Mar 31, 2023
1 Summary of significant accounting policiesa) Corporate information:
Cummins India Limited (âCILâ or âthe Companyâ) is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. The Companyâs shares are listed on two recognised stock exchanges in India. The registered office of the Company is located at Cummins India Office Campus, Balewadi, Pune. The Company is engaged in the business of manufacturing, trading and selling of engines and allied activities. (CIN : L29112PN1962PLC012276)
The standalone financial statements for the year ended March 31, 2023 were authorised for issue in accordance with the resolution of the directors on May 24, 2023.
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time) and presentation requirements of division II of schedule III to the Companies Act, 2013 (Ind AS compliant schedule III).
The financial statements are prepared on a historical cost basis, except for the following assets and liabilities:
- certain financial assets and financial liabilities (including derivative instruments) which have been measured at fair value,
- assets held for sale are measured at lower of carrying amount or fair value less cost to sell
- defined benefit plans - Plan assets are measured at fair value
All assets and liabilities have been classified as current and non-current as per the Companyâs normal operating cycle and other criteria set out in Schedule III to the Companies Act, 2013. Based on the nature of products and services 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 12 months for the purpose of current and non-current classification of assets and liabilities. Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The Company measures financial instruments at fair value on initial recognition and at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
i) In the principal market for the asset or liability or
ii) In the absence of a principal market, in the most advantageous market for the asset or liability,
The principal or the most advantageous market must be accessible by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy. This is described, as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
i) Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
ii) Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
iii) Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. This note summarises accounting policy for fair value.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Other fair value related disclosures are given in the relevant notes:
Disclosures for valuation methods, significant estimates and assumptions (Refer note 35 and 44)
Financial instruments (including those carried at amortised cost) (Refer note 4 to 5, 9 to 13) Investment properties (Refer note 3 and 44)
d) Property, plant and equipment and investment properties
Property plant and equipment, capital work in progress and investment properties are stated at cost of acquisition or construction net of accumulated depreciation and impairment loss (if any). All significant costs relating to the acquisition and installation of property plant and equipment/ investment properties are capitalised. Subsequent costs are included in the assetâs carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the Statement of Profit and Loss during the financial period in which they are incurred. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciate them separetely based on their specific useful lives.
Depreciation is computed on straight line method based on useful lives, determined based on internal technical evaluation, as follows:
Assets |
Useful life |
Roads |
10 years |
Office building and investment properties |
Upto 60 years |
Factory building |
30 years |
Plant and machinery |
3 to 15 years |
Furniture and fittings |
5 to 10 years |
Vehicles |
8 to 9 years |
The assetsâ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Freehold land is carried at cost. Losses arising from the retirement of, and gains and losses arising from disposal of property, plant and equipment which are carried at cost are recognised in the Statement of Profit and Loss.
Leasehold improvements are amortised on straight line basis over the period of lease.
Transfers are made to investment properties only when there is a change in use. Transfers between investment property and owner-occupied property do not change the carrying amount of the property transferred and they do not change the cost of that property for measurement or disclosure purposes.
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Intangible assets with finite useful life are amortised over their respective useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired.
Softwares are amortised over a period of useful lives from the date of purchase/date of completion of development and put to use (3-5 years), being the estimated useful life as per the management estimate or license term whichever is less. The amortisation period for an intangible asset with finite useful life is reviewed atleast at the end of each reporting period.
Losses arising from the retirement of, and gains and losses arising from disposal of intangible assets which are carried at cost are recognised in the Statement of Profit and Loss.
Items of property, plant and equipment/ intangible assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value, and are disclosed as assets held for disposal in the financial statements. Such assets, once classified as held for sale, are not depreciated or amortised. Any expected loss is recognised immediately in the Statement of Profit and Loss.
Inventories are valued at the lower of cost and net realisable value after providing for obsolescence.
Costs incurred in bringing each product to its present location and condition are accounted for as follows:
Raw materials : cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition.
Finished goods and work in progress : cost includes cost of direct materials and labour and a proportion of manufacturing overheads based on the normal operating capacity.
T raded goods : cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition.
Material cost is determined on weighted average basis. 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. Material in transit is valued at cost incurred till date.
h) Foreign currency transactions
The Companyâs financial statements are presented in INR (^), which is also the functional currency of the Company.
Transactions in foreign currencies are accounted at the functional currency spot rates prevailing on the date of transactions. Monetary foreign currency financial assets and liabilities are translated at functional currency spot rates of exchange at the reporting date. The resulting exchange differences are appropriately recognised in the Statement of Profit and Loss.
Non-monetary items that are measured in terms of historical costs in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non - monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of nonmonetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in the fair value of the item.
Revenue from contracts with customers for sale of products is recognised, generally at a point in time, when control of the goods is transferred to the customer at an amount that reflects the transaction price which is the consideration that the Company expects to be entitled in exchange for those goods, excluding taxes or duties collected on behalf of the government e.g. goods and service tax (GST). The Company has generally concluded that it is the principal in its revenue arrangements.
The Company provides retrospective volume rebates to certain customers once the quantity of products purchased by them during the period exceeds a threshold specified in the contract. Rebates are offset against amounts payable by the customer and are reduced from revenue. To estimate the variable consideration for the expected future rebates, the Company applies the most likely amount method for contracts with a single-volume threshold and the expected value method for contracts with more than one volume threshold. The selected method that best predicts the amount of variable consideration is primarily driven by the number of volume thresholds contained in the contract.
The Company typically provides warranties for general repairs of defects that existed at the time of sale. These assurance-type warranties are accounted for under Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets.
iv) Sale of services - installation services
The Company provides installation services that can be either sold separately or bundled together with the sale of products to a customer. The installation services can be obtained from other providers and do not significantly customise or modify the product sold.
Contracts for bundled sales of products and installation services are comprised of two performance obligations because the promises to transfer products and provide installation services are capable of being distinct and separately identifiable. Accordingly, the Company allocates the transaction price based on the relative standalone selling prices of the products and installation services.
The Company recognises revenue from installation services over time, using an output method to measure progress towards complete satisfaction of the service, because the customer simultaneously receives and consumes the benefits provided by the Company.
Revenue from sale of products is recognised at a point in time, generally upon delivery of the products.
The Company has long-term service contracts with customers. Revenue from service contracts is recognised over time i.e based on the proportionate completion method. Completion is determined as a proportion of costs incurred till date to the total estimated contract costs. Provision is made for any loss in the period in which it is foreseen. The Company considers that this method is an appropriate measure of the progress towards complete satisfaction of these performance obligations under Ind AS 115.
In case of other service contracts, revenue is recognized over time, using input/output method, when services are rendered and on receipt of confirmation from customers, as the case may be.
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company performs by transferring goods or services to a customer before the customer pays the consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional.
A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due when billing has been done) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract.
A receivable represents the Companyâs right to an amount of consideration that is unconditional (i.e. only the passage of time is required before payment of the consideration is due).
ix) Interest income is recognised using effective interest rate method (âEIRâ). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross amount of the financial asset or to the amortised cost of a financial liability. When calculating EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument but doesnât consider the expected credit losses. Interest income is included in Other Income in the Statement of Profit and Loss.
x) Rental income is recognised on straight-line basis over the lease term, other than escalations on account of inflation.
xi) Dividend income from investments is recognised when the right to receive payment is established.
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
The Company recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment. Refer to the accounting policies in section âoâ impairment of non-financial assets.
At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including insubstance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.
In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
The Company applies the short-term lease recognition exemption to its short-term leases of offices and warehouses. It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
Leases in which the Company does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising on such leases is accounted for on a straight-line basis over the lease terms. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
The Company operates following post-employment schemes, including both defined benefit and defined contribution plans.
A defined contribution plan is a plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Company has defined contribution plans for post employment benefits in the form of superannuation fund for management employees and provident fund for non management employees which is administered by Life Insurance Corporation of India/regional provident fund commissioner. In case of superannuation fund for management employees and provident fund for non management employees, the Company has no further obligation beyond making the contributions. The contributions are accounted for as employee benefit expense when they are due. Prepaid contribution is recognised as an asset to the extent cash refund or reduction in future contribution is available.
Funded Plan: The Company has defined benefit plans for post-employment benefits in the form of gratuity for all employees, pension for non management employees and provident fund for management employees which are administered through Company managed trust/ Life Insurance Corporation of India.
Unfunded Plan: The Company has unfunded defined benefit plans in the form of post retirement medical benefits (PRMB) and ex-gratia benefits as per the policy of the Company.
Liability for above defined benefit plans is provided on the basis of valuation, as at the Balance Sheet date, carried out by an independent actuary. The actuarial method used for measuring the liability is Projected Unit Credit method. In case of provident fund for management employees, the Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate. The Companyâs contributions and such shortfall are charged to the Statement of Profit and Loss as and when incurred.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation as an expense in the consolidated statement of profit and loss:
- Service costs comprising current Service costs, past-Service costs, gains and losses on curtailments and non-routine settlements; and
- Net interest expense or income
Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling (excluding amounts included in net interest on the net defined benefit liability) and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the Balance Sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
B) Other employee benefit (unfunded)
Liability for compensated absences is provided on the basis of valuation, as at the Balance Sheet date, carried out by an independent actuary. The actuarial valuation method used for measuring the liability is Projected Unit Credit method. Under this method, projected accrued benefit is calculated at the beginning of the year and again at the end of the year for each benefit that will accrue for active members of the plan. The âprojected accrued benefitâ is based on the planâs accrual formula and upon service as of the beginning or end of the year, but using a memberâs final compensation, projected to the age at which the employee is assumed to leave active service. The plan liability is the actuarial present value of the âprojected accrued benefitsâ as of the beginning of the year for active members.
Termination benefits are recognized as an expense as and when incurred.
The present value of defined benefit obligation denominated in INR ('' is determined by discounting the estimated future cash flows by reference to the market yield at the end of the reporting period on the government bonds that have terms approximately equal to the terms of the related obligation.
l) Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Company can demonstrate:
- The technical feasibility of completing the intangible asset so that the asset will be available for use or sale
- Its intention to complete and its ability and intention to use or sell the asset
- How the asset will generate future economic benefits
- The availability of resources to complete the asset
- The ability to measure reliably the expenditure during development
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation expense is recognised in the statement of profit and loss unless such expenditure forms part of carrying value of another asset. During the period of development, the asset is tested for impairment annually.
The tax expense for the year comprises current and deferred tax. Tax is recognised in the Statement of Profit and Loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, as the case may be.
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws prevailing and applicable for the relevant assessment year. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income taxes are recognised for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases in the financial statements. The effect on deferred tax assets and liabilities of a change in the tax rates is recognised using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxable entity and the same taxation authority.
n) Provisions and contingent liabilities
A provision is recognised when there is a present legal or constructive obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, and in respect of which a reliable estimate can be made. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. A disclosure for a contingent liability is made where there is a possible obligation arising out of past event, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation arising out of past event where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
o) Impairment of non financial assets
The Company tests non financial assets for impairment at the close of the accounting period if and only if there are indications that suggest a possible reduction in the recoverable value of an asset. If the recoverable value of an asset, i.e. the net realizable value or the economic value in use of a cash generating unit, is lower than the carrying amount of the asset, the difference is provided for as impairment. However, if subsequently the position reverses and the recoverable amount becomes higher than the then carrying value the provision to the extent of the then difference is reversed, but not higher than the amount provided for.
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and shortterm deposits with an original maturity of three months or less, that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions.
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed.
Where the grant relates to an asset, it is either recorded as deferred income and is recognised as income on a systematic and rational basis over the useful life of the asset, or adjusted against the cost of the asset.
When the Company receives non-monetary grants, the asset and the grant are recorded at fair value and released to profit or loss over the expected useful life of the asset, based on the pattern of consumption of the benefits of the underlying asset by equal annual instalments. When loans or similar assistance are provided by governments or related institutions with an interest rate below the current applicable market rate, the effect of this favourable interest is regarded as a government grant. The loan or assistance is initially recognized and measured at fair value and the government grant is measured as the difference between the initial carrying value of the loan and the proceeds received. The loan is subsequently measured as per the accounting policy applicable to financial liabilities.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Trade receivables that do not contain a significant financing component are measured at transaction price. For all subsequent measurements financial assets are classified in following categories:
i) Debt instruments at amortised cost: Debt instrument is measured at amortised cost if the asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and contractual terms of the asset give rise on specified dates to cash flow that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
This category is most relevant to the Company. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate (EIR). Amortised cost is calculated by taking into account any discount or premium on acquisition and fees for cost that are an integral part of the EIR. EIR amortisation is included in other income in the Statement of Profit and Loss. This category generally applies to loans and trade and other receivables.
ii) Debt instruments fair value through OCI (FVTOCI): Debt instrument is classified as FVTOCI if the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses).
iii) Debt instruments at fair value through profit and loss (FVTPL): Debt instruments not classified as amortised cost or FVTOCI are classified as FVTPL. The Company has not classified any debt under this category.
