected to crystallize. The deferred tax charge or credit is recognized using brvailing enacted or substantively enacted tax rate. Where there is unabsorbed debrciation or carried forward losses, deferred tax assets are recognized only if there is virtual certainty of realization of such assets. Deferred tax liabilities/assets are reviewed at each balance sheet date based on the law in force and shown net of assets/liabilities in the books. 7. Leases: Leases are classified as fi nance or operating leases depending upon the terms of the lease agreements. Assets held under finance leases are recognized as assets of the Company on the date of acquisition and debrciated over their estimated useful life or period of lease. Initial direct costs under the financial lease are included as a part of the amount recognized as asset under the finance lease. Rentals payable under operating leases are treated as revenue expenses as and when incurred with reference to terms of agreement. Operating leases The company is obligated under cancelable operating leases for Jumbo Bag Ltd, Athipedu factory rent which is renewable at the options of both the lessor and the lessee. The expense under the contracted lease amounts to Rs.80.22/-lakhs (brvious year Rs.87.45/- lakhs) is recognized in the profit & loss statement 8. Custom duty Custom duty is accounted as and when paid and on actual. 9. Borrowing Costs As per the Accounting Standard 16 (AS 16), borrowing costs that are directly attributable to the cost of acquisition, construction, production of a qualifying asset are capitalized as a part of cost of such asset till the asset is installed/ put to use. Cost that are not directly attributable to the qualifying the asset are determined by applying a weighted average rate and are capitalized as a part of the cost of asset of such qualifying asset till the time asset is ready to use/ installed. 10. Dues to Micro, Small and Medium Enterprises: The management has written to vendors requesting them to inform whether they would fall under the brview of Micro, Small and Medium Enterprises Act, 2001. Based on disclosure received, amount payable to such enterprises as at 31st March 2014 is Nil. The above information has been determined to the extent such parties have been identifi ed on the basis of information available with the Company which has been relied upon by the auditors. 11. Provisions made with regard to Fire Accident: There was a major fi re accident at our Athipedu unit on 23rd November 2013 and that led to complete shut down of the damaged factory brmises for a period of 15 days. The company had to look for alternative locations to fulfi l the orders and strived to keep the production going. However, fire accident has largely impacted the financial performance of the company after the second half of the financial year 2013-14. The company has put determined efforts to resurrect the performance in the last two quarters. The financial performance is expected to considerably improve in the current financial year with increase in business volume and value added customers. The property damaged and destroyed in the fire includes Factory Building, Plant & Equipment, Electricals, Raw Materials and Stocks. The company had immediately fi led the claim bill for the Fixed Assets and the stocks destroyed in fi re with the Insurance companies' viz. United India Insurance Limited and New India Assurance Limited respectively. The total claim bill placed with respect to Fixed Assets amounted to Rs.388 Lacs and for stocks amounted to Rs.897 lakhs. The amount considered in the financials after excess and possible deductions, duties and taxes is Rs.350 Lacs and for Fixed Assets on reinstatement/market value basis and Rs.731 Lacs for stocks. While the insurance company, upon the recommendation of the surveyor has made an interim on account payment of Rs.70 Lacs in the case of Fixed Assets, the claim process with the stock surveyor is still in process and no on account payment has yet been received. On basis of the brvailing situation and to provide a reasonable and accountable fi nancial statement to the stakeholders, the company has made the provisions/ adjustments in books of accounts under the head Exceptional items - Insurance claim receivable amounting to Rs.841 Lacs. Also, a sum of Rs.110 Lacs is considered as profi t, being the difference between the book value and the reinstatement value of the assets proposed for reinstatement. A sum of Rs.1099 Lacs is shown as receivable from Insurance company under the Current Assets. 2. Balances of sundry debtors, creditors, advances & deposits received/paid are as per the books of accounts. Letters have been sent seeking confi rmation of balances and replies from most of the cases are awaited. Adjustments, if any, will be made in the books of accounts on receipt of such confirmations. 3. brVIOUS YEAR FIGURES Previous year's fi gures have been regrouped/ recast wherever necessary to confi rm to this year's classification. As per our report attached For and on behalf of the Board for M.Srinivasan & associates Chartered Accountants Firm's registration no. 004050S M. Srinivasan Partner - Membership No.022959 G.P.N. GUPTA Managing Director G.S. ANIL KUMAR Director - Finance P. brMA SONA BHARATHI Company Secretary Place: Chennai Date: 13.08.2014 |