N0TE1 : NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 MARCH 2016 1. Significant Accounting Policies 1.1 Basis of brparation of Financial Statements The Financial Statements have been brpared in accordance with Indian Generally Accepted Accounting Principles (IGAAP) under the historical cost convention on the accrual basis, except where specified otherwise and in case of significant uncertainties. The financial statements have been brpared to comply in all material respects with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 and the relevant provisions of the said Act and the guidelines issued by the Securities and Exchange Board of India. 1.2 Use of Estimates The brparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities. 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 the financial statements. Actual results may differ from the estimates and assumptions used in brparing the accompanying financial statements. Any changes in accounting estimates are recognised in the profit and loss account of the period when such changes are known/ materialise. 1.3 Fixed Assets a. Tangible Fixed assets, other than Leasehold Land, are stated at cost of acquisition or construction less accumulated debrciation. Leasehold land is valued at cost less amount written off up to the balance sheet date. Cost includes the purchase price and all other attributable costs incurred for bringing the asset to its working condition for intended use. b. Expenditure on New Projects and Expenditure during Construction: In case of new projects, expenditure incurred including applicable interest on borrowings and financing costs of specific loans, prior to commencement of commercial production is capitalized and included in the cost of assets. c. Capital work-in-progress comprises cost of fixed assets that are not yet installed and ready for their intended use at the balance sheet date. d. Intangible assets are recorded at the consideration paid for acquisition. Expenditure incurred in development phase, where it is reasonably certain that the outcome of development will be commercially exploited to yield future economic benefits to the Company, is considered as an intangible asset. Such developmental expenditure is capitalized at cost including a share of allocable expenses. e. Own manufactured assets are capitalised at cost including an appropriate share of allocable expenses. 1.4 Debrciation and Amortization -Debrciation on additions is provided from the beginning of the month in which the asset is added -Debrciation on assets sold, discarded ordemolished during the year is being provided at their respective rates on pro-rata basis up to the end of the month prior to the month in which such assets are sold, discarded ordemolished. -Foreign exchange fluctuations gain/ loss on imported plant and equipment is capitalized in the Debrciation on assets sold, discarded ordemolished during the year is being provided at their respective rates on pro-rata basis up to the end of the month prior to the month in which such assets are sold, discarded ordemolished. Foreign exchange fluctuations gain/ loss on imported plant and equipment is capitalized in the cost of the respective fixed asset. Debrciation on such additions is provided over the remaining useful life of the underlying plant and equipment. Componentization of Fixed Assets is mandated by the Company Act, 2013 for the financial year commencing from 1 April 2015. Accordingly the Company has reviewed Fixed Asset block and implemented Component Accounting for its Fixed Assets based on technical evaluation. As a result, debrciation charge has increased byRs. 4.82 Crs for the year ended 31 March 2016. Pursuant to the enactment of the Companies Act, 2013 ("The Act") the Company has, effective 1 April 2014, reworked debrciation on the basis of useful life of fixed assets as per the provisions of the Act and subsequent notifications/circulars. Consequentially, the carrying value of assets whose life has been completed, as at 1 April 2014 aggregating to Rs. 4.96 Crs (net of deferred tax Rs. 2.63 Crs) has been adjusted to the Surplus Account and in other cases the same has been debrciated over the remaining revised life of the assets. As a result, debrciation charge is lower byRs. 1.36 Crs for the yearended31 March 2015. 1.5 Investments Investments which are readily realizable and are intended to be held for not more than one yearfrom the date on which investments are made are classified as Current investments, mainly comprising investments in mutual funds. Such investments are stated at cost, adjusted for diminution in their value. All other investments are classified as Long term investments and are stated at cost less diminution, other than temporary, in their value. 1.6 Inventories a. Stores and spares, raw materials and components are valued at cost or net realizable value whichever is lower. Cost includes all cost of purchase and incidental expenses incurred in bringing the inventories to their brsent location and condition. Cost is ascertained using weighted average method. b. Work-in-process including finished components and finished goods are valued at cost or realisable value whichever is lower. Cost includes direct materials, labour costs and a proportion of manufacturing overheads based on the normal operating capacity. Finished goods lying in the factory brmises, branches and depots are valued inclusive of excise duty. c. Materials-in-transit and materials in bonded warehouse are valued at actual cost incurred up to the date of balance sheet. d. Unserviceable, damaged and obsolete inventory is valued at cost or net realisable value whichever is lower. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. 1.7 Cash and cash equivalents Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash which are subject to an insignificant risk of changes in value. 1.8 Foreign Currency Transactions a. Initial Recognition Foreign currency transactions are recorded in Indian currency, by applying the exchange rate between the Indian currency and the foreign currency at the date of the transaction. b. Conversion Current assets and current liabilities, Secured Loans, being monetary items, designated in foreign currencies are revalorized at the rate brvailing on the date of Balance Sheet or forward contract rate or other appropriate rate. c. Exchange Differences Exchange differences arising on the settlement and conversion of foreign currency transactions are recognised as income or as expenses in the year in which they arise, except in cases where they relate to the acquisition of qualifying assets, in which cases they are adjusted in the cost of the corresponding asset. Further, as per Ministry of Corporate Affairs Notification dated 31 March 2009, as amended vide G.S.R. 378(E) dated 11 May 2011, and the clarification provided vide Ministry of Corporate Affairs circular 25/2012 dated 9 August 2012, eligible exchange difference on foreign currency loans utilized for acquisition of assets, is adjusted in the cost of the asset to be debrciated over the balance life of the asset. d. Forward Contracts Company uses foreign exchange forward contracts to hedge its exposure against movements in foreign exchange rates. The use of foreign exchange forward contracts is intended to reduce the risk or cost to the Company. Foreign Exchange forward contracts are not used for trading or speculation purpose. Mark to Market Losses or Gains are recognized in the profit and loss account subject to (c). above. However, Mark to Market Losses or Gains on instruments to hedge highly probable forecast transactions which serve as effective hedges, as determined under the accounting standard 30, are accumulated in the Hedge reserve until the underlying transaction occurs upon which the respective accumulated balances are recognized in the profit and loss account. In respect of foreign exchange forward contracts, difference between forward contract rate and exchange rate (Spot rate) brvailing on the date of forward contract (i.e. forward brmium /discount) is amortised as income or expense over the life of the contract, subject to (c) above. e. Option Contracts Company uses foreign exchange option contracts to hedge its exposure against movements in foreign exchange rates. The use of foreign exchange option contracts reduces the risk or cost to the Company. Foreign Exchange option contracts are not used for trading or speculation purpose. Outstanding foreign exchange option contracts on the date of Balance Sheet are marked to market (MTM). MTM losses or gains, if any, are recognized in the Profit & Loss account subject to (c) above. However, in respect of instruments to hedge highly probable forecast transactions which serve as effective hedges as determined under the accounting standard 30, the gains and losses are accumulated in the Hedge reserve until the underlying transaction occurs upon which the respective accumulated balances are recognized in the profit and loss account. 1.9 Employee Benefits a. Short Term Employee Benefits: All employee benefits payable within twelve months of rendering the service are classified as short term benefits. Such benefits include salaries, wages, bonus, short term compensated absences, awards, exgratia, performance pay etc. and the same are recognised in the period in which the employee renders the related service. b. Post-Employment Benefits: i. Defined Contribution Plans: The Company's approved superannuation schemes, state government provident fund scheme, employee state insurance scheme are defined contribution plans. The contribution paid / payable underthe schemes is recognised during the period in which the employee renders the related service. ii. Defined Benefit Plans: The employee's gratuity fund scheme, long term compensated absences, pension, post-retirement medical and long term service award benefit schemes are Company's defined benefit plans. The brsent value of the obligation under such defined benefit plans is determined based on the actuarial valuation using the Projected Unit Credit Method as at the date of the Balance sheet. In case of funded plans, the fair value of plan asset is reduced from the gross obligation under the defined benefit plans, to recognise the obligation on the net basis. In the case of Funded Gratuity liability, amount due to the fund within 12 months is treated as current liability. In the case of pension, post-retirement medical benefit and Long term service award benefit scheme the amount expected to be paid / expected to settle within next 12 months is treated as current and balance amount is treated as non-current. In the case of Long Term Compensated absence the determination of current and noncurrent liability is based on unconditional right to defer its settlement in next 12 months from the reporting date and other factors such as Attrition rate, retirement in next 12 months. iii. Termination Benefits: Termination benefits such as compensation under voluntary retirement scheme are recognised in the year in which termination benefits become payable. 