1.  SIGNIFICANT ACCOUNTING POLICIES

1.1  Basis of brparation of financial statements

These financial statements are brpared in accordance with the Indian Generally Accepted Accounting Principles (GAAP) under the historical cost convention on accrual basis. GAAP comprises mandatory Accounting Standards as brscribed under section 133 of the Companies Act 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014.

1.2  Use of estimates

In the brparation of financial statements, the management makes estimates and assumptions in conformity with the Generally Accepted Accounting Principles in India.  Such estimates and assumptions are made on reasonable and prudent basis taking into account all available information.  However actual results could differ from these estimates and assumptions and such differences are recognized in the period in which results are ascertained.

1.3  Tangible Fixed Assets and debrciation

Tangible assets are stated at cost of acquisition less accumulated debrciation and impairment if any. Cost comprises of purchase price , inward freight, duties, taxes and any attributable cost of bringing the assets to its working condition for its intended use. 

Subsequent expenditure incurred on existing fixed assets is added to their book value only if such expenditure increases the future benefits from the existing assets beyond their brviously assessed standard of performance  

Capital work in progress comprises of the cost of fixed assets that are not yet ready for their intended use at the reporting date.

Debrciation on fixed assets is provided on straight-line method based on useful life of the asset as brscribed in Schedule II to the Companies Act, 2013 except in respect of the following items:-

For the assets acquired from Cochin Port Trust for International Ship Repair Facility (ISRF) , debrciation is provided on the basis of useful life as assessed by technical experts

1.4  Intangible Asset and amortisation

Cost incurred on Design Development which are not directly chargeable on a product are capitalized as 'Intangible Asset' and amortised on a straight-line basis over a period of five years.

Cost of software which is not an integral part of the related hardware acquired for internal use is capitalised as intangible asset and amortised on a straight-line basis over a period of three years.

Up- front fee paid for securing right to use of land and other facility is capitalized as intangible asset and amortised on a straight line basis over the period of 30 years for which the right has been obtained.

Cost of internally generated software is capitalized as 'Intangible Asset' and amortised on a straight-line basis over a period of three years.

1.5  Impairment of Assets

The company assesses the impairment of assets with reference to each cash generating unit, at each Balance Sheet date.  If events or changes in circumstances based on internal and external factors indicate that the carrying value may not be recoverable in full, the loss on account and the recoverable amount, is accounted for accordingly.

1.6  Investments

Investments that are readily realizable and are intended to be held for not more than one year from the date of such investments are classified as current investments. All other investments are classified as Non current.

Current investments are carried at lower of cost and fair value. Non-current investments are valued at cost unless there is a permanent diminution in the value thereof.

1.7  Revenue Recognition

a)  Contracts for the construction of ships and small crafts ( Other than Defence Vessels)

The income from ship building is recognized on percentage of completion method, in proportion to the cost incurred for the work performed up to the reporting date bear to the estimated total contract cost, considering the physical progress or financial progress, whichever is lower.  Where current estimates of total contract costs and revenue indicate a loss, provision is made for the entire loss, irrespective of the amount of work done.

b)  Construction of Defence vessels

Income from the construction of vessels which are on fixed price basis is recognized on percentage of completion method, in proportion to the cost incurred for the work performed up to the reporting date bear to the estimated total contract cost, considering the physical progress or financial progress, whichever is lower.  Where current estimates of total contract costs and revenue indicate a loss, provision is made for the entire loss, irrespective of the amount of work done.

c)  Construction of Indigenous Aircraft Carrier

In the case of construction of IAC which is partly fixed price basis and partly cost plus basis, the income from fixed price part is recognized on the percentage of completion method.

Income from 'cost plus' part of the contract activities for design outsourcing and material procurement are recognized  when the activities are performed / materials received/ payments made.  Cost of material and other expenses incurred for the vessel which are recoverable separately from Navy is charged off to the statement of Profit and Loss and are grossed up with the value of work done and recognized as income.

d)  Contracts for repair of ships/ Offshore structures:

Income from repair of ships /Offshore structures is recognized based on proportionate completion method when proportionate performance of each ship repair activity exceeds 75%.  The proportionate progress is measured by the Company's technical evaluation of the percentage of physical completion of each job.  Revenue is recognized  after taking into consideration possible contingencies with reference to the realizable value of work done.  In the case of ship repair contracts completed and invoices settled during the year, income recognized is net of reductions due to price variation admitted.  In the case of unsettled invoices, the income is recognised net of estimated amount of reductions.  Differences, if any, on settlement are adjusted against income in the year of settlement.

e)  Excise Duty

The products manufactured by the Company such as ships / ship repair are exempted from the  purview of excise duty.

f) Liquidated damages and interest on advances

No income has been recognized on account of (a) interest on advances given and (b) liquidated damages, where the levies depend on decisions regarding force majeure condition of contract.  These are accounted for on completion of contracts and / or when final decisions are taken.

g)  Others

Dividend income is recognized when the Company's right to receive is established.

1.8  Inventories

 (a)  Raw materials, components, stores and spares are valued at weighted average cost method or net realisable value whichever is lower.  Provision for obsolescence / non- usability / deterioration is determined on the basis of technical assessment made by the management.  Goods in transit  is  valued at cost.  Stock of materials in respect of construction of defence vessels wherein the cost incurred is reimbursed by the owner are shown as reduction from the advances paid by the owner for construction of the vessel.

(b)  Work in progress:

Work in progress Ship Building :- Work in progress is recognised only when the percentage of physical completion is less than the financial completion, in which case the cost proportionate to excess of percentage of financial completion over physical completion is treated as Work in progress. In the case of Indigenous Aircraft Carrier since all the materials belongs to Indian Navy, work in progress is not recognized

Work in progress of ships/offshore structures under repair, which have not reached 75% stage of physical completion and general engineering jobs are valued at cost.  Work- in- progress of ships where physical construction has not started is also valued at cost.