Equity instruments held for trading are classified as FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in OCI the subsequent changes in fair value. The Company makes such election on an instrument by instrument basis. If the Company decides to classify an equity instrument as FVTOCI, then all fair value changes on the instrument, excluding dividends are recognized in OCI. There is no recycling of the amount from OCI to Statement of Profit and Loss. However, the Company may transfer the cumulative gain or loss within equity.
The Company has elected to present all equity instruments, other than those in subsidiary, joint ventures and associate, through FVTPL and all subsequent changes are recognized in Statement of Profit and Loss.
A financial asset (or wherever applicable, a part of the financial asset or part of a group of similar financial assets) is primarily derecognized when the rights to receive cash flow from the assets have expired or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flow in full to a third party under a pass through arrangement and either a) the Company has transferred substantially all risks and rewards of the asset or b) has transferred control of the asset.
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss and credit risk exposure on the financial assets that are debt instruments measured at amortised costs e.g. loans, deposits, trade receivables, lease receivable and bank balances.
The Company follows simplified approach for recognition of impairment loss allowance on trade receivables and lease receivables. The application of simplified approach does not require the Company to track changes in credit risk. Rather it recognizes impairment loss allowance based on lifetime ECLâs at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12 month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If in subsequent period the credit risk reduces since initial recognition, then the entity reverts to recognizing impairment loss allowance based on 12 month ECL.
As a practical expedient, the Company uses a provision matrix, based on the age of the receivables classified into various age buckets, to determine impairment loss allowance on portfolio of its trade receivables. The matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward looking estimates are analysed. The Company has presumed that default doesnât occur later than when a financial asset is 90 days past due.
Impairment loss allowance including ECL or reversal recognized during the period is recognized as income/ expense in the Statement of Profit and Loss. This amount is reflected under the head âOther Expensesâ in Statement of Profit and Loss. The impairment loss is presented as an allowance in the Balance Sheet as a reduction from the net carrying amount of the trade receivable, loan, deposits and lease receivable respectively.
All financial liabilities are initially recognised at fair value. The Companyâs financial liabilities include trade and other payables, other financial liabilities, loans and borrowings and derivative financial instruments.
Subsequent measurement of financial liabilities depends on their classification as FVTPL or at amortised cost.
All changes in fair value of financial liabilities classified as FVTPL is recognized in the Statement of Profit and Loss. Amortised cost category is applicable to loans and borrowings, trade and other payables. After initial recognition the financial liabilities are measured at amortised cost using EIR method. Gains and losses are recognized in Statement of Profit and Loss when the liabilities are derecognized as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are integral part of EIR. EIR amortisation is included as finance cost in the Statement of Profit and Loss.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of the new liability. The difference in the respective carrying amounts is recognized in the Statement of Profit and Loss.
The Company uses derivative financial instruments such as forward currency contracts to hedge its foreign currency risk. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the Statement of Profit and Loss.
Embedded derivatives: An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract - with the effect that some of the cash flows of the combined instrument vary in a way similar to a standalone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the FVTPL category.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract. Derivatives embedded in all other host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in Statement of Profit and Loss, unless designated as effective hedging instruments.
After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets, which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. If the Company reclassifies the financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in the business model.
Financial assets and liabilities are offset and the net amount is reported in the Balance Sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
The Company recognises a liability to pay dividend to equity holders of the Company when the distribution is authorised and the distribution is no longer at the discretion of the Company.
Basic earnings per share is calculated by dividing the net profit or loss attributable to equity holder of the Company (after deducting preference dividends and attributable taxes) by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they are entitled to participate in dividends relative to a fully paid equity share during the reporting period. The weighted average number of equity shares outstanding during the period is adjusted for events such as bonus issue, bonus element in a rights issue, share split, and reverse share split (consolidation of shares) that have changed the number of equity shares outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders of the Company and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
Mar 31, 2022
1 Summary of significant accounting policies
a) Corporate information:
Cummins India Limited (âCILâ or âthe Companyâ) is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. The Companyâs shares are listed on two recognised stock exchanges in India. The registered office of the Company is located at Cummins India Office Campus, Balewadi, Pune. The Company is engaged in the business of manufacturing, trading and selling of engines and allied activities. (CIN : L29112PN1962PLC012276)
The standalone financial statements for the year ended March 31,2022 were authorised for issue in accordance with the resolution of the directors on May 26, 2022.
b) Basis of preparation:
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time) and presentation requirements of division II of schedule III to the Companies Act, 2013 (Ind AS compliant schedule III).
The financial statements are prepared on a historical cost basis, except for the following assets and liabilities:
- certain financial assets and financial liabilities (including derivative instruments) which have been measured at fair value,
- assets held for sale are measured at lower of carrying amount or fair value less cost to sell
- defined benefit plans - Plan assets are measured at fair value
All assets and liabilities have been classified as current and non-current as per the Companyâs normal operating cycle and other criteria set out in Schedule III to the Companies Act, 2013. Based on the nature of products and services 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 12 months for the purpose of current and non-current classification of assets and liabilities. Deferred tax assets and liabilities are classified as non-current assets and liabilities.
c) Fair value measurements
The Company measures financial instruments at fair value on initial recognition and at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
i) In the principal market for the asset or liability or
ii) In the absence of a principal market, in the most advantageous market for the asset or liability,
The principal or the most advantageous market must be accessible by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy. This is described, as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
i) Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
ii) Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
iii) Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. This note summarises accounting policy for fair value.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Other fair value related disclosures are given in the relevant notes:
Disclosures for valuation methods, significant estimates and assumptions (Refer note 35 and 44)
Financial instruments (including those carried at amortised cost) (Refer note 4 to 5, 9 to 13)
Investment properties (Refer note 3 and 44)
d) Property, plant and equipment and investment properties
Property plant and equipment, capital work in progress and investment properties are stated at cost of acquisition or construction net of accumulated depreciation and impairment loss (if any). All significant costs relating to the acquisition and installation of property plant and equipment/ investment properties are capitalised. Subsequent costs are included in the assetâs carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the Statement of Profit and Loss during the financial period in which they are incurred. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciate them separetely based on their specific useful lives.
Depreciation is computed on straight line method based on useful lives, determined based on internal technical evaluation, as follows:
Assets |
Useful life |
Roads |
10 years |
Office building and investment properties |
Upto 60 years |
Factory building |
30 years |
Plant and machinery |
3 to 15 years |
Furniture and fittings |
5 to 10 years |
Vehicles |
8 to 9 years |
The assetsâ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Freehold land is carried at cost. Losses arising from the retirement of, and gains and losses arising from disposal of property, plant and equipment which are carried at cost are recognised in the Statement of Profit and Loss.
Leasehold improvements are amortised on straight line basis over the period of lease.
Transfers are made to investment properties only when there is a change in use. Transfers between investment property and owner-occupied property do not change the carrying amount of the property transferred and they do not change the cost of that property for measurement or disclosure purposes.
e) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Intangible assets with finite useful life are amortised over their respective useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired.
Softwares are amortised over a period of useful lives from the date of purchase/date of completion of development and put to use (3-5 years), being the estimated useful life as per the management estimate or license term whichever is less. The amortisation period for an intangible asset with finite useful life is reviewed atleast at the end of each reporting period.
Losses arising from the retirement of, and gains and losses arising from disposal of intangible assets which are carried at cost are recognised in the Statement of Profit and Loss.
f) Assets held for sale
Items of property, plant and equipment/ intangible assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value, and are disclosed as assets held for disposal in the financial statements. Such assets, once classified as held for sale, are not depreciated or amortised. Any expected loss is recognised immediately in the Statement of Profit and Loss.
g) Inventories
Inventories are valued at the lower of cost and net realisable value after providing for obsolescence.
Costs incurred in bringing each product to its present location and condition are accounted for as follows:
Raw materials : cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition.
Finished goods and work in progress : cost includes cost of direct materials and labour and a proportion of manufacturing overheads based on the normal operating capacity.
Traded goods : cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition.
Material cost is determined on weighted average basis. 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. Material in transit is valued at cost incurred till date.
The Companyâs financial statements are presented in INR (?), which is also the functional currency of the Company.
Transactions in foreign currencies are accounted at the functional currency spot rates prevailing on the date of transactions. Monetary foreign currency financial assets and liabilities are translated at functional currency spot rates of exchange at the reporting date. The resulting exchange differences are appropriately recognised in the Statement of Profit and Loss.
Non-monetary items that are measured in terms of historical costs in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non - monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non- monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in the fair value of the item.
i) Revenue recognition
i) Revenue from sale of products
Revenue from contracts with customers for sale of products is recognised, generally at a point in time, when control of the goods is transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods, excluding taxes or duties collected on behalf of the government e.g. goods and service tax (GST). The Company has generally concluded that it is the principal in its revenue arrangements.
ii) Volume rebates
The Company provides retrospective volume rebates to certain customers once the quantity of products purchased by them during the period exceeds a threshold specified in the contract. Rebates are offset against amounts payable by the customer and are reduced from revenue. To estimate the variable consideration for the expected future rebates, the Company applies the most likely amount method for contracts with a single-volume threshold and the expected value method for contracts with more than one volume threshold. The selected method that best predicts the amount of variable consideration is primarily driven by the number of volume thresholds contained in the contract.
iii) Warranty obligations
The Company typically provides warranties for general repairs of defects that existed at the time of sale. These assurance-type warranties are accounted for under Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets.
iv) Sale of services - installation services
The Company provides installation services that can be either sold separately or bundled together with the sale of products to a customer. The installation services can be obtained from other providers and do not significantly customise or modify the product sold.
Contracts for bundled sales of products and installation services are comprised of two performance obligationsbecause the promises to transfer productsandprovideinstallation servicesarecapable of being distinct and separately identifiable. Accordingly, the Company allocates the transaction price based on the relative standalone selling prices of the products and installation services. The Company recognises revenue from installation services over time, using an output method to measure progress towards complete satisfaction of the service, because the customer simultaneously receives and consumes the benefits provided by the Company. Revenue from sale of products is recognised at a point in time, generally upon delivery of the products.
The Company has long-term service contracts with customers. Revenue from service contracts is recognised over time i.e based on the proportionate completion method. Completion is determined as a proportion of costs incurred till date to the total estimated contract costs. Provision is made for any loss in the period in which it is foreseen. The Company considers that this method is an appropriate measure of the progress towards complete satisfaction of these performance obligations under Ind AS 115.
In case of other service contracts, revenue is recognized over time, using input/output method, when services are rendered and on receipt of confirmation from customers, as the case may be.
vi) Contract assets
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company performs by transferring goods or services to a customer before the customer pays the consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional.
vii) Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due when billing has been done) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract.
viii) Trade receivables
A receivable represents the Companyâs right to an amount of consideration that is unconditional (i.e. only the passage of time is required before payment of the consideration is due).
ix) Interest income is recognised using effective interest rate method (âEIRâ). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross amount of the financial asset or to the amortised cost of a financial liability. When calculating EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument but doesnât consider the expected credit losses. Interest income is included in Other Income in the Statement of Profit and Loss.
x) Rental income is recognised on straight-line basis over the lease term, other than escalations on account of inflation.
xi) Dividend income from investments is recognised when the right to receive payment is established.
j) Leases
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Company as a lessee
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
The Company recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment. Refer to the accounting policies in section âoâ impairment of non-financial assets.
At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including insubstance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.
In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
The Company applies the short-term lease recognition exemption to its short-term leases of offices and warehouses. It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
Company as a lessor
Leases in which the Company does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising on such leases is accounted for on a straight-line basis over the lease terms. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
k) Employee benefits
The Company operates following post-employment schemes, including both defined benefit and defined contribution plans.
A) Post-employment benefits
i) Defined contribution plans:
A defined contribution plan is a plan under which the Company pays fixed contributions
into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Company has defined contribution plans for post employment benefits in the form of superannuation fund for management employees and provident fund for non management employees which is administered by Life Insurance Corporation of India/regional provident fund commissioner. In case of superannuation fund for management employees and provident fund for non management employees, the Company has no further obligation beyond making the contributions. The contributions are accounted for as employee benefit expense when they are due. Prepaid contribution is recognised as an asset to the extent cash refund or reduction in future contribution is available.
ii) Defined benefit plans:
Funded Plan: The Company has defined benefit plans for post-employment benefits in the form of gratuity for all employees, pension for non management employees and provident fund for management employees which are administered through Company managed trust/Life Insurance Corporation of India.
Unfunded Plan: The Company has unfunded defined benefit plans in the form of post retirement medical benefits (PRMB) and ex-gratia benefits as per the policy of the Company.
Liability for above defined benefit plans is provided on the basis of valuation, as at the Balance Sheet date, carried out by an independent actuary. The actuarial method used for measuring the liability is Projected Unit Credit method. In case of provident fund for management employees, the Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate. The Companyâs contributions and such shortfall are charged to the Statement of Profit and Loss as and when incurred.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation as an expense in the consolidated statement of profit and loss:
- Service costs comprising current Service costs, past-Service costs, gains and losses on curtailments and non-routine settlements; and
- Net interest expense or income
Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling (excluding amounts included in net interest on the net defined benefit liability) and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the Balance Sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.