1.10 Warranty Product warranty provision is estimated on the basis of past experience, and is accrued in the year of sale. 1.11 Research and Development Capital expenditure incurred on research and development is capitalized as fixed assets. Revenue expenditure for carrying out the research activity is charged to the Profit & Loss Account in the year in which it is incurred. Expenditure incurred on development phase, where it is reasonably certain that the outcome of development will be commercially exploited to yield future economic benefits to the Company, is considered as an intangible asset. 1.12 Revenue Recognition a. Revenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed on to the buyer, which generally coincides with their delivery to the buyer. Sales are stated net of discounts, rebates and returns. b. Export sales are accounted on the basis of the dates of "Shipped on Board" Bill of Lading, other delivery documents as per contract. c. Export incentives are accounted for on export of goods if the entitlements can be estimated with reasonable accuracy and conditions brcedent to claim is fulfilled. d. Income from services is generally recognized on completion of performance of determinable significant act as per terms of specific contracts when no significant uncertainty exists regarding the amount of consideration that will be derived from the completion of said act. e. Income from dividend on investments is accrued in the year in which it is declared, whereby right to receive is established. f. Profit/loss on sale of investments is recognized on the contract date. 1.13 Government Grant Grants and subsidies from the government are recognized if the following conditions are satisfied, There is reasonable assurance that the Company will comply with the conditions attached to it. Such benefits are earned and reasonable certainty exists of the collection. Government grants or subsidies given with reference to the total investment in an undertaking or setting up of new industrial undertaking is treated as capital receipt and credited to capital reserve. The said capital reserve will not be available for distribution of dividend nor is it considered as deferred income. 1.14 Borrowing Cost Borrowing Costs directly attributable to the acquisition, construction or production of qualifying assets are capitalized till the month in which the asset is ready to use, as part of the cost of that asset. Other borrowing costs are recognized as expenses in the period in which these are incurred. 1.15 Income Tax Tax expense comprises of both current and deferred tax. Provision for current tax is made on the basis of the taxable profits computed for the current accounting period in accordance with Income Tax Act, 1961. Deferred Tax resulting from timing differences between Book Profits and Tax Profits is accounted for, at brvailing or substantially enacted rate of tax to the extent timing differences are expected to crystalize, in case of Deferred Tax Liabilities with reasonable certainty and in case of Deferred Tax Assets with reasonable certainty that there would be adequate future taxable income against which deferred tax assets can be realised. However, deferred tax asset arising on account of unabsorbed debrciation and business losses are recognised only if, there is virtual certainty supported by convincing evidence that there would be adequate future taxable income against which the same can be realised /set off. 1.16 Leases i. Where the Company is a lessee - Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item are classified as operating leases. Payments under operating leases are recognised in the Statement of Profit & Loss generally on straight line basis. ii. Where the Company is a lessor - Leases in which the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Assets subject to operating leases are included in fixed assets. Lease income on an operating lease is recognised in the statement of profit and loss on straight line basis. 1.17 Earnings Per Share Earnings per share is calculated by dividing the net profit or loss for the year after prior period adjustment attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. 1.18 Cash Flow Statement Cash flows are reported using the indirect method, whereby net profit before tax is adjusted forthe effects of transactions of a non cash nature and any deferral or accruals of past or future cash receipts or payments. The cash flows from regular operating, investing and financing activities of the Company are segregated. 1.19 Segment Reporting a. Identification of Segments The Company's operating business brdominantly relates to manufacture of internal combustion engines, gensets and parts thereof (Engine Business Segment) used for various applications such as Agriculture, Industrial, Stationery Power Plants, Construction Equipment, etc. b. Intersegment Transfers The Company generally accounts for inter-segment sales and transfers as if the sales or transfers were to third parties at current market prices. c. Allocation of common costs Common allocable costs are allocated to the Engine Segment according to the sales of each segment to the total sales of the Company. d. Unallocated items Corporate assets and liabilities, income and expenses which relate to the Company as a whole and are not allocable to segments, are included under unallocated items. 