Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER NOTES ON ACCOUNTS: 1.01 NATURE OF OPERATIONS The Company is a manufacturer of Synthetic Staple Fibres Yarn, Man made Fibres blended yarn & Cotton Yarn and Fabrics. It has two spinning units viz. Rajasthan Textile Mills, Bhawanimandi (Raj) & Chenab Textile Mills, Kathua (J & K), one weaving unit (up to 01.10.2014) & processing unit viz. Damanganga Fabrics, and one Home Textiles unit viz. Damanganga Home Textiles at Village Daheli, near Bhilad (Gujarat). 1.02 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ((A) (i) Basis of Accounting The financial statements have been brpared to comply in all material respects with the Accounting Standards notified under section 133 and the relevant provisions of the Companies Act, 2013. The financial statements have been brpared under the historical cost convention on accrual basis except in case of interest on overdue debts from customers which are accounted for on receipt basis on account of uncertainties. (ii) Change in Accounting policy From the current year, the Company has decided to account for insurance claims, lodged with Insurance Company but not settled and having reasonable certainity to realise, on as and when claim lodged basis instead of on receipt basis followed in brvious years. (B) Use of Estimates The brparation of financial statements requires estimates and assumptions to be made that affect the reported amount of assets and liabilities on the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Difference between the actual results and estimates are recognised in the period in which the results are known/ materialised. (C) Classification of Assets and Liabilities as Current and Non Current All assets and liabilities are classified as current or non-current as per the Company's normal operating cycle and other criteria set out in Schedule III to the Companies Act, 2013. Based on the nature of products and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, 12 months has been considered by the Company for the purpose of current/ non-current classification of assets and liabilities. (D) Fixed Assets Fixed 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. The carrying amounts are reviewed at each balance sheet date, if there is any indication of impairment based on internal/external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is greater of the assets net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their brsent value at the weighted average cost of capital. (E) Expenditure on new projects, substantial expansion and during construction period Expenditure directly relating to construction activity is capitalised. Indirect expenditure incurred during construction period is capitalised as part of the indirect construction cost to the extent to which the expenditure is indirectly related to construction or is incidental thereto. Other indirect expenditure incurred during the construction period, which is not related to the construction activity nor is incidental thereto is charged to the Statement of Profit & Loss. Income earned during construction period is deducted from the total of the indirect expenditure. All direct capital expenditure on expansion is capitalised. As regards indirect expenditure on expansion, only that portion is capitalised which rebrsents the marginal increase in such expenditure as a result of capital expansion. Both direct and indirect expenditure are capitalised only if they increase the value of the asset beyond its originally assessed standard of performance. Expenditure during construction/installation period is included under capital work-in-progress and the same is allocated to respective fixed assets on the completion of its construction. H) Provisions A provision is recognised when an enterprise has a brsent obligation as a result of past event 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 except those disclosed elsewhere in the notes to the financial statements, 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. (I) Revenue Recognition (i) Revenue from sales is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. (ii) Revenue (other than sale) 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. (iii) Revenue from process of fabrics are recognised on delivery of the goods to customers/when the goods are ready for delivery. When goods are partly processed, the expenses so incurred is shown as work- in- progress. (iv) Interest other than interest on overdue debts from customers, is recognised on time proportion basis. (J) Government Grants and Subsidies Grants and subsidies from the government are recognised when there is reasonable assurance that the grant/ subsidy will be received and all attaching conditions will be complied with. When the grant or subsidy relates to an expense item, it is recognised as income or deducted from the relevant expense in the year of sanction of grant or subsidy. Government subsidies relating to debrciable fixed assets are treated as deferred income as per Accounting Standard - 12, which are recognised in Statement of Profit and Loss over the useful life of the respective assets. (K) Excise Duty on job work Excise duty is paid on clearance of processed fabrics. No provision for excise duty is made in the accounts for fabrics processed (for work done on job basis for outside parties) and lying in factory brmises at the end of the year as the same is recoverable from the parties. (L) Retirement and other employee benefits (i) Retirement benefits in the form of provident fund and superannuation scheme, which are defined contribution plans, are charged to the Statement of Profit and Loss of the year when the contributions to the respective funds are due. (ii) Gratuity and leave encashment which are defined benefits, are accrued based on actuarial valuation at the balance sheet date carried out by an independent actuary using the projected unit credit method. (iii) Gratuity liability is being contributed to the gratuity fund formed by the Company. (M) Foreign Currencies 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. Monetary items related to foreign currencies transactions are restated at year end exchange rates. All exchange differences arising from such conversion including gain or loss on cancellation of foreign currency forward covers are included in the Statement of Profit and Loss. Premium/Discount on forward contracts covered by AS-11 is recognised over the length of the contract. (N) Derivatives Outstanding derivatives contracts, other than those covered under AS-11, at the year end are marked to market rate, and loss, if any, are accounted for in the Statement of