B) Other employee benefit (unfunded)
Liability for compensated absences is provided on the basis of valuation, as at the Balance Sheet date, carried out by an independent actuary. The actuarial valuation method used for measuring the liability is Projected Unit Credit method. Under this method, projected accrued benefit is calculated at the beginning of the year and again at the end of the year for each benefit that will accrue for active members of the plan. The âprojected accrued benefitâ is based on the planâs accrual formula and upon service as of the beginning or end of the year, but using a memberâs final compensation, projected to the age at which the employee is assumed to leave active service. The plan liability is the actuarial present value of the âprojected accrued benefitsâ as of the beginning of the year for active members.
Termination benefits are recognized as an expense as and when incurred.
The present value of defined benefit obligation denominated in INR (?) is determined by discounting the estimated future cash flows by reference to the market yield at the end of the reporting period on the government bonds that have terms approximately equal to the terms of the related obligation.
l) Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Company can demonstrate:
- The technical feasibility of completing the intangible asset so that the asset will be available for use or sale
- Its intention to complete and its ability and intention to use or sell the asset
- How the asset will generate future economic benefits
- The availability of resources to complete the asset
- The ability to measure reliably the expenditure during development
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation expense is recognised in the statement of profit and loss unless such expenditure forms part of carrying value of another asset. During the period of development, the asset is tested for impairment annually.
m) Income tax
The tax expense for the year comprises current and deferred tax. Tax is recognised in the Statement of Profit and Loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, as the case may be.
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws prevailing and applicable for the relevant assessment year. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income taxes are recognised for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases in the financial statements. The effect on deferred tax assets and liabilities of a change in the tax rates is recognised using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxable entity and the same taxation authority.
n) Provisions and contingent liabilities
A provision is recognised when there is a present legal or constructive obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, and in respect of which a reliable estimate can be made. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. A disclosure for a contingent liability is made where there is a possible obligation arising out of past event, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not
wholly within the control of the Company or a present obligation arising out of past event where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
o) Impairment of non financial assets
The Company tests non financial assets for impairment at the close of the accounting period if and only if there are indications that suggest a possible reduction in the recoverable value of an asset. If the recoverable value of an asset, i.e. the net realizable value or the economic value in use of a cash generating unit, is lower than the carrying amount of the asset, the difference is provided for as impairment. However, if subsequently the position reverses and the recoverable amount becomes higher than the then carrying value the provision to the extent of the then difference is reversed, but not higher than the amount provided for.
p) Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less, that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.
q) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions.
r) Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed.
Where the grant relates to an asset, it is either recorded as deferred income and is recognised as income on a systematic and rational basis over the useful life of the asset, or adjusted against the cost of the asset.
When the Company receives non-monetary grants, the asset and the grant are recorded at fair value and released to profit or loss over the expected useful life of the asset, based on the pattern of consumption of the benefits of the underlying asset by equal annual instalments. When loans or similar assistance are provided by governments or related institutions with an interest rate below the current applicable market rate, the effect of this favourable interest is regarded as a government grant. The loan or assistance is initially recognized and measured at fair value and the government grant is measured as the difference between the initial carrying value of the loan and the proceeds received. The loan is subsequently measured as per the accounting policy applicable to financial liabilities.
s) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition
of the financial asset. For all subsequent measurements financial assets are classified in following
categories:
A) Debt instruments
i) Debt instruments at amortised cost: Debt instrument is measured at amortised cost if the asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and contractual terms of the asset give rise on specified dates to cash flow that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
This category is most relevant to the Company. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate (EIR). Amortised cost is calculated by taking into account any discount or premium on acquisition and fees for cost that are an integral part of the EIR. EIR amortisation is included in other income in the Statement of Profit and Loss. This category generally applies to loans and trade and other receivables.
ii) Debt instruments fair value through OCI (FVTOCI): Debt instrument is classified as FVTOCI if the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company has not classified any financial assets under this category.
iii) Debt instruments at fair value through profit and loss (FVTPL): Debt instruments not classified as amortised cost or FVTOCI are classified as FVTPL. The Company has not classified any debt under this category.
B) Equity instruments
Equity instruments held for trading are classified as FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in OCI the subsequent changes in fair value. The Company makes such election on an instrument by instrument basis. If the Company decides to classify an equity instrument as FVTOCI, then all fair value changes on the instrument, excluding dividends are recognized in OCI. There is no recycling of the amount from OCI to Statement of Profit and Loss. However, the Company may transfer the cumulative gain or loss within equity.
The Company has elected to present all equity instruments, other than those in subsidiary, joint ventures and associate, through FVTPL and all subsequent changes are recognized in Statement of Profit and Loss.
C) Derecognition
A financial asset (or wherever applicable, a part of the financial asset or part of a group of similar financial assets) is primarily derecognized when the rights to receive cash flow from the assets have expired or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flow in full to a third party under a pass through arrangement and either a) the Company has transferred substantially all risks and rewards of the asset or b) has transferred control of the asset.
D) Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss and credit risk exposure on the financial assets that are debt instruments measured at amortised costs e.g. loans, deposits, trade receivables, lease receivable and bank balances.
The Company follows simplified approach for recognition of impairment loss allowance on trade
receivables and lease receivables. The application of simplified approach does not require the Company to track changes in credit risk. Rather it recognizes impairment loss allowance based on lifetime ECLâs at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12 month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If in subsequent period the credit risk reduces since initial recognition, then the entity reverts to recognizing impairment loss allowance based on 12 month ECL.
As a practical expedient, the Company uses a provision matrix, based on the age of the receivables classified into various age buckets, to determine impairment loss allowance on portfolio of its trade receivables. The matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward looking estimates are analysed. The Company has presumed that default doesnât occur later than when a financial asset is 90 days past due.
Impairment loss allowance including ECL or reversal recognized during the period is recognized as income/ expense in the Statement of Profit and Loss. This amount is reflected under the head âOther Expensesâ in Statement of Profit and Loss. The impairment loss is presented as an allowance in the Balance Sheet as a reduction from the net carrying amount of the trade receivable, loan, deposits and lease receivable respectively.
All financial liabilities are initially recognised at fair value. The Companyâs financial liabilities include trade and other payables, other financial liabilities, loans and borrowings and derivative financial instruments.
Subsequent measurement of financial liabilities depends on their classification as FVTPL or at amortised cost.
All changes in fair value of financial liabilities classified as FVTPL is recognized in the Statement of Profit and Loss. Amortised cost category is applicable to loans and borrowings, trade and other payables. After initial recognition the financial liabilities are measured at amortised cost using EIR method. Gains and losses are recognized in Statement of Profit and Loss when the liabilities are derecognized as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are integral part of EIR. EIR amortisation is included as finance cost in the Statement of Profit and Loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of the new liability. The difference in the respective carrying amounts is recognized in the Statement of Profit and Loss.
The Company uses derivative financial instruments such as forward currency contracts to hedge its foreign currency risk. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the Statement of Profit and Loss.
Embedded derivatives: An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract - with the effect that some of the cash flows of the combined instrument vary in a way similar to a standalone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the FVTPL category.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract. Derivatives embedded in all other host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in Statement of Profit and Loss, unless designated as effective hedging instruments.
After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets, which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. If the Company reclassifies the financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in the business model.
Offsetting financial assets and financial liabilities
Financial assets and liabilities are offset and the net amount is reported in the Balance Sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
t) Dividend distribution
The Company recognises a liability to pay dividend to equity holders of the Company when the distribution is authorised and the distribution is no longer at the discretion of the Company.
u) Earning per Share (EPS)
Basic earnings per share is calculated by dividing the net profit or loss attributable to equity holder of the Company (after deducting preference dividends and attributable taxes) by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they are entitled to participate in dividends relative to a fully paid equity share during the reporting period. The weighted average number of equity shares outstanding during the period is adjusted for events such as bonus issue, bonus element in a rights issue, share split, and reverse share split (consolidation of shares) that have changed the number of equity shares outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders of the Company and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
Mar 31, 2021
1 Summary of Significant accounting policies
Cummins India Limited (âOILâ or âthe Companyâ) is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. The Companyâs shares are listed on two recognised stock exchanges in India. The registered office of the Company is located at Cummins India Office Campus, Balewadi, Pune. The Company is engaged in the business of manufacturing, trading and selling of engines and allied activities. (CIN : L29112PN1962PLC012276)
The standalone financial statements for the year ended March 31,2021 were authorised for issue in accordance with the resolution of the directors on May 26, 2021.
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time) and presentation requirements of division II of schedule III to the Companies Act, 2013 (Ind AS compliant schedule III).
The financial statements are prepared on a historical cost basis, except for the following assets and liabilities:
- certain financial assets and financial liabilities (including derivative instruments) which have been measured at fair value,
- assets held for sale are measured at lower of carrying amount or fair value less cost to sell
- defined benefit plans - Plan assets are measured at fair value
All assets and liabilities have been classified as current and non-current as per the Companyâs normal operating cycle and other criteria set out in Schedule III to the Companies Act, 2013. Based on the nature of products and services 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 12 months for the purpose of current and noncurrent classification of assets and liabilities. Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The Company measures financial instruments at fair value on initial recognition and at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
i) In the principal market for the asset or liability or
ii) In the absence of a principal market, in the most advantageous market for the asset or liability,
The principal or the most advantageous market must be accessible by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy. This is described, as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
i) Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
ii) Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
iii) Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. This note summarises accounting policy for fair value.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Other fair value related disclosures are given in the relevant notes:
Disclosures for valuation methods, significant estimates and assumptions (Refer note 35 and 44)
Financial instruments (including those carried at amortised cost) (Refer note 4 to 5, 9 to 13)
Investment properties (Refer note 3 and 44)
Property plant and equipment, capital work in progress and investment properties are stated at cost of acquisition or construction net of accumulated depreciation and impairment loss (if any). All significant costs relating to the acquisition and installation of property plant and equipment/ investment properties are capitalised. Subsequent costs are included in the assetâs carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the Statement of Profit and Loss during the financial period in which they are incurred. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciate them separetely based on their specific useful lives.
Depreciation is computed on straight line method based on useful lives, determined based on internal technical evaluation, as follows:
Assets |
Useful life |
Roads |
10 years |
Office building and investment properties |
Upto 60 years |
Factory building |
30 years |
Plant and machinery |
3 to 1 5 years |
Furniture and fittings |
5 to 10 years |
Vehicles |
8 to 9 years |
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Freehold land is carried at cost. Losses arising from the retirement of, and gains and losses arising from disposal of property, plant and equipment which are carried at cost are recognised in the Statement of Profit and Loss.
Leasehold improvements are amortised on straight line basis over the period of lease.
Transfers are made to investment properties only when there is a change in use. Transfers between investment property and owner-occupied property do not change the carrying amount of the property transferred and they do not change the cost of that property for measurement or disclosure purposes.
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Intangible assets with finite useful life are amortised over their respective useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired.
Softwares are amortised over a period of useful lives from the date of purchase/date of completion of development and put to use (3-5 years), being the estimated useful life as per the management estimate or license term whichever is less. The amortisation period for an intangible asset with finite useful life is reviewed atleast at the end of each reporting period.
Losses arising from the retirement of, and gains and losses arising from disposal of intangible assets which are carried at cost are recognised in the Statement of Profit and Loss.
Items of property, plant and equipment/ intangible assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value, and are disclosed as assets held for disposal in the financial statements. Such assets, once classified as held for sale, are not depreciated or amortised. Any expected loss is recognised immediately in the Statement of Profit and Loss.
Inventories are valued at the lower of cost and net realisable value after providing for obsolescence.
Costs incurred in bringing each product to its present location and condition are accounted for as follows:
Raw materials : cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition.
Finished goods and work in progress : cost includes cost of direct materials and labour and a proportion of manufacturing overheads based on the normal operating capacity.
Traded goods : cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition.
Material cost is determined on weighted average basis. 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. Material in transit is valued at cost incurred till date.
The Companyâs financial statements are presented in INR (F), which is also the functional currency of the Company.
Transactions in foreign currencies are accounted at the functional currency spot rates prevailing on the date of transactions. Monetary foreign currency financial assets and liabilities are translated at functional currency spot rates of exchange at the reporting date. The resulting exchange differences are appropriately recognised in the Statement of Profit and Loss.
Non-monetary items that are measured in terms of historical costs in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non - monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non- monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in the fair value of the item.
Revenue from contracts with customers for sale of products is recognised, generally at a point in time, when control of the goods is transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods, excluding taxes or duties collected on behalf of the government e.g. goods and service tax (GST). The Company has generally concluded that it is the principal in its revenue arrangements.
The disclosures of significant accounting judgements, estimates and assumptions relating to revenue from contracts with customers are provided in Note 35.
The Company provides retrospective volume rebates to certain customers once the quantity of products purchased by them during the period exceeds a threshold specified in the contract. Rebates are offset against amounts payable by the customer and are reduced from revenue. To estimate the variable consideration for the expected future rebates, the Company applies the most likely amount method for contracts with a single-volume threshold and the expected value method for contracts with more than one volume threshold. The selected method that best predicts the amount of variable consideration is primarily driven by the number of volume thresholds contained in the contract.
