Notes to the financial statements for the year ended 31 March 2016 (Currency: Indian Rupees) 1. Background Morganite Crucible (India) Limited ('the Company') was incorporated on 13 January 1986 under the Companies Act, 1956 and its shares are listed on the Bombay Stock Exchange (BSE). The Company is engaged in the business of manufacturing and selling of silicon carbide and clay graphite crucibles and its accessories. 2. Significant accounting policies The accounting policies set out below have been applied consistently to the periods brsented in these financial statements. 2.1 Basis of brparation of financial statements These financial statements have been brpared and brsented on the accrual basis of accounting and comply in all material respects with the applicable accounting standards specified under section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014 and other accounting principles generally accepted in India, to the extent applicable. The financial statements are brsented in Indian rupees. 2.2 Use of estimates The brparation of financial statements in conformity with generally accepted accounting principles ('GAAP') in India requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent liabilities on the date of the financial statements. The estimates and assumptions used in the accompanying financial statements are based upon management's evaluation of the relevant facts and circumstances as of the date of financial statements which in managements opinion are prudent and reasonable. Actual results may differ from the estimates used in brparing the accompanying financial statements. Any revision to accounting estimates is recognised prospectively in current and future periods. 2.3 Current-non-current classification All assets and liabilities are classified into current and non-current Assets An asset is classified as current when it satisfies any of the following criteria : (a) it is expected to be realised in, or is intended for sale or consumption in, the company's normal operating cycle; (b) it is held primarily for the purpose of being traded; (c) it is expected to be realised within 12 months after the reporting date; or (d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date. Current assets include the current portion of non-current financial assets. All other assets are classified as non-current. Liabilities A liability is classified as current when it satisfies any of the following criteria : (a) it is expected to be settled in the company's normal operating cycle; (b) it is held primarily for the purpose of being traded; (c) it is due to be settled within 12 months after the reporting date; or (d) the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. Current liabilities include current portion of non-current financial liabilities. All other liabilities are classified as non-current. Operating cycle Operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. Based on the nature of operations and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as a period within 12 months for the purpose of current - non-current classification of assets and liabilities. 2.4 Revenue récognition Revenue is recognised when the property and all significant risks and rewards of ownership are transferred to the buyer and no significant uncertainty exists regarding the amount of consideration that will be derived from the sale of goods. Sales are accounted net of value added tax and trade and volume discounts, if any. Interest income is recognized using the time proportion method, based on the underlying interest rates. Dividend income is recognized when the right to receive dividend is established. Export entitlements are recognized in the statement of profit and loss in the year of exports provided that there is no significant uncertainty regarding the entitlement to the credit and the amount thereof. 2.5 Fixed assets and debrciation/amortisation (a) (i) Tangible fixed assets Tangible assets are carried at cost of acquisition or construction less accumulated debrciation and impairment loss, if any. Cost includes inward freight, duties, taxes (to the extent not recoverable from tax authorities) and expenses incidental to acquisition and installation of the fixed assets up to the time the assets are ready for intended use. Capital work-in-progress comprises of the cost of fixed assets that are not yet ready for their intended use at the balance sheet date. (ii) Debrciation on tangible fixed assets Leasehold land is amortised on a straight line basis over the primary period of lease, i.e. 99 years. In respect of other assets, debrciation is provided on straight line method based on useful life brscribed in Schedule II to the Companies Act 2013 as given below : *For these class of assets, based on internal technical assessment, the useful lives as given above are believed to best rebrsent the period over which the assets are expected to be used. Hence, the useful life of these assets are different from the useful lives as brscribed under Part C of Schedule II of the Companies Act, 2013. (b) Intangible fixed assets Intangible assets comprising of Non-competition agreement, Distribution Rights and Software cost are carried at cost of acquisition less accumulated amortisation and impairment loss, if any. Non competition agreement is amortised over its contractual period of 5 years. Distribution Rights are amortised on a straight-line basis over a period of ten years and Software cost is amortised on a straight line basis over a period of 5 years, which in managements opinion rebrsents the period during which economic benefits will be derived from their use. 2.6 Impairment of assets In accordance with AS 28 on 'Impairment of assets', the Company assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. The recoverable amount is the greater of the net selling price and value in use. Value in use is the brsent value of the estimated future cash flows expected to arise from the continuing use of the asset and from its disposal at the end of its useful life. In assessing the value in use, the estimated future cash flows are discounted to their brsent value based on an appropriate discount factor. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the Statement of Profit and Loss. If at the Balance Sheet date there is an indication that a brviously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of debrciable historical cost. 2.7 Investments Long term investments are stated at cost. Provision for diminution in value is made only when in the opinion of the management there is a decline other than temporary in the carrying value of such investments. Current investments are valued at lower of cost and fair value. 2.8 Employee benefits (a) Short term employee benefits : All employee benefits payable wholly within twelve months of rendering the service are classified as short term employee benefits. These benefits include salary, wages and bonus, compensated absences such as paid annual leave and sickness leave. The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognized during the period of rendering of service by the employee. (b) Long term employee benefits : (i) Defined contribution plans The Company has defned contribution plans for post employment benefits namely Provident Fund and Superannuation Scheme which are recognised by the income tax authorities. The Company contributes to a Government administered provident fund and superannuation fund on behalf of its employees and has no further obligation beyond making its contribution. The Company makes contributions to state plans namely Employee's State Insurance Fund and Employee's Pension Scheme 1995 and has no further obligation beyond making the payment to them. The Company's contributions to the above funds are charged to the Statement of Profit and Loss every year. (ii) Defined benefit plans Post-employment benefits : The Company's gratuity scheme with Life Insurance Corporation of India is a defned benefit plan. The Company's net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its brsent value, and the fair value of any plan assets is deducted. The brsent value of the obligation under such defined benefit plan is determined based on independent actuarial valuation at the Balance Sheet date using the Projected Unit Credit Method, which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation. The obligation is measured at the brsent value of the estimated future cash flows. The discount rates used for determining the brsent value of the obligation under defined benefit plan are based on the market yields on Government securities as at the Balance Sheet date. Actuarial gains and losses are recognized immediately in the Statement of Profit and Loss. Other long-term employment benefits : Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized as a liability at the brsent value of the defined benefit obligation at the Balance Sheet date. The discount rates used for determining the brsent value of the obligation under defined benefit plan are based on the market yields on Government securities as at the Balance Sheet date. 2.9 Borrowing costs Borrowing costs that are attributable to acquisition, construction or production of qualifying assets are capitalised as part of such assets. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use. All other borrowing costs are recognise as an expense in the period in which they are incurred. 2.10 Inventories Inventories which comprises of raw materials, work-in-progress, finished goods, stores and spares are valued at lower of cost and net realisable value. Cost is determined under the moving average price method and includes all costs incurred in bringing the inventories to their brsent location and condition. Finished goods and Work-in-progress include appropriate proportion of costs of conversion. Fixed production overheads are allocated on the basis of normal capacity of production facilities. Valuation of work-in-progress is based on stage of completion. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. 2.11 Foreign currency transactions Foreign currency transactions are recorded at the exchange rates brvailing on the dates of the transactions. Exchange differences arising on foreign currency transactions settled during the year are recognized in the Statement of Profit and Loss of that year. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the closing exchange rates. The resultant exchange differences are recognized in the Statement of Profit and Loss. Forward exchange contracts relating to firm commitments or highly probable forecast transactions are marked to market and the resultant net exchange loss is recorded in accordance with the concept of prudence. 2.12 Operating leases Lease arrangements, where the risks and rewards incidental to ownership of an asset substantially vests with the lessor, are recognised as operating leases. Lease payments under operating lease are recognised as an expense in the Statement of Profit and Loss on a straight line basis. 