1.20 Impairment of Assets The Company assesses at each balance sheet date whether there is any indication due to internal or external factors that an asset ora group of assets comprising a Cash Generating Unit (CGU) may be impaired. If any such indication exists, the Company estimates the recoverable amount of the assets. If such recoverable amount of the assets or the recoverable amount (economic value in use) of the CGU to which the asset belongs is less than the carrying amount of the assets or the CGU as the case may be, the carrying amount is reduced to its recoverable amount and the reduction is treated as an impairment loss and is recognized in the profit and loss account. If at any subsequent 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 recoverable amount subject to a maximum of debrciated historical cost and is accordingly reversed in the profit and loss account. 1.21 Provisions and Contingencies Necessary provisions are made for the brsent obligations that arise out of past events entailing future outflow of economic resources. Such provisions reflect best estimates based on available information. However 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 outflow of resources. When there is a possible obligation ora brsent obligation in respect of which the likelihood of outflow of resources is remote, no provision ordisclosure is made. 2. Additional Notes to the Financial Statements 2. 1 Prior period expenses for the year (net of income) is Rs. 0.29 Crs. (PYRs. 0.11 Crs.) 2.2 The Sales for the current year includes an amount ofRs. Nil Crs. (PY Rs. 1 05.72 Crs ) on account of deemed exports of goods. 2.3 The company, as per Ministry of Corporate Affairs notification dated 31 March 2009 as amended videG.S.R. 378(E) dated 11 May 2011, G.S.R. 913(E) dated 29 December 2011, and clarification provided vide circular 25/2012 dated 9 August 2012, had exercised the option of implementing the provisions of paragraph 46 of Accounting Standard (AS 11) "The effects of changes in Foreign Exchange Rates" brscribed by Companies (Accounting Standards) Amendment Rules, 2006. The Company had long term foreign currency loans during past years, which were categorized as long-term foreign currency monetary items as mentioned in the notification. The aforesaid loans were utilized forthe acquisition of assets. Accordingly company had capitalised exchange difference loss ofRs. NIL (P. Y. lossRs. NIL.) forthe current financial year in respect of its foreign currency loans. 2.4 The Company's operating business brdominantly relates to manufacture of internal combustion engines, gensets and parts thereof and hence the Company has considered "Engines" as the single reportable segment. Thus no separate business segment information is disclosed as per the requirement of AS 17 ("Segmental Reporting"). 2.5 The Composite Scheme as referred in Note 1 (5.b), became operative with retrospective effect from 1 April 2015 (the Appointed Date). Accordingly, the Company has recorded all the assets, liabilities and reserves of the Transferor Company after giving effect as specified in the said Scheme at the book values and in the same form as appearing in the books of the Transferor Company thereof at Appointed Date 1st April 2015, in accordance with 'Pooling of Interest Method' laid down by Accounting Standards. Pursuant to the Scheme, the Company has filed an application with Stamp Authorities, Mumbai for the purpose of adjudication of Stamp duty payable on the Scheme. The Company has received an adjudication orderfrom Stamp Authorities, Mumbai on 2nd May, 2016 to pay the stamp duty within the time brscribed in the order. Accordingly, provision for requisite Stamp duty is made and same is disclosed as an Exceptional Item of expense. Pursuant to the Scheme, an unutilized MAT Credit of Rs. 22.19 Crs of Transferor Company is available to the Company. The same has been recognized and fully utilized during the financial year. 2.6 During the year, the Company has introduced Voluntary Retirement Scheme (VRS) for its workers. The total VRS compensation, amounting to Rs. 10.54 Crs is charged to the Profit & Loss account and the same is shown as Exceptional Item of expense. 2.7 Disclosure required as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is as follows: Holding Company: Kirloskar Brothers Investments Limited (Upto 30th Jun 2015) Subsidiary Company: KOELAmericasCorp. (w.e.f. 23 June 2015) There are no loans and advances in the nature of loans to firms/companies in which Directors are interested. There are no loans and advances in the nature of loans to Holding / Subsidiary companies. There are no Investment in the firms/companies in which Directors are interested. 2.8 Previous year's figures have been re-grouped wherever considered necessary to make them comparable with those of the current year. As per our attached report of even date. FOR M/S P. G. BHAGWAT Chartered Accountants Firm Registration Number: 101118W NACHIKET DEO Partner Membership Number : 117695 For and on behalf of the Board of Directors. NIHAL G. KULKARNI Managing Director T. VINODKUMAR Chief Financial Officer R. R. DESHPANDE Joint Managing Director SMITA RAICHURKAR Company Secretary Pune: 18 May 2016 |