1.    SIGNIFICANT ACCOUNTING POLICIES

(i)           Group Information

Ircon International Limited (the Holding Company) is a public sector construction company with specialization in execution of Railway projects on turnkey basis and otherwise. The Company is an ISO certified Company for Quality, Environment and Occupational Health and Safety Management systems; a Schedule ‘A’ public sector company and a Mini Ratna-Category I. After commencing business as a railway construction company it diversified progressively along with its subsidiaries and Joint Ventures (collectively referred to as “the Group”) to roads, buildings, electrical substation and distribution, airport construction, commercial complexes, as well as metro works. The Group caters to both domestic and international markets.

(ii)         Basis of Preparation

(a)  These consolidated financial statements are brpared in accordance with Indian Generally Accepted Accounting Principles (GAAP) under the historical cost convention on the accrual basis. 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). 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.

(b)  The brparation of the consolidated financial statements 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 the consolidated financial statements and reported amounts of revenues and expenses for the year.  Actual results could differ from these estimates.  Future results could differ due to changes in these estimates and the difference between the actual result and the estimates are recognized in the period in which the results are known/materialize.

(c)  The consolidated financial statements are reported in Indian rupees and all values are rounded to the nearest crore rupees with two decimal points except where otherwise stated.

(iii)       Consolidated Financial statements

(a)  The consolidated financial statements of Ircon International Limited and its subsidiaries have been consolidated on a line- by-line basis by adding together the book value of the like items of assets, liabilities, income and expenses, after eliminating intra-group balances and unrealized profits/losses on intra-group transactions, and are brsented to the extent possible, in the same manner as the Company’s independent financial statements. 

(b)  The company’s Interest in jointly Controlled entities are proportionately consolidated on a line-to-line basis by adding together the book values of assets, liabilities, income & expenses, after eliminating the unrealised profits/losses on intra-group transactions.

(c)  In case of jointly controlled operations, company’s share of revenues, common expenses, assets & liabilities are included in revenues, expenses, assets & liabilities respectively.

(d)  Minorities’ interest in net profits of consolidated subsidiaries for the year is identified and adjusted against the income in order to arrive at the net income attributable to the shareholders of the Company. Their share of net assets is identified and brsented in the Consolidated Balance Sheet separately.

(iv)        Foreign Currency Transactions

           (a)    Transactions  of Indian operations:

Foreign Currency transactions are translated in the following manner:

i)             All foreign currency transactions are translated into Indian Currency at the rate brvalent on the date of transaction.

ii)           Fixed assets and non-monetary items are translated at the rate on the date of transaction.

iii)          Debrciation is translated at the rates used for translation of the value of the assets on which debrciation is calculated.

iv)          Monetary items and contingent liabilities denominated in foreign currency are translated at the brvailing closing buying rate at each balance sheet date.

              (b)   Transactions of Integral Foreign Operations

Foreign currency transactions of foreign branches are translated in the following manner:

i)           Revenue items are translated into Indian Currency at the rate brvalent on the date of transaction.

ii)         Fixed assets and non-monetary items are translated at the rate on the date of transaction.

iii)        Debrciation is translated at the rates used for the translation of the value of the assets on which debrciation is calculated.

iv)        Monetary items and contingent liabilities are translated at the brvailing closing buying rate at each balance sheet date.

     (c) The net exchange differences resulting from the translations at (a) &    (b) above are recognized as income or expense for the year.

     (d)   Transactions of Non-Integral Foreign Operations

Financial statements of Non- Integral Foreign Operations are translated in the following manner-

i)   The assets and liabilities, both monetary and non-monetary are translated at the closing buying rate.

ii)   Income and expense items are translated at the rate on date of transaction.

iii)  All resulting exchange difference is accumulated in foreign currency translation reserve until disposal of the net investment and is recognized as income or expense in the same period in which gain or loss on disposal is recognized.

(v)          Fixed assets

Tangible Assets

          (a)    Tangible assets are stated at historical cost less accumulated                          debrciation and impairment loss, if any.