 (c) Loose tools  stock are valued at cost and tools in use are revalued after providing for loss on revaluation estimated at 30% of book value

 (d)  Stock of scrap is valued at net realizable value after adjusting customs duty, if any, payable on the scrap. 

1.9  Advance/progress payments received

Advance/progress payments received from customers in respect of repair work of ships/offshore structures are shown as deduction from the amount of work in progress in respect of income recognized under proportionate completion method.  In the case of ship building, the advance payment received is adjusted only when the ship is invoiced

1.10  Employee benefits

a)  Liability in respect of defined benefit plan is provided on the basis of actuarial valuation as on the date of Balance Sheet.  The method of actuarial valuation adopted is the Projected Unit Credit method.

b)  Liability for payment of gratuity is determined by actuarial valuation as per Accounting Standard 15 (Revised) and funded to Employees Group Gratuity Trust as per Rules

c)  Defined contribution to Employees PF and Employees Pension Scheme, 1995 are made on a monthly basis as per respective statutes.

d)  Liability in respect of leave entitlement is made on actuarial valuation basis at the year end and provided for as per Accounting Standard 15 (Revised).

1.11  Borrowing cost.

General and specific borrowing costs directly attributable to acquisition/ construction or production of qualifying assets are capitalized as part of cost of such assets upto the date when such assets are ready for intended use. A qualifying asset is one that necessarily takes substantial period of time to get ready for its intended use. All other borrowing costs are charged to the Statement of Profit and Loss in the period in which they are incurred.

1.12  Prior period adjustment

Prior period adjustments and extra ordinary items having material impact on the financial affairs of the Company are disclosed

1.13  Foreign Currency Transactions

a.  Foreign Currency Transactions:

Foreign exchange transactions are recorded adopting the exchange rate brvailing on the dates of respective transactions.  Monetary assets and liabilities denominated in foreign currencies existing as on the Balance Sheet date are translated at the exchange rate brvailing as at the Balance Sheet date.  The exchange difference arising from the settlement of transactions during the period and effect of translations of assets and liabilities at the Balance Sheet date are recognized in the Statement of Profit and Loss account.

b.  Derivative instruments and hedge accounting:

The company uses foreign currency derivative contracts to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments and highly probable forecasted transactions.  The company designated these as cash flow hedges applying the recognition and measurement principles set out in the Accounting standards 30- Financial instruments: Recognition and Measurement issued by ICAI.

The use of foreign currency and derivative contracts is governed by the Company's policies approved by the Board of directors which provide written principles on the use of such financial derivatives consistent with the Company's risk management strategy.  The company does not use derivative financial instruments for speculative purposes

Foreign currency derivative instruments are initially measured at fair value and are re-measured at subsequent reporting dates.  Changes in the fair value of these derivatives that are designated as effective cash flow hedges are recognized in Hedge Reserve Account under Shareholders' Funds and the ineffective portion is recognized in the Statement of Profit and Loss.  Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognized in the Statement of profit and Loss as and when  they arise.

Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting.  If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in reserves is transferred to the Statement of Profit and Loss.

1.14  Earnings Per Share

Basic/diluted Earnings per share reported is calculated by dividing the net profit  after tax for the year (including post tax effect of any extraordinary items) by the weighted average number of equity shares/dilutive potential equity shares outstanding as at the end of the year as the case may be.

1.15  Taxes on Income

Current tax is determined as the amount of tax payable in respect of taxable income for the year computed in accordance with the provisions of the Income Tax Act, 1961.  Deferred tax liability or assets is recognized at subsequently enacted tax rates, subject to the consideration of prudence, on timing difference, being the difference between the taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods

Deferred tax assets are recognized only to the extent there is reasonable certainty that sufficient future taxable income will be available, except that deferred tax asset that arising due to unabsorbed debrciation and losses are recognized if there is a virtual certainty that sufficient future taxable income will be available to realized the same.

1.16 Provision , Contingent Liabilities and Contingent assets

A provision is recognised if, as a result of a past event, the Company has a brsent legal obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by the best estimate of the outflow of economic benefits required to settle the obligation at the reporting date.

Provision towards guarantee claims in respect of ships/ small crafts delivered wherever provided /maintained is based on technical estimation.  As per revised policy, for ships delivered, the guarantee claims are covered by way of insurance policies covering the guarantee period on case to case basis, where ever required.

Contingent liability is disclosed when the company has a possible obligation or a brsent obligation and it is probable that a cash flow will not be required to settle the obligation.

Contingent assets are neither recognized nor disclosed in the accounts.

1.17 Segment Reporting

Identification of segments:The Companys operating businesses are organized and managed separately according to the nature of products and services provided.

Unallocated items : Unallocated items include general income and expense items which are not allocated to any business segment.

1.18  Cash flow statement

Cash flows are reported using the indirect method, whereby profit / (Loss) before extra ordinary items and tax is adjusted for the effects of transactions of non cash nature and any deferrals or accruals of past or future of cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information.

Employee benefits

a) Liability in respect of defined benefit plan is provided on the basis of actuarial valuation as on the date of Balance Sheet. The method of actuarial valuation adopted is the Projected Unit Credit method.

b) Liability for payment of gratuity is determined by actuarial valuation as per Accounting Standard 15 (Revised) and funded to Employees Group Gratuity Trust as per Rules

c) Defined contribution to Employees PF and Employees Pension Scheme, 1995 are made on a monthly basis as per respective statutes.

d) Liability in respect of leave entitlement is made on actuarial valuation basis at the year end and provided for as per Accounting Standard 15 (Revised).