The Company typically provides warranties for general repairs of defects that existed at the time of sale. These assurance-type warranties are accounted for under Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets.
iv) Sale of services - installation services
The Company provides installation services that can be either sold separately or bundled together with the sale of products to a customer. The installation services can be obtained from other providers and do not significantly customise or modify the product sold.
Contracts for bundled sales of products and installation services are comprised of two performance obligations because the promises to transfer products and provide installation services are capable of being distinct and separately identifiable. Accordingly, the Company allocates the transaction price based on the relative standalone selling prices of the products and installation services. The Company recognises revenue from installation services over time, using an output method to measure progress towards complete satisfaction of the service, because the customer simultaneously receives and consumes the benefits provided by the Company. Revenue from sale of products is recognised at a point in time, generally upon delivery of the products.
v) Sale of services - service contracts
The Company has long-term service contracts with customers. Revenue from service contracts is recognised over time i.e based on the proportionate completion method. Completion is determined as a proportion of costs incurred till date to the total estimated contract costs. Provision is made for any loss in the period in which it is foreseen. The Company considers that this method is an appropriate measure of the progress towards complete satisfaction of these performance obligations under Ind AS 115.
In case of other service contracts, revenue is recognized over time, using input/output method, when services are rendered and on receipt of confirmation from customers, as the case may be.
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company performs by transferring goods or services to a customer before the customer pays the consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional.
A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due when billing has been done) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract.
A receivable represents the Companyâs right to an amount of consideration that is unconditional (i.e. only the passage of time is required before payment of the consideration is due).
ix) Interest income is recognised using effective interest rate method (âEIRâ). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross amount of the financial asset or to the amortised cost of a financial liability. When calculating EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument but doesnât consider the expected credit losses. Interest income is included in Other Income in the Statement of Profit and Loss.
x) Rental income is recognised on straight-line basis over the lease term, other than escalations on account of inflation.
xi) Dividend income from investments is recognised when the right to receive payment is established.
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
The Company recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment. Refer to the accounting policies in section âoâ impairment of nonfinancial assets.
At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including insubstance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.
In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
The Company applies the short-term lease recognition exemption to its short-term leases of offices and warehouses. It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
Leases in which the Company does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising on such leases is accounted for on a straightline basis over the lease terms. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
k) Employee benefits
The Company operates following post-employment schemes, including both defined benefit and defined contribution plans.
A) Post-employment benefits
A defined contribution plan is a plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Company has defined contribution plans for post employment benefits in the form of superannuation fund for management employees and provident fund for non management employees which is administered by Life Insurance Corporation of India/regional provident fund commissioner. In case of superannuation fund for management employees and provident fund for non management employees, the Company has no further obligation beyond making the contributions. The contributions are accounted for as employee benefit expense when they are due. Prepaid contribution is recognised as an asset to the extent cash refund or reduction in future contribution is available.
Funded Plan: The Company has defined benefit plans for post-employment benefits in the form of gratuity for all employees, pension for non management employees and provident fund for management employees which are administered through Company managed trust/Life Insurance Corporation of India.
Unfunded Plan: The Company has unfunded defined benefit plans in the form of post retirement medical benefits (PRMB) and ex-gratia benefits as per the policy of the Company.
Liability for above defined benefit plans is provided on the basis of valuation, as at the Balance Sheet date, carried out by an independent actuary. The actuarial method used for measuring the liability is Projected Unit Credit method. In case of provident fund for management employees, the Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate. The Companyâs contributions and such shortfall are charged to the Statement of Profit and Loss as and when incurred.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation as an expense in the consolidated statement of profit and loss:
- Service costs comprising current Service costs, past-Service costs, gains and losses on curtailments and non-routine settlements; and
- Net interest expense or income
Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling (excluding amounts included in net interest on the net defined benefit liability) and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the Balance Sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
Liability for compensated absences is provided on the basis of valuation, as at the Balance Sheet date, carried out by an independent actuary. The actuarial valuation method used for measuring the liability is Projected Unit Credit method. Under this method, projected accrued benefit is calculated at the beginning of the year and again at the end of the year for each benefit that will accrue for active members of the plan. The âprojected accrued benefitâ is based on the planâs accrual formula and upon service as of the beginning or end of the year, but using a memberâs final compensation, projected to the age at which the employee is assumed to leave active service. The plan liability is the actuarial present value of the âprojected accrued benefitsâ as of the beginning of the year for active members.
Termination benefits are recognized as an expense as and when incurred.
The present value of defined benefit obligation denominated in INR (f) is determined by discounting the estimated future cash flows by reference to the market yield at the end of the reporting period on the government bonds that have terms approximately equal to the terms of the related obligation.
Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Company can demonstrate:
- The technical feasibility of completing the intangible asset so that the asset will be available for use or sale
- Its intention to complete and its ability and intention to use or sell the asset
- How the asset will generate future economic benefits
- The availability of resources to complete the asset
- The ability to measure reliably the expenditure during development
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation expense is recognised in the statement of profit and loss unless such expenditure forms part of carrying value of another asset. During the period of development, the asset is tested for impairment annually.
The tax expense for the year comprises current and deferred tax. Tax is recognised in the Statement of Profit and Loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, as the case may be.
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws prevailing and applicable for the relevant assessment year. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income taxes are recognised for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases in the financial statements. The effect on deferred tax assets and liabilities of a change in the tax rates is recognised using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxable entity and the same taxation authority.
Minimum alternate tax (âMATâ) credit is recognized as a deferred tax asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. Such asset is reviewed at each Balance Sheet date and the carrying amount of MAT credit asset is written down to the extent there is no longer a convincing evidence to the effect that the Company will pay normal income tax during the specified period.
A provision is recognised when there is a present legal or constructive obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, and in respect of which a reliable estimate can be made. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. A disclosure for a contingent liability is made where there is a possible obligation arising out of past event, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation arising out of past event where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
The Company tests non financial assets for impairment at the close of the accounting period if and only if there are indications that suggest a possible reduction in the recoverable value of an asset. If the recoverable value of an asset, i.e. the net realizable value or the economic value in use of a cash generating unit, is lower than the carrying amount of the asset, the difference is provided for as impairment. However, if subsequently the position reverses and the recoverable amount becomes higher than the then carrying value the provision to the extent of the then
difference is reversed, but not higher than the amount provided for.
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less, that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions.
r) Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed.
Where the grant relates to an asset, it is either recorded as deferred income and is recognised as income on a systematic and rational basis over the useful life of the asset, or adjusted against the cost of the asset.
When the Company receives non-monetary grants, the asset and the grant are recorded at fair value and released to profit or loss over the expected useful life of the asset, based on the pattern of consumption of the benefits of the underlying asset by equal annual instalments. When loans or similar assistance are provided by governments or related institutions with an interest rate below the current applicable market rate, the effect of this favourable interest is regarded as a government grant. The loan or assistance is initially recognized and measured at fair value and the government grant is measured as the difference between the initial carrying value of the loan and the proceeds received. The loan is subsequently measured as per the accounting policy applicable to financial liabilities.
s) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. For all subsequent measurements financial assets are classified in following categories:
A) Debt instruments
i) Debt instruments at amortised cost: Debt instrument is measured at amortised cost if the asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and contractual terms of the asset give rise on specified dates to cash flow that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
This category is most relevant to the Company. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate (EIR). Amortised cost is calculated by taking into account any discount or premium on acquisition and fees for cost that are an integral part of the EIR. EIR amortisation is included in other income in the Statement of Profit and Loss. This category generally applies to loans and trade and other receivables.
ii) Debt instruments fair value through OCI (FVTOCI): Debt instrument is classified as FVTOCI if the
financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company has not classified any financial assets under this category.
iii) Debt instruments at fair value through profit and loss (FVTPL): Debt instruments not classified as amortised cost or FVTOCI are classified as FVTPL. The Company has not classified any debt under this category.
Equity instruments held for trading are classified as FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in OCI the subsequent changes in fair value. The Company makes such election on an instrument by instrument basis. If the Company decides to classify an equity instrument as FVTOCI, then all fair value changes on the instrument, excluding dividends are recognized in OCI. There is no recycling of the amount from OCI to Statement of Profit and Loss. However, the Company may transfer the cumulative gain or loss within equity.
The Company has elected to present all equity instruments, other than those in subsidiary, joint ventures and associate, through FVTPL and all subsequent changes are recognized in Statement of Profit and Loss.
A financial asset (or wherever applicable, a part of the financial asset or part of a group of similar financial assets) is primarily derecognized when the rights to receive cash flow from the assets have expired or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flow in full to a third party under a pass through arrangement and either a) the Company has transferred substantially all risks and rewards of the asset or b) has transferred control of the asset.
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss and credit risk exposure on the financial assets that are debt instruments measured at amortised costs e.g. loans, deposits, trade receivables, lease receivable and bank balances.
The Company follows simplified approach for recognition of impairment loss allowance on trade receivables and lease receivables. The application of simplified approach does not require the Company to track changes in credit risk. Rather it recognizes impairment loss allowance based on lifetime ECLâs at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12 month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If in subsequent period the credit risk reduces since initial recognition, then the entity reverts to recognizing impairment loss allowance based on 12 month ECL.
As a practical expedient, the Company uses a provision matrix, based on the age of the receivables classified into various age buckets, to determine impairment loss allowance on portfolio of its trade receivables. The matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward looking estimates are analysed. The Company has presumed that default doesnât occur later than when a financial asset is 90 days past due.
Impairment loss allowance including ECL or reversal recognized during the period is recognized as income/ expense in the Statement of Profit and Loss. This amount is reflected under the head âOther Expensesâ in Statement of Profit and Loss. The impairment loss is presented as an allowance in the Balance Sheet as a reduction from the net carrying amount of the trade receivable, loan, deposits and lease receivable respectively.
All financial liabilities are initially recognised at fair value. The Companyâs financial liabilities include trade and other payables, other financial liabilities, loans and borrowings and derivative financial instruments.
Subsequent measurement of financial liabilities depends on their classification as FVTPL or at amortised cost.
All changes in fair value of financial liabilities classified as FVTPL is recognized in the Statement of Profit and Loss. Amortised cost category is applicable to loans and borrowings, trade and other payables. After initial recognition the financial liabilities are measured at amortised cost using EIR method. Gains and losses are recognized in Statement of Profit and Loss when the liabilities are derecognized as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are integral part of EIR. EIR amortisation is included as finance cost in the Statement of Profit and Loss.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of the new liability. The difference in the respective carrying amounts is recognized in the Statement of Profit and Loss.
The Company uses derivative financial instruments such as forward currency contracts to hedge its foreign currency risk. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the Statement of Profit and Loss.
Embedded derivatives: An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract - with the effect that some of the cash flows of the combined instrument vary in a way similar to a standalone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the FVTPL category.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract. Derivatives embedded in all other host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in Statement of Profit and Loss, unless designated as effective hedging instruments.
After initial recognition, no reclassification is made for financial assets which are equity instruments and
financial liabilities. For financial assets, which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. If the Company reclassifies the financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in the business model.
Financial assets and liabilities are offset and the net amount is reported in the Balance Sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
The Company recognises a liability to pay dividend to equity holders of the Company when the distribution is authorised and the distribution is no longer at the discretion of the Company.
Basic earnings per share is c alculated by dividing the net profit or loss attributable to equity holder of the Company (after deducting preference dividends and attributable taxes) by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they are entitled to participate in dividends relative to a fully paid equity share during the reporting period. The weighted average number of equity shares outstanding during the period is adjusted for events such as bonus issue, bonus element in a rights issue, share split, and reverse share split (consolidation of shares) that have changed the number of equity shares outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders of the Company and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
Mar 31, 2019
Notes to Standalone Financial Statements for the year ended March 31, 2019
1 Summary of Significant accounting policies
a) Corporate information:
Cummins India Limited (âCILâ or âthe Companyâ) is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. The Companyâs shares are listed on two recognized stock exchanges in India. The registered office of the Company is located at Cummins India Office Campus, Balewadi, Pune. The Company is engaged in the business of manufacturing, trading and selling of engines and allied activities. (CIN : L29112PN1962PLC012276)
The standalone financial statements for the year ended March 31, 2019 were authorized for issue in accordance with the resolution of the directors on May 22, 2019.
b) Basis of preparation:
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time) and presentation requirements of division II of schedule III to the Companies Act, 2013 (Ind AS compliant schedule III).