(b)    The machinery spares which can be used only in connection with an item of Tangible asset and whose use is expected to be irregular are capitalized & debrciated/amortized over the balance life of such Tangible assets.

(d)        Incidental expenditure during construction period incurred up to the date of commissioning is capitalized.

Intangible Assets

(a)        Intangible assets are recognized when it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably. Intangible assets are stated at historical cost less accumulated amortization and impairment loss, if any.

(b)        Intangible assets under development rebrsent ongoing expenditure incurred and carried at cost.

(c)        Carriage ways rebrsenting Toll Collection Rights are obtained in consideration for rendering construction, operation & services in relation to building & maintenance of the project on build operate & transfer basis. The cost of such carriage ways comprises construction cost & other br-operative costs incurred during implementation phase and negative grant payable to NHAI.

Capital Work-In-Progress

All the expenditure directly or indirectly relating to construction activity are capitalized and valued at Cost.

(vi)        Investments

a)    Non Current Investments are valued at cost less provision for permanent diminution in value, if any.

b)    Current Investments are valued at lower of cost and fair value.

c)     An investment in land or buildings, which is not intended to be occupied substantially for use by, or in the operation of the Group, is classified as investment property. Investment Properties are stated at cost, net of accumulated debrciation and accumulated impairment losses, if any.

(vii)      Inventories

                  (a)     Construction Work in Progress

Construction work-in-progress is valued at cost till such time the outcome of the job cannot be ascertained reliably and at realizable value thereafter. Site mobilization expenditure to the extent not written off is valued at cost.

(b)      Others

(i)           In Cost Plus contracts, the cost of all materials, spares and stores not reimbursable as per the terms of the contract is shown as inventory valued as per (iii) below.

(ii)          In Item Rate and Lump Sum Turnkey contracts, the cost of all materials, spares (other than capitalized) and stores are charged to Statement of Profit and Loss in the year of use.

(iii)        Inventories are valued at lower of the cost arrived at on First in First out (FIFO) basis and net realisable value.

(iv)         Loose tools are expensed in the year of purchase.

(viii)    Cash and Bank balance

Cash and bank balances comprise of cash at bank, cash in hand, Cheques in hand, demand deposits and bank deposits with maturity period up to 12 months from Balance Sheet date.

For the purpose of cash flow statement, cash and cash equivalents consist of cash and bank balances, cheques in hand and demand deposits net of bank overdrafts.

(ix)        Grant

(a)  Capital Grant received during Construction period from NHAI is being accounted as part of Shareholders’ Fund as the same is in the nature of ‘Equity Support’ and treated as Capital Reserve.

(b)  Revenue Grant received during Operation period from NHAI is being accounted as and when received and treated as part of income and credited to the statement of Profit & Loss.

(c)  Negative Grant payable to NHAI during operations period is accounted for on completion of construction phase and is capitalized as part of cost of toll collection rights under intangible assets on recognition of deferred payment liability.

(x)    Provisions

(a)  Provision for Maintenance

(i)           In Cost Plus contract, no provision for maintenance is required to be made where cost is reimbursable.

(ii)      Item Rate and Lump Sum turnkey contracts, provision is   made for maintenance to cover Group’s liability during defect liability period keeping into consideration the contractual obligations, the obligations of the sub-contractors, operating turnover and other relevant factors.

(iii)      Provision for unforeseen expenditure during design   guarantee period is made based on risk perception of management in each contract assessed at the end of each financial year. This shall, however, be subject to a minimum of Rs. 50 lakhs and maximum of the amount of Design guarantee specified in Contract Agreement with the Client.         (b)  Provision for Demobilisation

Provision for demobilisation to meet the expenditure towards   demobilisation of Manpower and Plant & Equipment is made in foreign projects.

            (c)  Provision for Doubtful Debts /Advances

Provision for Doubtful Debts /Advances is made when there is uncertainty of realisation irrespective of the period of its dues. For outstanding over 3 years full provision is made unless the amount is considered recoverable. Debts/Advances are written off when unrealisibility is almost established.