Profit and Loss. As prudent accounting policy, gain on marked to market at the end of year are not accounted for. (O) Borrowing Costs Borrowing costs attributable to the acquisition or construction of qualifying fixed assets, are capitalised as part of the cost of such assets up to the date of commencement of commercial production/put to use of plant. Other borrowing costs are charged to revenue. (P) Debrciation Debrciation on fixed assets installed up to 31.3.1992 continues to be provided at written down value method and debrciation on assets installed on or after 1.4.1992 has been charged at straight line method with reference to the economic useful life of its fixed assets as brscribed by Schedule II of the Companies Act, 2013 or re-assessed by the Company as per technical certificate (given herein below). Debrciation on additions due to machinery spares is provided retrospectively from the date the related assets are put to use. Debrciation on additions to or on disposal of assets is calculated on pro-rata basis. Leasehold land is being amortised over the period of lease tenure. Additions on rented brmises are being amortised over the period of rent agreement. Software and designing rights being intangible assets are debrciated over five years. Individual assets costing below Rs.5000 are fully debrciated in the year of purchase as these assets have no significant useful life. Current tax is measured at the amount expected to be paid to the revenue authorities, using the applicable tax rates and laws. Deferred tax for timing differences between the book and taxable Income for the year is accounted for using the tax rates and laws that have been enacted or substantively enacted as of the balance sheet date. Deferred tax assets arising from temporary timing differences are recognised to the extent there is reasonable certainty that the assets can be realised in future and the same is reviewed at each Balance Sheet date. Minimum alternate tax (MAT) credit is recognized as an asset 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 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 written 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. (R) Segment Reporting The accounting policies adopted for segment reporting are in conformity with the accounting policies adopted for the Company. Primary Segments are identified based on the nature of products and services, the different risks and returns and the internal business reporting system. Revenue, Expense, Assets and Liabilities, which relate to the Company as a whole and could not be allocated to segments on a reasonable basis, have been classified as unallocated. Secondary segment is identified based on geography by location of customers i.e. in India and outside India. Inter-segment revenue have been accounted for based on the transaction price agreed to between the segments, which is primarily market based. Results of the other segment have not been shown separately as the same is not material. 1.03 In respect of Okara Mills, Pakistan, (Which remained with the Company as a result of transfer of textiles division of Sutlej Industries Limited with the Company ) no returns have been received after 31.03.1965. Against net assets of Okara Mills, Pakistan amounting to Rs.232.35 lakhs, the demerged/transferor Company had received adhoc compensation of Rs.25.00 lakhs from Government of India in the year 1972-73. These assets now vest in the Custodian of Enemy Property, Pakistan for which claim has been filed with the Custodian of Enemy Property in India .The Company shall continue to pursue its claim for compensation/ restoration of assets. Hence, further compensation, if any received, credit for the same will be taken in the year of receipt. In the year 2003-04, net assets of Rs. 207.35 lakhs (net of compensation received) as on 31.03.1965, valued at br-devaluation exchange rate, has been provided for. 1.04 Proportionate expenses reimbursed for utilising services of establishments maintained by other entities have been included in respective heads of expenses. 1.05 During the first quarter of the financial year 2014-15, some stocks of finished goods in a godown were totally gutted by fire. In a separate incident, there was damage to some factory buildings & machinery and stocks due to a severe hailstorm. The Company has already filed claims for the above damages with the Insurance Companies and the Surveyors have also filed their reports with the respective Insurance Companies. To reflect true and fair results for the year ended, the Company had accounted for insurance claims of Rs.1333.63 lakhs towards cost of finished goods damaged by fire and expenses incurred for replacement of the damaged assets, instead of accounting on receipt basis as per earlier policy. The Management is hopeful of recovery of the entire insurance claim. If earlier accounting policy would have been followed, other operating income would have decreased by Rs. 930.99 lakhs, other expenses would have increased by Rs. 402.64 lakhs and Income Tax & Profit after Tax for the year would have been reduced by Rs. 453.30 lakhs & Rs. 880.33 lakhs respectively 1.06 The Company has closed its weaving unit (Part of fabric division) w.e.f. 01.10.2014 situated at Daheli as per decision taken by its Board of Directors in their meeting held on 17.09.2014. As it is not a major line of business hence no separate disclosure for discontinuing operation has made in the financial statement. Note 1.08: SEGMENT REPORTING (contd.) Other Information: (i) The Company is organised into two main business segments, namely; - Yarn comprising of Cotton and Man Made Fibres Yarn; - Fabrics comprising woven of Worsted/ Synthetic Staple Yarn, Fabric Processing and Home Furnishings. (ii) The segment revenue in the geographical segments considered for disclosure are as follows: (a) Revenue within India includes sales to customers located within India and earnings in India. (b) Revenue outside India includes sales to customers located outside India and earnings outside India and export incentives benefits. (iii) The company has common assets for producing goods for domestic market and overseas market. However, it has export trade receivable Rs.3671.99 lakhs (Previous year Rs.3963.06 lakhs). Note 1.18: Previous year figures have been regrouped/rearranged wherever necessary. For Singhi & Co. Chartered Accountants Firm Reg. No. 302049E U. K. Khaitan Amit Dalal Rajan A. Dalal Rajiv K. Podar Dr. M. H. Rahman Sukhvir Singh Directors B. K. Sipani Partner Membership No. 88926 C. S. Nopany : Chairman D. R. Prabhu : Secretary Dilip Kumar Ghorawat Wholetime Director & CFO Place : Mumbai Dated : 7th May, 2015 |