The financial statements are prepared on a historical cost basis, except for the following assets and liabilities:
- certain financial assets and financial liabilities (including derivative instruments) which have been measured at fair value,
- assets held for sale are measured at lower of carrying amount or fair value less cost to sell
- defined benefit plans- Plan assets are measured at fair value
All assets and liabilities have been classified as current and non-current as per the Companyâs normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013. Based on the nature of products and services and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current and noncurrent classification of assets and liabilities. Deferred tax assets and liabilities are classified as non-current assets and liabilities.
c) Fair value measurements
The Company measures financial instruments at fair value on initial recognition and at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
i) In the principal market for the asset or liability or
ii) In the absence of a principal market, in the most advantageous market for the asset or liability,
The principal or the most advantageous market must be accessible by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy. This is described, as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
i) Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
ii) Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
iii) Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. This note summarizes accounting policy for fair value. Other fair value related disclosures are given in the relevant notes:
Disclosures for valuation methods, significant estimates and assumptions (refer note 36)
Financial instruments (including those carried at amortized cost) (refer note 4, 9 to 14)
Investment properties (refer note 3)
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
d) Property, plant and equipment and investment properties
Property plant and equipment, capital work in progress and investment properties are stated at cost of acquisition or construction net of accumulated depreciation and impairment loss. All significant costs relating to the acquisition and installation of property plant and equipment/ investment property are capitalized. Subsequent costs are included in the assetâs carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the Statement of Profit and Loss during the financial period in which they are incurred. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciated them separately based on their specific useful lives.
The assetsâ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Leasehold land is amortized on straight line basis over period of the lease. Freehold land is carried at cost.
Losses arising from the retirement of, and gains and losses arising from disposal of property, plant and equipment which are carried at cost are recognized in the Statement of Profit and Loss.
e) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Intangible finite assets are amortized over their respective useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired.
Softwareâs are amortized over a period of useful lives from the date of purchase/date of completion of development and put to use (3-5 years), being the estimated useful life as per the management estimate or license term whichever is less.
Losses arising from the retirement of, and gains and losses arising from disposal of intangible assets which are carried at cost are recognized in the Statement of Profit and Loss.
f) Assets held for sale
Items of property, plant and equipment/ intangible assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realizable value, and are disclosed as assets held for disposal in financial statements. Such assets, once classified as held for sale, are not depreciated. Any expected loss is recognized immediately in the Statement of Profit and Loss.
g) Inventories
Inventories are stated at lower of cost and net realizable value after providing for obsolescence, and are valued at weighted average cost basis. The material costs are determined on weighted average basis and the valuation of finished goods and work in progress represents the combined cost of material, labour and all manufacturing overheads (based on normal operating capacity). Cost of inventories also include all other costs incurred in bringing the inventories to their present location and condition. Net realizable value is estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated cost necessary to make the sale. Material in transit is valued at cost incurred till date.
h) Foreign currency transactions
The Companyâs financial statements are presented in INR (f), which is also the functional currency of the Company.
Transactions in foreign currencies are accounted at the functional currency spot rates prevailing on the date of transactions. Monetary foreign currency financial assets and liabilities are translated at functional currency spot rates of exchange at the reporting date. The resulting exchange differences are appropriately recognized in the Statement of Profit and Loss.
Non-monetary items that are measured in terms of historical costs in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non - monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non- monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in the fair value of the item.
i) Revenue recognition
i) Revenue from sale of products
Revenue from contracts with customers for sale of products is recognized, generally at a point in time, when control of the goods or services is transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services, excluding taxes or duties collected on behalf of the government e.g. goods and service tax (GST). The Company has generally concluded that it is the principal in its revenue arrangements.
The disclosures of significant accounting judgments, estimates and assumptions relating to revenue from contracts with customers are provided in Note 36.
ii) Volume rebates
The Company provides retrospective volume rebates to certain customers once the quantity of products purchased by them during the period exceeds a threshold specified in the contract. Rebates are offset against amounts payable by the customer and are reduced from revenue. To estimate the variable consideration for the expected future rebates, the Company applies the most likely amount method for contracts with a single-volume threshold and the expected value method for contracts with more than one volume threshold. The selected method that best predicts the amount of variable consideration is primarily driven by the number of volume thresholds contained in the contract.
iii) Warranty obligations
The Company typically provides warranties for general repairs of defects that existed at the time of sale. These assurance-type warranties are accounted for under Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets.
iv) Sale of services - installation services
The Company provides installation services that can be either sold separately or bundled together with the sale of products to a customer. The installation services can be obtained from other providers and do not significantly customize or modify the product sold.
Contracts for bundled sales of products and installation services are comprised of two performance obligations because the promises to transfer products and provide installation services are capable of being distinct and separately identifiable. Accordingly, the Company allocates the transaction price based on the relative standalone selling prices of the products and installation services. The Company recognizes revenue from installation services over time, using an output method to measure progress towards complete satisfaction of the service, because the customer simultaneously receives and consumes the benefits provided by the Company. Revenue from sale of products is recognized at a point in time, generally upon delivery of the products.
v) Sale of services - service contracts
The Company has long-term service contracts with customers. Revenue from service contracts is recognized over time i.e based on the proportionate completion method. Provision is made for any loss in the period in which it is foreseen. The Company considers that output method is an appropriate measure of the progress towards complete satisfaction of these performance obligations under Ind AS 115.
In case of other service contracts, revenue is recognized over time, using input/output method, when services are rendered and on receipt of confirmation from customers, as the case may be.
vi) Contract assets
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company performs by transferring goods or services to a customer before the customer pays the consideration or before payment is due, a contract asset is recognized for the earned consideration that is conditional.
vii) Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due when billing has been done) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognized when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognized as revenue when the Company performs under the contract.
viii) Trade receivables
A receivable represents the Companyâs right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due).
ix) Interest income is recognized using effective interest rate method (âEIRâ). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross amount of the financial asset or to the amortized cost of a financial liability. When calculating EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument but doesnât consider the expected credit losses. Interest income is included in Other Income in the Statement of Profit and Loss.
x) Rental income is recognized on straight-line basis over the lease term, other than escalations on account of inflation.
xi) Dividend income from investments is recognized when the right to receive payment is established.
j) Leases
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risk and rewards incidental to ownership to the Company is classified as a finance lease.
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Company as a lessee: Lease charges under operating leases are recognized as an expense on straight-line basis over the lease term unless the payments are structured to increase in line with general inflation to compensate for lessors expected inflationary cost increase.
Company as a lessor: Rental income under operating leases is recognized on straight-line basis over the lease term unless the payments are structured to increase in line with general inflation to compensate expected inflationary cost increase. Initial direct cost incurred in negotiating and arranging an lease are amortized over the lease term.
k) Employee benefits
The Company operates following post-employment schemes, including both defined benefit and defined contribution plans.
A) Post-employment benefits
i) Defined contribution plans:
A defined contribution plan is a plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Company has defined contribution plans for post employment benefits in the form of superannuation fund for management employees and provident fund for non management employees which is administered by Life Insurance Corporation of India/regional provident fund commissioner. In case of superannuation fund for management employees and provident fund for non management employees, the Company has no further obligation beyond making the contributions. The contributions are accounted for as employee benefit expense when they are due. Prepaid contribution is recognized as an asset to the extent cash refund or reduction in future contribution is available.
ii) Defined benefit plans:
Funded Plan: The Company has defined benefit plans for post-employment benefits in the form of gratuity for all employees, pension for non management employees and provident fund for management employees which are administered through Company managed trust/Life Insurance Corporation of India.
Unfunded plan: The Company has unfunded defined benefit plans in the form of post retirement medical benefits (PRMB) and ex-gratia benefits as per the policy of the Company.
Liability for above defined benefit plans is provided on the basis of valuation, as at the Balance Sheet date, carried out by an independent actuary. The actuarial method used for measuring the liability is Projected Unit Credit method. In case of provident fund for management employees, the Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate. The Companyâs contributions and such shortfall are charged to the Statement of Profit and Loss as and when incurred.
Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling (excluding amounts included in net interest on the net defined benefit liability) and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognized immediately in the Balance Sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
B) Other employee benefit (unfunded)
Liability for compensated absences is provided on the basis of valuation, as at the Balance Sheet date, carried out by an independent actuary. The actuarial valuation method used for measuring the liability is Projected Unit Credit method. Under this method, projected accrued benefit is calculated at the beginning of the year and again at the end of the year for each benefit that will accrue for active members of the plan. The "projected accrued benefitâ is based on the planâs accrual formula and upon service as of the beginning or end of the year, but using a memberâs final compensation, projected to the age at which the employee is assumed to leave active service. The plan liability is the actuarial present value of the "projected accrued benefitsâ as of the beginning of the year for active members.
Termination benefits are recognized as an expense as and when incurred.
The present value of defined benefit obligation denominated in INR (f) is determined by discounting the estimated future cash flows by reference to the market yield at the end of the reporting period on the government bonds that have terms approximately the terms of the related obligation.
l) Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are recognized as an intangible asset when the Company can demonstrate:
- The technical feasibility of completing the intangible asset so that the asset will be available for use or sale
- Its intention to complete and its ability and intention to use or sell the asset
- How the asset will generate future economic benefits
- The availability of resources to complete the asset
- The ability to measure reliably the expenditure during development
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over the period of expected future benefit. Amortization expense is recognized in the statement of profit and loss unless such expenditure forms part of carrying value of another asset. During the period of development, the asset is tested for impairment annually.
m) Income tax
The tax expense for the year comprises current and deferred tax. Tax is recognized in the Statement of Profit and Loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, as the case may be.
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws prevailing and applicable for the relevant assessment year. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income taxes are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases in the financial statements. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxable entity and the same taxation authority.
In the situations where the Company is entitled to a tax holiday under the Income Tax Act, 1961, no deferred tax (asset or liability) is recognized in respect of temporary differences which reverse during the tax holiday period, to the extent the Companyâs gross total income is subject to the deduction during the tax holiday period. Deferred tax in respect of temporary differences which reverse after the tax holiday period is recognized in the year in which the temporary differences originate. However, the Company restricts recognition of deferred tax assets to the extent that it has become reasonably certain, that sufficient future taxable income will be available against which such deferred tax assets can be realized. For recognition of deferred taxes, the temporary differences which originate first are considered to reverse first.
Minimum alternate tax (âMATâ) credit is recognized as a deferred tax asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. Such asset is reviewed at each Balance Sheet date and the carrying amount of MAT credit asset is written down to the extent there is no longer a convincing evidence to the effect that the Company will pay normal income tax during the specified period.
n) Provisions and contingent liabilities
A provision is recognized when there is a present legal or constructive obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, and in respect of which a reliable estimate can be made. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. A disclosure for a contingent liability is made where there is a possible obligation arising out of past event, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation arising out of past event where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
o) Impairment of non-current financial assets
The Company tests non-current financial assets for impairment at the close of the accounting period if and only if there are indications that suggest a possible reduction in the recoverable value of an asset. If the recoverable value of an asset, i.e. the net realizable value or the economic value in use of a cash generating unit, is lower than the carrying amount of the asset, the difference is provided for as impairment. However, if subsequently the position reverses and the recoverable amount becomes higher than the then carrying value the provision to the extent of the then difference is reversed, but not higher than the amount provided for.
p) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and at bank and demand deposits with banks. q) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions.
r) Government grants
Government grants are recognized where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed.
Where the grant relates to an asset, it is either recorded as deferred income and is recognized as income on a systematic and rational basis over the useful life of the asset, or adjusted against the cost of the asset.
When the Company receives non-monetary grants, the asset and the grant are recorded at fair value and released to profit or loss over the expected useful life of the asset, based on the pattern of consumption of the benefits of the underlying asset by equal annual installments. When loans or similar assistance are provided by governments or related institutions with an interest rate below the current applicable market rate, the effect of this favorable interest is regarded as a government grant. The loan or assistance is initially recognized and measured at fair value and the government grant is measured as the difference between the initial carrying value of the loan and the proceeds received. The loan is subsequently measured as per the accounting policy applicable to financial liabilities.
s) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or
equity instrument of another entity.
Financial assets
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. For all subsequent measurements financial assets are classified in following categories:
A) Debt instruments
i) Debt instruments at amortized cost: A debt instrument is at amortized cost if the asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and contractual terms of the asset give rise on specified dates to cash flow that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
This category is most relevant to the Company. After initial measurement, such assets are subsequently measured at amortized cost using the EIR. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees for cost that are an integral part of the EIR. EIR amortization is included in other income in the Statement of Profit and Loss. This category generally applies to loans and trade and other receivables.
ii) Debt instruments fair value through OCI (FVOCI): A debt instrument is classified as FVOCI if the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company has not classified any financial assets under this category.
iii) Debt instruments at fair value through profit and loss (FVTPL): Debt instruments not classified as amortized cost or FVOCI are classified as FVTPL. The Company has not classified any debt under this category.
B) Equity instruments
Equity instruments held for trading are classified as FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in OCI the subsequent changes in fair value. The Company makes such election on an instrument by instrument basis. If the Company decides to classify an equity instrument as FVOCI, then all fair value changes on the instrument, excluding dividends are recognized in OCI. There is no recycling of the amount from OCI to Statement of Profit and Loss. However, the Company may transfer the cumulative gain or loss within equity.
The Company has elected to present all equity instruments, other than those in subsidiary, joint ventures and associate, through FVTPL and all subsequent changes are recognized in Statement of Profit and Loss.
C) Derecognition
A financial asset (or wherever applicable, a part of the financial asset or part of a group of similar financial assets) is primarily derecognized when the rights to receive cash flow from the assets have expired or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flow in full to a third party under a pass through arrangement and either a) the Company has transferred substantially all risks and rewards of the asset or b) has transferred control of the asset.
D) Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss and credit risk exposure on the financial assets that are debt instruments measured at amortized costs e.g. loans, deposits, trade receivables, lease receivable and bank balances.
The Company follows simplified approach for recognition of impairment loss allowance on trade receivables and lease receivables. The application of simplified approach does not require the Company to track changes in credit risk. Rather it recognizes impairment loss allowance based on lifetime ECLâs at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12 month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If in subsequent period the credit risk reduces since initial recognition, then the entity reverts to recognizing impairment loss allowance based on 12 month ECL.
As a practical expedient, the Company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables. The matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward looking estimates are analysed. The Company has presumed that default doesnât occur later than when a financial asset is 90 days past due.
Impairment loss allowance including ECL or reversal recognized during the period is recognized as income/ expense in the Statement of Profit and Loss. This amount is reflected under the head âOther Expensesâ in Statement of Profit and Loss. The impairment loss is presented as an allowance in the Balance Sheet as a reduction from the net carrying amount of the trade receivable, loan, deposits and lease receivable respectively.
Financial Liabilities
All financial liabilities are initially recognized at fair value. The Companyâs financial liabilities include trade and other payables, other financial liabilities, loans and borrowings including bank overdraft and derivative financial instruments.
Subsequent measurement of financial liabilities depends on their classification as FVTPL or at amortized cost.
All changes in fair value of financial liabilities classified as FVTPL is recognized in the Statement of Profit and Loss. Amortized cost category is applicable to loans and borrowings, trade and other payables. After initial recognition the financial liabilities are measured at amortized cost using EIR method. Gains and losses are recognized in statement of profit and loss when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or cost that are integral part of EIR. EIR amortization is included as finance cost in the Statement of Profit and Loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of the new liability. The difference in the respective carrying amounts is recognized in the Statement of Profit or Loss.
Derivatives
The Company uses derivative financial instruments such as forward currency contracts to hedge its foreign currency risk. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the Statement of Profit and Loss.
Embedded derivatives: An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract - with the effect that some of the cash flows of the combined instrument vary in a way similar to a standalone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates,
credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the FVTPL category.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract. Derivatives embedded in all other host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in Statement of Profit and Loss, unless designated as effective hedging instruments.
Reclassification of financial instruments
After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets, which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. If the Company reclassifies the financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in the business model.
Offsetting financial assets and financial liabilities
Financial assets and liabilities are offset and the net amount is reported in the Balance Sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
t) Dividend distribution
Dividend distribution to the Companyâs shareholders is recognized as a liability in the Companyâs financial statements in the period in which the dividends are approved by the Companyâs shareholders.
u) Earning per Share (EPS)
Basic earnings per share is calculated by dividing the net profit or loss attributable to equity holder of the Company (after deducting preference dividends and attributable taxes) by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they are entitled to participate in dividends relative to a fully paid equity share during the reporting period. The weighted average number of equity shares outstanding during the period is adjusted for events such as bonus issue, bonus element in a rights issue, share split, and reverse share split (consolidation of shares) that have changed the number of equity shares outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders of the Company and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
1.1 Changes in accounting policies and disclosures
The Company has applied Ind AS 115 for the first time. The nature and the effect of the changes as a result of adoption of these new accounting standards are described below:
Ind AS 115 Revenue from Contracts with Customers
Ind AS 115 was issued on March 28, 2018 and supersedes Ind AS 11 Construction Contracts and Ind AS 18 Revenue and it applies, with limited exceptions, to all revenue arising from contracts with its customers. Ind AS 115 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. In addition, the standard requires extensive disclosures.
The Company adopted Ind AS 115 using the modified retrospective method of adoption. There is no significant impact of transition to Ind AS 115 on retained earnings as on April 1, 2018.
The investment properties consist of Cummins Technical Centre in India (CTCI) and office building. As at March 31, 2019 the fair value of the properties is f 78,048 lacs (As at March 31, 2018: f 77,246 lacs). The valuation is performed by accredited independent valuers, who are specialists in valuing these types of investment properties. A valuation model as recommended by International Valuation Standards Committee has been applied. The Company considers factors like management intention, terms of rental agreements, area leased out, life of the assets etc. to determine classification of assets as investment properties.
The Company has no restrictions on the realisability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements. Fair value disclosures for investment properties are provided in Note 46.
As per the DCF method, fair value is defined as the present value of future cash flows that can be withdrawn from the Company. To estimate the cash flows available, projected cash flows of the Company are considered for certain future years (explicit forecast period). Based on the projected cash flows, the free cash flows from subject properties are estimated. The Company has discounted the net cash flows to arrive at the present value of free cash flows. After the explicit period, the subject properties will continue to generate cash. In DCF method, therefore, perpetuity value/capitalized value/terminal value is also considered to arrive at the value of the subject properties.
b. Rights, preferences and restrictions attached to shares
The Company has only one class of equity shares having a par value of f 2 per share. Each shareholder is entitled to one vote per share. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend. In the event of liquidation of the Company, the equity shareholders are eligible to receive remaining assets of the Company, after distribution of all preferential amounts, in the proportion to their shareholding.
c. Shares held by holding / ultimate holding company and / or their subsidiaries / associates
Of the above equity shares, 141,372,000 (March 31, 2018 : 141,372,000) shares of f 2 each are held by the Holding Company, Cummins Inc. USA.
During the years March 31, 2019 and March 31, 2018, the Company paid dividend to its shareholders. This resulted in payment of dividend distribution tax (âDDTâ) to the taxation authorities. The Company believes that DDT represents additional payment to taxation authorities on behalf of the shareholders. Hence DDT paid is charged to equity.
Dividend not recognized at the end of the reporting period
In addition to the above dividends, since year end the directors have recommended payment of final dividend of Rs, 33,418 lacs for the year ended March 31, 2019 (March 31, 2018: Rs, 33,418 lacs) which is Rs, 10 per fully paid up share (March 31, 2018: Rs, 10 per fully paid up share) and applicable tax on dividend. This proposed dividend is subject to approval of shareholders in the ensuing Annual General Meeting.
* Others primarily includes testing income, engineering income and royalty income from dealers, etc.
Revenue from operations for periods up to June 30, 2017 includes excise duty. From July 1, 2017 onwards the excise duty and most indirect taxes in India have been replaced with Goods and Service Tax (GST). The Company collects GST on behalf of the Government. Hence, GST is not included in Revenue from operations. In view of the aforesaid change in indirect taxes, Revenue from operations for the year ended March 31, 2019 is not comparable with March 31, 2018.
Disaggregated revenue information
Set out below is the disaggregation of the Companies revenue from contracts with customers
36 Significant accounting judgments, estimates and assumptions
The preparation of the Companyâs financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcome that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
Judgments
In the process of applying the Companyâs accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the financial statements:
Revenue from contracts with customers
The Company applied the following judgments that significantly affect the determination of the amount and timing of revenue from contracts with customers:
- Identifying performance obligations in a bundled sale of equipment and installation services
The Company provides installation services that can either be sold separately or bundled together with the sale of equipment to a customer. The installation services are a promise to transfer services in the future and are part of the negotiated exchange between the Company and the customer. The Company determined that both the equipment and installation are capable of being distinct.
- Determining method to estimate variable consideration and assessing the constraint
Certain contracts for the sale of services include volume rebates that give rise to variable consideration. In estimating the variable consideration, the Company applies either the most likely amount method or the expected value method. The most likely amount method is applied for contracts with a single-volume threshold and the expected value method is applied for contracts with more than one volume threshold.
The Company determined that the estimates of variable consideration are not constrained based on its historical experience, business forecast and the current economic conditions. In addition, the uncertainty on the variable consideration will be resolved within a short time frame.
Operating lease commitments - Company as less or
The Company has leased out commercial properties (investment properties) on operating lease. The Company had determined, based on an evaluation of the terms and conditions of the arrangement, such as the lease term not constituting a major part of the economic life of the commercial property and the fair value of the assets, that it retains all the significant risks and rewards of ownership of these properties, and accounts for the contracts as operating leases.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimation on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
Defined benefit plans:
The cost of the defined benefit gratuity plan and other post-employment medical benefits and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
The discount rate is the parameter most subject to change. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds. The mortality rate is based on publicly available mortality tables for India. Mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates. Further details about gratuity obligations are given in note 42.
Fair value measurements of financial instruments:
When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets if available, otherwise, a degree of judgment is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of the financial instrument. Refer note 46 for further disclosures.
Taxes
MAT credit entitlement is recognized to the extent it is probable that taxable profit will be available against which the MAT credit can be utilized. Significant management judgment is required to determine the amount of MAT credit that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
Unutilized MAT credit entitlement as per return of income for the year ended March 31, 2018 was Rs, 6,507 Lacs. The Company has a MAT credit entitlement of Rs, Nil as at March 31, 2019 after utilizing the entire MAT credit entitlement as per books of account.
Mar 31, 2018
a) Corporate information:
Cummins India Limited (âCILâ or âthe Companyâ) is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. Its shares are listed on two recognised stock exchanges in India. The registered office of the Company is located at Cummins India Office Campus, Balewadi, Pune. The Company is principally engaged in the business of manufacturing, trading and selling of engines and allied activities. (CIN : L29112PN1962PLC012276)
The standalone financial statements for the year ended March 31, 2018 were authorised for issue in accordance with the resolution of the directors on May 24, 2018.
b) Basis of preparation:
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015, as amended thereafter.
The financial statements are prepared on a historical cost basis, except for the following assets and liabilities:
- certain financial assets and financial liabilities (including derivative instruments) which have been measured at fair value,
- assets held for sale are measured at lower of carrying amount or fair value less cost to sell
- defined benefit plans- Plan assets are measured at fair value
All assets and liabilities have been classified as current and non-current as per the Companyâs normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013. Based on the nature of products and services 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 12 months for the purpose of current and noncurrent classification of assets and liabilities. Deferred tax assets and liabilities are classified as non-current assets and liabilities.
c) Fair value measurements
The Company measures financial instruments at fair value on initial recognition and at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
i) In the principal market for the asset or liability or
ii) In the absence of a principal market, in the most advantageous market for the asset or liability,
The principal or the most advantageous market must be accessible by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy. This is described, as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
i) Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
ii) Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
iii) Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. This note summarises accounting policy for fair value. Other fair value related disclosures are given in the relevant notes:
Disclosures for valuation methods, significant estimates and assumptions (refer note 37)
Financial instruments (including those carried at amortised cost) (refer note 11 to 15)
Investment properties (refer note 3)
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
d) Property, plant and equipment and investment properties
Property plant and equipment, capital work in progress and investment properties are stated at cost of acquisition or construction net of accumulated depreciation and impairment loss. All significant costs relating to the acquisition and installation of property plant and equipment/ investment property are capitalised. Subsequent costs are included in the assetâs carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the Statement of Profit and Loss during the financial period in which they are incurred.
Depreciation is computed on straight line method based on useful lives, determined based on internal technical evaluation as follows:
The assetsâ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Leasehold land is amortised on the straight line basis over period of the lease. Freehold land is carried at cost.
Losses arising from the retirement of, and gains and losses arising from disposal of property plant and equipment which are carried at cost are recognised in the Statement of Profit and Loss.
e) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Intangible finite assets are amortized over their respective useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired.
Softwares are amortised over a period of useful lives from the date of purchase/date of completion of development and put to use (3-5 years), being the estimated useful life as per the management estimate or license term whichever is less.
Losses arising from the retirement of, and gains and losses arising from disposal of intangible assets which are carried at cost are recognised in the Statement of Profit and Loss.
f) Assets held for sale
Items of property plant and equipment/ intangible assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value, and are disclosed as assets held for disposal in financial statements. Such assets, once classified as held for sale, are not depreciated. Any expected loss is recognised immediately in the Statement of Profit and Loss.
g) Inventories
Inventories are stated at lower of cost and net realisable value after providing for obsolescence and are valued at weighted average cost basis. The material costs are determined on weighted average basis and the valuation of finished goods and work in progress represents the combined cost of material, labour and all manufacturing overheads (based on normal operating capacity). Cost of inventories also include all other costs incurred in bringing the inventories to their present location and condition. Net realisable value is estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated cost necessary to make the sale. Material in transit is valued at cost incurred till date.
h) Foreign currency transactions
The Company''s financial statements are presented in INR (f), which is also the functional currency of the Company.
Transactions in foreign currencies are accounted at the functional currency spot rates prevailing on the date of transactions. Monetary foreign currency financial assets and liabilities are translated at functional currency spot rates of exchange at the reporting date. The resulting exchange differences are appropriately recognised in the Statement of Profit and Loss.