          (d) Others

Provision is recognised when:

i)        The Group has a brsent obligation as a result of a past event,

ii)       A probable outflow of resources is expected to settle the obligation and

iii)      A reliable estimate of the amount of the obligation can be made.

Reimbursement of the expenditure required to settle a provision is recognised as per contract provisions or when it is virtually certain that reimbursement will be received. Provisions are reviewed at each Balance Sheet date.

(xi)        Revenue Recognition

(a) Contract Revenue Recognition

Contract Revenue is recognised to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Depending on the nature of contract, revenue is recognised as under-       

       (i) In cost plus contracts, revenue is worked out by including eligible items   of expenditure in the bills raised on the clients and charging specified margin thereon.

       (ii) In fixed price contracts, revenue is recognized by adding the aggregate cost of work certified and proportionate margin using the percentage of completion method. The percentage of completion is determined as a proportion of cost incurred up to the reporting date to the total estimated cost of the contract.

Full provision is made for any loss in the period in which it is foreseen.

(iii) Claims/Arbitration Awards (including interest thereon) which are granted in favour of the Group, being in the nature of additional compensation under the terms of the contract are accounted as contract revenue when they are granted and where it is certain to realize the collection of such claims/awards.

Revenue does not include Sales Tax/VAT/WCT/Service Tax etc.

(b) Toll Fee

Toll Fee collection from the users of facility is accounted for as and when the amount is due and recovery is certain. Income from the sale of smart cards is recognized as and when the amount is received from the users of the cards.

(c) Other Revenue Recognition

(i)           Dividend income is recognized when the right to receive payment is established.

(ii)          Interest income is recognized on a time proportion basis taking into account the amount outstanding and the interest rate applicable.

(xii)      Leases

(i)           Lease incomes from assets given on operating lease are recognized as income in the statement of profit & loss on straight-line basis over the lease term.

(ii)          Lease payments for assets taken on operating lease are recognized as expense in the statement of profit & loss on straight-line basis over the lease term.

(xiii)    Liquidated Damages and Escalations

(i)   Liquidated damages/penalties (LD) due to delays arising out of the      contractual obligations and provisionally withheld from contractors/under dispute are adjusted against contract cost only on final decision in this regard. However, LD recovered/withheld by client is accounted for on recovery/withholding & adjusted against contract revenue. Possible Liquidated Damages in cases where extension is granted by the client subject to their right for levy of penalty is shown as contingent liability

(ii)  Escalation receivable/payable is accounted for as per the provisions of the contract. Escalation receivable but not certified before close of project accounts is included in work- in- progress. 

(xiv)    Research & Development Expenses

Revenue expenditure pertaining to research is charged to the Statement of Profit and Loss. Development costs of products are charged to the Statement of Profit and Loss unless a product’s technological feasibility has been established, in which case such expenditure is capitalised.

(xv)      Mobilisation Expenses

The initial contract expenses on new projects for mobilisation will be recognised as construction work in progress in the year of incidence, and pro rata charged off to the project over the years at the same percentage as the stage of completion of the contract as at the end of financial year.

(xvi)    Debrciation & Amortisation

Tangible Assets

(a)  Debrciation on Tangible  assets is provided on Straight Line basis (SLM) over the useful life of the assets as specified in Schedule II of the Companies Act, 2013.

(b)  In case of leasehold land (other than perpetual lease) and leasehold property, debrciation is provided proportionately over the period of lease.

(c)  Tangible Assets acquired during the year, individually costing up to Rs. 5000/- are fully debrciated, by keeping Re. 1 as token value for identification.

Intangible Assets

Software cost is amortised over   a period of 36 months on straight line basis from the date of successful commissioning of the software subject to review at each financial year end. However, software cost up to Rs. 1 Lakhs in each case is fully amortised in the year of purchase, by keeping Rs. 1 as token value for identification. 

(xvii)   Impairment

An Asset is treated as impaired when the carrying cost of asset exceeds its recoverable value. An impairment loss is charged to the Statement of Profit and Loss in the year in which an asset is identified as impaired. The impairment loss recognized in prior accounting period is reversed if there has been change in the estimate of recoverable amount and such losses either no longer exists or has decreased. Reversal of impaired loss is recognized in the Statement of Profit & Loss.