2.13 Taxes on Income Income-tax Income tax expense comprises current tax and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period). Current tax provision is made based on the tax liability computed after considering tax allowances and exemptions, in accordance with the Income tax Act, 1961. Deferred tax Deferred tax charge or credit and the corresponding deferred tax liability or asset is recognized for timing differences between the profits/losses offered for income taxes and profits/ losses as per the financial statements. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted at the Balance Sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed debrciation or carry forward of losses, deferred tax assets are recognised only if there is a virtual certainty of realisation of such assets. Deferred tax assets are reviewed as at each balance sheet date and written down or written-up to reflect the amount that is reasonably/ virtually certain (as the case may be) to be realised. 2.14 Earnings per share ('EPS') Basic EPS is computed by dividing the net profit attributable to shareholders by the weighted average number of equity shares outstanding during the year. Diluted EPS is computed using the weighted average number of equity and dilutive equity equivalent shares outstanding during the year-end, except where the results would be anti dilutive. 2.15 Provisions and contingencies Provision is recognised in the Balance Sheet when the Company has a brsent obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and reliable estimation can be made of the amount required to settle the obligation. Contingent liabilities arising from claims, litigation, assessment, fines, penalties etc. are disclosed when there is a possible obligation or a brsent obligation as a result of a past event where it is not probable that an outflow of economic benefits will be required to settle the obligation, and the amount can be reasonably estimated. When there is a possible obligation or a brsent obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosures is made. 2.16 Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short term investments with an original maturity of three months or less. 3 Managerial Remuneration During the year Mr. Hitesh Saiwal resigned as Managing Director with effect from 30 April 2015. The Company has paid an additional remuneration of Rs. 7,214,160 to him, which has been approved by a special resolution in the General Meeting dated 22 September 2015. If the limits brscribed under section 197 read with Schedule V of the Act are pro-rated for one month, then the total remuneration paid to him of Rs. 10,207,067 (which includes superannuation fund, gratuity and leave encashment aggregating Rs. 2,206,504) is more than the pro rated permissible limit by Rs. 7,300,563. The Company has made an application to the Central Government for excess remuneration paid and pending approval has treated the excess remuneration paid as a recoverable. 4 Transfer Pricing The Company has developed a combrhensive system of maintenance of information and documents as required by the transfer pricing legislation under section 92-92F of the Income Tax Act, 1961. The management is of the opinion that its international transactions are at arm's length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation. During the financial year the company has applied for Advance Pricing Agreement (APA) before the Central Board of Direct Tax (CBDT) and Government of India (GOI) for International Inter-company related party transactions with associated Enterprises (AE). The APA is an arrangement between the taxpayer and the tax authority covering future transactions, with a view to avoid the potential transfer pricing disputes in a cooperative manner. Once APA agreement is completed, the company will have certainty with respect to tax outcome of international transactions, by agreeing in advance the arm's length pricing, or pricing methodology which is to be applied. Under APA specific rollback provisions enable to attain certainty in transfer prices of international transactions for up to 9 years (including 4 years rollback provisions) in total. The copmany has applied for Advanced Pricing Agreement (APA) in FY 2015-16, the period covered under rollback is from FY 2012-13 to FY 2015-16 and five year down the line i.e. from FY 2016-17 to 2020-21. Besides this the APA has a persuasive value on all open Transfer pricing litigations of past years. The Domestic Transfer Pricing Regulations as brscribed under section 92BA of the Income Tax Act, 1961 was introduced from April 1, 2012. The Company has been consistently transacting with related parties on an Arm's Length basis in accordance with Group Transfer Pricing Policy. The Company is of the opinion that there will be no significant changes to Arm's length price under determination in order to comply with the requirement of section 92BA of Income Tax Act. Hence, there will no material impact on the financial statements. As per our report of even date attached For B S R & Co. LLP Chartered Accountants Firm's Registration No: 101248W / W-100022 Vijay Mathur Partner Membership No : 046476 For and on behalf of the Board of Directors of Morganite Crucible (India) Limited CIN: L26920MH1986PLC038607 Aniruddha Karve Managing Director DIN : 07180005 Subhash Kolapkar Director DIN : 06666368 Place : Aurangabad Date : 30 May 2016 Atithi Majumdar Chief Financial Officer Rupesh Khokle Company Secretary Place : Aurangabad Date : 30 May 2016 |