Non-monetary items that are measured in terms of historical costs in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non - monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non- monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in the fair value of the item.
i) Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable inclusive of excise duty, taking into account contractually defined terms of payment excluding taxes or duties collected on behalf of the government e.g. value added tax (VAT), goods and service tax (GST).
i) Sales are recognised when the significant risks and rewards of ownership in the goods are transferred to the buyer as per the terms of the contract. Revenue is measured at fair value of the consideration received or receivable, inclusive of excise duty and net off sales tax/ value added tax / GST, trade discounts, returns and allowances, price difference adjustments, volume discounts, liquidated damages and special discounts passed on to customers. The Company bases its estimates on historical results taking into consideration type of customer, type of transaction and terms of each arrangement.
ii) Revenue from long term service contracts is recognized using the proportionate completion method, and recognised net of service tax / GST. Completion is determined as a proportion of cost incurred till date to the total estimated contract cost. Provision is made for any loss in the period in which it is foreseen. Billing in excess of contract revenue has been reflected as âUnearned Revenue'' under âOther liabilities'' in the Balance Sheet. In case of contracts where payments have been received in advance, revenue is deferred until the related subscription period is complete as per the terms of the agreement with the customers.
In case of other service contracts, revenue is recognized when services are rendered and on receipt of confirmation from customers, as the case may be.
iii) Interest income is recognised using effective interest rate method (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross amount of the financial asset or to the amortised cost of a financial liability. When calculating the EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument but doesnât consider the expected credit losses. Interest income is included in Other Income in the Statement of Profit and Loss.
iv) Rental income is recognised on a straight-line basis over the lease term, other than escalations on account of inflation.
v) Dividend income from investments is recognised when the right to receive payment is established. j) Leases
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risk and rewards incidental to ownership to the Company is classified as a finance lease.
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Company as a lessee: Lease charges under operating leases are recognised as an expense on straight-line basis over the lease term unless the payments are structured to increase in line with general inflation to compensate for lessors expected inflationary cost increase.
Company as a lessor: Rental income is recognised on a straight-line basis over the lease term unless the payments are structured to increase in line with general inflation to compensate expected inflationary cost increase. Initial direct cost incurred in negotiating and arranging an operating lease are amortised over the leased term.
k) Employee benefits
The Company operates following post-employment schemes, including both defined benefit and defined contribution plans.
A) Post-employment benefits
i) Defined contribution plans:
A defined contribution plan is a plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Company has defined contribution plans for post employment benefits in the form of superannuation fund for management employees and provident fund for non management employees which is administered by Life Insurance Corporation of India/regional provident fund commissioner. In case of superannuation fund for management employees and provident fund for non management employees, the Company has no further obligation beyond making the contributions. The contributions are accounted for as employee benefit expense when they are due. Prepaid contribution is recognised as an asset to the extent cash refund or reduction in future contribution is available.
ii) Defined benefit plans:
Funded Plan: The Company has defined benefit plans for post-employment benefits in the form of gratuity for all employees, pension for non management employees and provident fund for management employees which are administered through Company managed trust/Life Insurance Corporation of India.
Unfunded plan: The Company has unfunded defined benefit plans in the form of post retirement medical benefits (PRMB) and ex-gratia benefits as per the policy of the Company.
Liability for above defined benefit plans is provided on the basis of valuation, as at the Balance Sheet date, carried out by an independent actuary. The actuarial method used for measuring the liability is Projected Unit Credit method. In case of Provident Fund for management employees, the Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate. The Companyâs contributions and such shortfall are charged to the Statement of Profit and Loss as and when incurred.
Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling (excluding amounts included in net interest on the net defined benefit liability) and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the Balance Sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
B) Other employee benefit (unfunded)
Liability for compensated absences is provided on the basis of valuation, as at the Balance Sheet date, carried out by an independent actuary. The Actuarial valuation method used for measuring the liability is Projected Unit Credit method. Under this method, projected accrued benefit is calculated at the beginning of the year and again at the end of the year for each benefit that will accrue for active members of the plan. The âprojected accrued benefitâ is based on the planâs accrual formula and upon service as of the beginning or end of the year, but using a memberâs final compensation, projected to the age at which the employee is assumed to leave active service. The plan liability is the actuarial present value of the âprojected accrued benefitsâ as of the beginning of the year for active members.
Termination benefits are recognized as an expense as and when incurred.
The present value of defined benefit obligation denominated in INR (f) is determined by discounting the estimated future cash flows by reference to the market yield at the end of the reporting period on the government bonds that has terms approximately the terms of the related obligation.
l) Research and development costs
Revenue expenditure incurred for research activities is expensed off in the year in which it is incurred.
m) Income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the Statement of Profit and Loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, as the case may be.
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws prevailing and applicable for the relevant assessment year. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income taxes are recognised for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases in the financial statements. The effect on deferred tax assets and liabilities of a change in the tax rates is recognised using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxable entity and the same taxation authority.
In the situations where the Company is entitled to a tax holiday under the Income Tax Act, 1961, no deferred tax (asset or liability) is recognised in respect of temporary differences which reverse during the tax holiday period, to the extent the Companyâs gross total income is subject to the deduction during the tax holiday period. Deferred tax in respect of temporary differences which reverse after the tax holiday period is recognised in the year in which the temporary differences originate. However, the Company restricts recognition of deferred tax assets to the extent that it has become reasonably certain, that sufficient future taxable income will be available against which such deferred tax assets can be realized. For recognition of deferred taxes, the temporary differences which originate first are considered to reverse first.
Minimum alternate tax (âMAT'') credit is recognized as a deferred tax asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. Such asset is reviewed at each Balance Sheet date and the carrying amount of MAT credit asset is written down to the extent there is no longer a convincing evidence to the effect that the Company will pay normal income tax during the specified period.
n) Provisions and contingent liabilities
A provision is recognised when there is a present legal or constructive obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, and in respect of which a reliable estimate can be made. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. A disclosure for a contingent liability is made where there is a possible obligation arising out of past event, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation arising out of past event where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
o) Impairment of non financial assets
The Company tests for impairments at the close of the accounting period if and only if there are indications that suggest a possible reduction in the recoverable value of an asset. If the recoverable value of an asset, i.e. the net realizable value or the economic value in use of a cash generating unit, is lower than the carrying amount of the asset the difference is provided for as impairment. However, if subsequently the position reverses and the recoverable amount becomes higher than the then carrying value the provision to the extent of the then difference is reversed, but not higher than the amount provided for.
p) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and at bank, demand deposits with banks, other short-term highly liquid investments with original maturities of three months or less which is subject to insignificant risk of change in value.
q) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions.
r) Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed.
Where the grant relates to an asset, it is recognised as deferred income which is recognised as income on a systematic and rational basis over the useful life of the asset.
When the Company receives non-monetary grants, the asset and the grant are recorded at fair value and released to profit or loss over the expected useful life of the asset, based on the pattern of consumption of the benefits of the underlying asset by equal annual instalments. When loans or similar assistance are provided by governments or related institutions with an interest rate below the current applicable market rate, the effect of this favourable interest is regarded as a government grant. The loan or assistance is initially recognized and measured at fair value and the government grant is measured as the difference between the initial carrying value of the loan and the proceeds received. The loan is subsequently measured as per the accounting policy applicable to financial liabilities.
s) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. For all subsequent measurements financial assets are classified in following categories:
A) Debt instruments
i) Debt instruments at amortised cost: The debt instrument is at amortised cost if the asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and contractual terms of the asset give rise on specified dates to cash flow that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
This category is most relevant to the Company. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method (EIR). Amortised cost is calculated by taking into account any discount or premium on acquisition and fees for cost that are an integral part of the EIR. The EIR amortisation is included in other income in the Statement of Profit and Loss. This category generally applies to loans and trade and other receivables.
ii) Debt instruments fair value through OCI (FVOCI): A debt instrument is classified as FVOCI if the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company has not classified any financial assets under this category.
iii) Debt instruments at fair value through profit and loss (FVTPL): Debt instruments not classified as amortised cost or FVOCI are classified as FVTPL. The Company has not classified any debt under this category.
B) Equity instruments
Equity instruments held for trading are classified as FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in OCI the subsequent changes in fair value. The Company makes such election on an instrument by instrument basis. If the Company decides to classify an equity instrument as FVOCI, then all fair value changes on the instrument, excluding dividends are recognized in OCI. There is no recycling of the amount from OCI to Statement of Profit and Loss. However, the Company may transfer the cumulative gain or loss within equity.
The Company has elected to present all equity instruments, other than those in subsidiary, joint ventures and associate, through FVTPL and all subsequent changes are recognized in Statement of Profit and Loss.
C) Derecognition
A financial asset (or wherever applicable, a part of the financial asset or part of a group of similar financial assets) is primarily derecognized when the rights to receive cash flow from the assets have expired or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flow in full to a third party under a pass through arrangement and either a) the Company has transferred substantially all risks and rewards of the asset or b) has transferred control of the asset.
D) Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss and credit risk exposure on the financial assets that are debt instruments measured at amortized costs e.g. loans, deposits, trade receivables, lease receivable and bank balances.
The Company follows simplified approach for recognition of impairment loss allowance on trade receivables and lease receivables. The application of simplified approach does not require the Company to track changes in credit risk. Rather it recognizes impairment loss allowance based on lifetime ECLâs at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12 month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If in subsequent period the credit risk reduces since initial recognition, then the entity reverts to recognizing impairment loss allowance based on 12 month ECL.
As a practical expedient, the Company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables. The matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward looking estimates are analysed. The Company has presumed that default doesnât occur later than when a financial asset is 90 days past due.
Impairment loss allowance including ECL or reversal recognized during the period is recognized as income/ expense in the Statement of Profit and Loss. This amount is reflected under the head âOther Expensesâ in Statement of Profit and Loss. The impairment loss is presented as an allowance in the Balance Sheet as a reduction from the net carrying amount of the trade receivable, loan, deposits and lease receivable respectively.
Financial Liabilities
All financial liabilities are initially recognised at fair value. The Companyâs financial liabilities include trade and other payables, other financial liabilities, loans and borrowings including bank overdraft and derivative financial instruments.
Subsequent measurement of financial liabilities depends on their classification as fair value through profit and loss or at amortized cost.
All changes in fair value of financial liabilities classified as FVTPL is recognized in the Statement of Profit and Loss. Amortised cost category is applicable to loans and borrowings, trade and other payables. After initial recognition the financial liabilities are measured at amortised cost using the EIR method. Gains and losses are recognized in profit and loss when the liabilities are derecognized as well as through the EIR amortization process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or cost that are integral part on EIR. The EIR amortization is included as finance cost in the Statement of Profit and Loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of the new liability. The difference in the respective carrying amounts is recognized in the Statement of Profit or Loss.
Derivatives
The Company uses derivative financial instruments such as forward currency contracts to hedge its foreign currency risk. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to Statement of Profit and Loss.
Embedded derivatives: An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract - with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified
interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit and loss.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract. Derivatives embedded in all other host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in Statement of Profit and Loss, unless designated as effective hedging instruments.
Reclassification of financial instruments
After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets, which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. If the Company reclassifies the financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in the business model.
Offsetting financial assets and financial liabilities
Financial assets and liabilities are offset and the net amount is reported in the Balance Sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
t) Dividend distribution
Dividend distribution to the Company''s shareholders is recognised as a liability in the Company''s financial statements in the period in which the dividends are approved by the Company''s shareholders.
u) Earning per Share (EPS)
Basic earnings per share is calculated by dividing the net profit or loss attributable to equity holder of the Company (after deducting preference dividends and attributable taxes) by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they are entitled to participate in dividends relative to a fully paid equity share during the reporting period. The weighted average number of equity shares outstanding during the period is adjusted for events such as bonus issue, bonus element in a rights issue, share split, and reverse share split (consolidation of shares) that have changed the number of equity shares outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders of the Company and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
The investment properties consist of CTCI and office building. As at March 31, 2018 the fair value of the properties is Rs.77,246 lacs (As at March 31, 2017: Rs.27,126 lacs). The valuation is performed by accredited independent valuers, who are specialists in valuing these types of investment properties. A valuation model as recommended by International Valuation Standards Committee has been applied.
The Company has no restrictions on the realisability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements. Fair value disclosures for investment properties are provided in Note 47.
As per the DCF method, fair value is defined as the present value of future cash flows that can be withdrawn from the Company. To estimate the cash flows available, projected cash flows of the Company are considered for certain future years (explicit forecast period). Based on the projected cash flows, the free cash flows from subject properties are estimated. The Company has discounted the net cash flows to arrive at the present value of free cash flows. After the explicit period, the subject properties will continue to generate cash. In DCF method, therefore, perpetuity value/capitalized value/terminal value is also considered to arrive at the value of the subject properties.
Mar 31, 2017
1. Summary of Significant accounting policies
a) Corporate information:
Cummins India Limited (âCILâ or âthe Companyâ) is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. Its shares are listed on two recognised stock exchanges in India. The registered office of the Company is located at Cummins India Office Campus, Balewadi, Pune. The Company is principally engaged in the business of manufacturing, trading and selling of Engines and allied activities. (CIN : L29112PN1962PLC012276)
The separate financial statements for the year ended March 31, 2017 were authorised for issue in accordance with the resolution of the directors on May 18, 2017.
b) Basis of preparation:
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015, as amended thereafter.
For all the periods up to and including the year ended March 31, 2016 the Company prepared its financial statements in accordance with accounting standards notified under the section 133 of the Companies Act, 2013 read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Indian GAAP). These financial statements are the first, the Company has prepared in accordance with Ind AS. Refer to note no 48 for information on first time adoption of Ind AS.