(xviii) Borrowing Cost

(i)           Borrowing cost in ordinary course of business are recognized as expense of the period in which they are incurred.

(ii)          Borrowing cost that is directly attributable to acquisition, construction or production of a qualifying asset is capitalized as part of the cost of the asset.

(xix)         Employee Benefits

a)    Short Term Employee Benefits

(i)           The undiscounted amount of short term employee benefits expected to be paid for the services rendered are recognized as an expense during the period when the employees render the services.

b)   Post-employment benefits & other long term Employee Benefits

(i)           Retirement benefit in the form of Provident Fund and Pension Fund is a defined contribution scheme. The contributions to the Provident Fund Trust and Pension Trust are charged to the Statement of the Profit & loss for the year when the contributions are due.

(ii)          The Group has created a Gratuity Trust. The contribution to the gratuity trust based on the actuarial valuation is charged to the Statement of Profit & Loss for the year when the contribution is due.

(iii)        Provision for long term Leave Encashment, Post Retirement Medical Benefits & Other Retirement benefits is made based on actuarial valuation at the year end.

(xx)          Prior period adjustment and extraordinary items

(i)           Income/expenditure relating to prior period and brpaid expenses not exceeding Rs. 1,00,000/- in each case are treated as income/expenditure of the current year.

(ii)          Voluntary Retirement Scheme expenses are charged off in the year of incidence of expense.

(xxi)    Taxes

(i)           Taxes including current income-tax are computed using the applicable tax rates and tax laws. Liability for additional taxes, if any, is provided / paid as and when assessments are completed.

(ii)          Deferred tax assets are recognized only to the extent that there is a reasonable certainty that sufficient future income will be available except that deferred tax assets, in case there are unabsorbed debrciation or losses, are recognized if there is virtual certainty that sufficient future taxable income will be available to realize the same.

(iii)       Deferred income- tax on timing differences is computed using the tax rates and tax laws that have been enacted or substantively enacted     by the balance sheet date.

(xxii)     Segment Reporting

The Group has identified two primary reporting segments based on geographic location of the project viz. Domestic & International and two secondary reporting segments based on business of construction and leasing of assets & its operation (Leasing & Operation).

(xxiii)    Earnings Per Share

In determining basic earnings per share, the Group considers the net profit attributable to equity shareholders. The number of shares used in computing basic earnings per share is the weighted average number of shares outstanding during the period. In determining diluted earnings per share, the net profit attributable to equity shareholders and weighted average number of shares outstanding during the period are adjusted for the effect of all dilutive potential equity shares.

(xxiv)  Contingent Liabilities and Contingent Assets

(a)   Contingent Liabilities are disclosed in either of the following cases:

               i)  A brsent obligation arising from a past event, when it is not probable that an outflow of resources will be required to settle the obligation; or

ii)  A reliable estimate of the brsent obligation cannot be made; or

iii) A possible obligation, unless the probability of outflow of       resource is remote.

          (b)    Contingent Assets are neither recognized, nor disclosed.

(c)  Contingent Liability and Provisions needed against Contingent Liability and Contingent Assets are reviewed at each Balance Sheet date.

(d) Contingent Liability is net of estimated provisions considering possible outflow on settlement.

(xix)                Employee Benefits

a)    Short Term Employee Benefits

(i)           The undiscounted amount of short term employee benefits expected to be paid for the services rendered are recognized as an expense during the period when the employees render the services.

b)   Post-employment benefits & other long term Employee Benefits

(i)           Retirement benefit in the form of Provident Fund and Pension Fund is a defined contribution scheme. The contributions to the Provident Fund Trust and Pension Trust are charged to the Statement of the Profit & loss for the year when the contributions are due.

(ii)          The Group has created a Gratuity Trust. The contribution to the gratuity trust based on the actuarial valuation is charged to the Statement of Profit & Loss for the year when the contribution is due.

(iii)        Provision for long term Leave Encashment, Post Retirement Medical Benefits & Other Retirement benefits is made based on actuarial valuation at the year end.