The financial statements are prepared on a historical cost basis, except for the following assets and liabilities:
- certain financial assets and financial liabilities (including derivative instruments) which have been measured at fair value,
- assets held for sale are measured at lower of carrying amount or fair value less cost to sell
- defined benefit plans- Plan assets are measured at fair value
All assets and liabilities have been classified as current and non-current as per the Companyâs normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013. Based on the nature of products and services 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 12 months for the purpose of current and noncurrent classification of assets and liabilities. Deferred tax assets and liabilities are classified as non-current assets and liabilities.
c) Fair value measurements
The Company measures financial instruments at fair value on initial recognition and at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
i) In the principal market for the asset or liability or
ii) In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy. This is described, as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
i) Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
ii) Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
iii) Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. This note summarises accounting policy for fair value. Other fair value related disclosures are given in the relevant notes:
Disclosures for valuation methods, significant estimates and assumptions (refer note 36)
Financial instruments (including those carried at amortised cost)
Investment Property (refer note 3)
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarcy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
d) Property, plant and equipment and Investment property
Property, plant and equipment, capital work in progress and investment property are stated at cost of acquisition or construction net of accumulated depreciation and impairment loss (if any). All significant costs relating to the acquisition and installation of property, plant and equipment/ investment property are capitalised. Subsequent costs are included in the assetâs carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the Statement of Profit and Loss during the financial period in which they are incurred.
On transition to Ind AS, the Company has elected to continue with the carrying value of property, plant and equipment as recognised in financial statements as per Indian GAAP and regard those values as deemed cost on the date of transition.
Depreciation is computed on straight line method based on useful lives, determined based on internal technical evaluation as follows:
The assetsâ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Leasehold land is amortised on the straight line basis over period of the lease. Freehold land is carried at cost.
Losses arising from the retirement of, and gains and losses arising from disposal of property, plant and equipment which are carried at cost are recognised in the Statement of Profit and Loss.
e) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Intangible finite assets are amortized over their respective useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired.
Softwares are amortised over a period of useful lives from the date of purchase/date of completion of development and put to use (3 years to 5 years), being the estimated useful life as per the management estimate or license term whichever is less.
Losses arising from the retirement of, and gains and losses arising from disposal of intangible assets which are carried at cost are recognised in the Statement of Profit and Loss.
f) Assets held for sale
Items of property plant and equipment/ intangible assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value less cost to sell; and are disclosed as assets held for disposals in financial statements. Any expected loss is recognised immediately in the Statement of Profit and Loss.
g) Inventories
Inventories are stated at lower of cost and net realisable value after providing for obsolescence. The material costs are determined on weighted average basis and the valuation of finished goods and work in progress represents the combined cost of material, labour and all manufacturing overheads (based on normal operating capacity). Cost of inventories also include all other costs incurred in bringing the inventories to their present location and condition. Net realisable value is estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated cost necessary to make the sale. Material in transit is valued at cost incurred till date.
h) Foreign currency transactions
The Companyâs financial statements are presented in INR (f), which is also the functional currency of the Company.
Transactions in foreign currencies are accounted at the functional currency spot rates prevailing on the date of transactions. Monetary foreign currency financial assets and liabilities are translated at functional currency spot rates of exchange at the reporting date. The resulting exchange differences are appropriately recognised in the Statement of Profit and Loss.
Non-monetary items that are measured in terms of historical costs in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non - monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non- monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in the fair value of the item.
i) Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable inclusive of excise duty, taking into account contractually defined terms of payment excluding taxes or duties collected on behalf of the government.
i) Sales are recognised when the significant risks and rewards of ownership in the goods are transferred to the buyer as per the terms of the contract. Revenue is measured at fair value of the consideration received or receivable, inclusive of excise duty and net off sales tax/ value added tax, trade discounts, returns and allowances, price difference adjustments, volume discounts, liquidated damages and special discounts passed on to customers. The Company bases its estimates on historical results taking into consideration type of customer, type of transaction and terms of each arrangement.
ii) Revenue from long term service contracts is recognized using the proportionate completion method, and recognised net of service tax. Completion is determined as a proportion of cost incurred till date to the total estimated contract cost. Provision is made for any loss in the period in which it is foreseen. Billing in excess of contract revenue has been reflected as âUnearned Revenueâ under âOther liabilitiesâ in the Balance Sheet. In case of contracts where payments have been received in advance, revenue is deferred until the related subscription period is complete as per the terms of the agreement with the customers.
In case of other service contracts, revenue is recognized when services are rendered and on receipt of confirmation from customers, as the case may be.
iii) Interest income is recognised using effective interest method (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross amount of the financial asset or to the amortised cost of a financial liability. When calculating the EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument but doesnât consider the expected credit losses. Interest income is included in the other income in the Statement of Profit and Loss.
iv) Rental income is recognised on a straight-line basis over the lease term, other than escalations on account of inflation.
v) Dividend income from investments is recognised when the right to receive payment is established.
j) Lease charges under operating leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Company as a lessee: Lease charges under operating leases are recognised as an expense on straight-line basis over the lease term unless the payments are structured to increase in line with general inflation to compensate for lessors expected inflationary cost increase.
Company as a lessor: Rental income is recognised on a straight-line basis over the lease term unless the payments are structured to increase in line with general inflation to compensate expected inflationary cost increase. Initial direct cost incurred in negotiating and arranging an operating lease are amortised over the leased term.
k) Employee benefits
The Company operates following post-employment schemes, including both defined benefit and defined contribution plans.
A) Post-employment benefits
i) Defined contribution plans:
A defined contribution plan is a plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Company has defined contribution plans for post employment benefits in the form of superannuation fund for management employees and provident fund for non management employees which is administered by Life Insurance Corporation of India/Regional Provident Fund Commissioner. In case of superannuation fund for management employees and provident fund for non management employees, the Company has no further obligation beyond making the contributions. The contributions are accounted for as employee benefit expense when they are due. Prepaid contribution is recognised as an asset to the extent cash refund or reduction in future contribution is available.
ii) Defined benefit plans:
Funded Plan: The Company has defined benefit plans for post-employment benefits in the form of gratuity for all employees, pension for non management employees and provident fund for management employees which are administered through Company managed trust/Life Insurance Corporation of India.
Unfunded plan: The Company has unfunded defined benefit plans in the form of post retirement medical benefits (PRMB) and ex-gratia benefits as per the policy of the Company.
Liability for above defined benefit plans is provided on the basis of valuation, as at the Balance Sheet date, carried out by independent actuary. The actuarial method used for measuring the liability is the Projected Unit Credit method. In case of Provident Fund for management employees, the Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate. The Companyâs contributions and such shortfall are charged to the Statement of Profit and Loss as and when incurred.
Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling (excluding amounts included in net interest on the net defined benefit liability) and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the Balance Sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
B) Other long-term employee benefit (unfunded)
Liability for compensated absences is provided on the basis of valuation, as at the Balance Sheet date, carried out by independent actuary. The Actuarial valuation method used for measuring the liability is the Projected Unit Credit method. Under this method, projected accrued benefit is calculated at the beginning of the year and again at the end of the year for each benefit that will accrue for active members of the plan. The âprojected accrued benefitâ is based on the planâs accrual formula and upon service as of the beginning or end of the year, but using a memberâs final compensation, projected to the age at which the employee is assumed to leave active service. The plan liability is the actuarial present value of the âprojected accrued benefitsâ as of the beginning of the year for active members.
Termination benefits are recognized as an expense as and when incurred.
The present value of defined benefit obligation denominated in INR is determined by discounting the estimated future cash flows by reference to the market yield at the end of the reporting period on the government bonds that has terms approximately the terms of the related obligation.
l) Research and development costs
Revenue expenditure incurred for research activities is expensed off in the year in which it is incurred. m) Income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the Statement of Profit and Loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws prevailing and applicable for the relevant assessment year. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income taxes are recognised for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases in the financial statements. The effect on deferred tax assets and liabilities of a change in the tax rates is recognised using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxable entity and the same taxation authority.
In the situations where the Company is entitled to a tax holiday under the Income-tax Act, 1961, no deferred tax (asset or liability) is recognised in respect of temporary differences which reverse during the tax holiday period, to the extent the Companyâs gross total income is subject to the deduction during the tax holiday period. Deferred tax in respect of temporary differences which reverse after the tax holiday period is recognised in the year in which the temporary differences originate. However, the Company restricts recognition of deferred tax assets to the extent that it has become reasonably certain, that sufficient future taxable income will be available against which such deferred tax assets can be realized. For recognition of deferred taxes, the temporary differences which originate first are considered to reverse first.
Minimum alternate tax (âMATâ) credit is recognized as a deferred tax asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. Such asset is reviewed at each Balance Sheet date and the carrying amount of MAT credit asset is written down to the extent there is no longer a convincing evidence to the effect that the Company will pay normal income tax during the specified period.
n) Provisions and contingent liabilities
A provision is recognised when there is a present legal or constructive obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, and in respect of which a reliable estimate can be made. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. A disclosure for a contingent liability is made where there is a possible obligation arising out of past event, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation arising out of past event where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
o) Impairment of non financial assets
The Company tests for impairments at the close of the accounting period if and only if there are indications that suggest a possible reduction in the recoverable value of an asset. If the recoverable value of an asset, i.e. the net realizable value or the economic value in use of a cash generating unit, is lower than the carrying amount of the asset the difference is provided for as impairment. However, if subsequently the position reverses and the recoverable amount becomes higher than the then carrying value, the provision to the extent of the then difference is reversed, but not higher than the amount provided for.
p) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and at bank, demand deposits with banks, other short-term highly liquid investments with original maturities of three months or less which is subject to insignificant risk of change in value.
q) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions.
r) Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed.
Where the grant relates to an asset, it is recognised as deferred income which is recognised as income on a systematic and rational basis over the useful life of the asset.
When the Company receives non-monetary grants, the asset and the grant are recorded at fair value amounts and released to profit or loss over the expected useful life of the asset, based on the pattern of consumption of the benefits of the underlying asset by equal annual instalments. When loans or similar assistance are provided by governments or related institutions with an interest rate below the current applicable market rate, the effect of this favourable interest is regarded as a government grant. The loan or assistance is initially recognized and measured at fair value and the government grant is measured as the difference between the initial carrying value of the loan and the proceeds received. The loan is subsequently measured as per the accounting policy applicable to financial liabilities.
s) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. For all subsequent measurements financial assets are classified in following categories:
A) Debt instruments
i) Debt instruments at amortised cost: The debt instrument is at amortised cost if the asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and contractual terms of the asset give rise on specified dates to cash flow that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
This category is most relevant to the Company. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method (EIR). Amortised cost is calculated by taking into account any discount or premium on acquisition and fees for cost that are an integral part of the EIR. The EIR amortisation is included in other income in the Statement of Profit and Loss. This category generally applies to loans and trade and other receivables.
ii) Debt instruments fair value through OCI (FVOCI): A debt instrument is classified as FVOCI if the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company has not classified any financial assets under this category.
iii) Debt instruments at fair value through profit and loss (FVTPL): Debt instruments not classified as amortised cost or FVOCI are classified as FVTPL. The Company has not classified any debt under this category.
B) Equity instruments
Equity instruments held for trading are classified as FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in OCI the subsequent changes in fair value. The Company makes such election on an instrument by instrument basis. If the Company decides to classify an equity instrument as FVOCI, then all fair value changes on the instrument, excluding dividends are recognized in OCI. There is no recycling of the amount from OCI to Statement of Profit and Loss. However, the Company may transfer the cumulative gain or loss within equity.
The Company has elected to present all equity instruments, other than those in subsidiary, joint ventures and associate, through FVTPL and all subsequent changes are recognized in Statement of Profit and Loss.
C) De- recognition
A financial asset (or wherever applicable, a part of the financial asset or part of a group of similar financial assets) is primarily derecognized when the rights to receive cash flow from the assets have expired or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flow in full to a third party under a pass through arrangement and either a) the Company has transferred substantially all risks and rewards of the asset or b) has transferred control of the asset.
D) Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss and credit risk exposure on the financial assets that are debt instruments measured at amortized costs eg loans, deposits, trade receivables, lease receivable and bank balances.
The Company follows simplified approach for recognition of impairment loss allowance on trade receivables and lease receivables. The application of simplified approach does not require the Company to track changes in credit risk. Rather it recognizes impairment loss allowance based on lifetime ECLâs at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12 month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If in subsequent period the credit risk reduces since initial recognition, then the entity reverts to recognizing impairment loss allowance based on 12 month ECL.
As a practical expedient, the Company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables. The matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward looking estimates are analysed. The Company has presumed that default doesnât occur later than when a financial asset is 90 days past due.
Impairment loss allowance including ECL or reversal recognized during the period is recognized as income/ expense in the Statement of Profit and Loss (P&L). This amount is reflected under the head âother expensesâ in the P&L. The impairment loss is presented as an allowance in the Balance Sheet as a reduction from the net carrying amount of the trade receivable, loan, deposits and lease receivable respectively.
Financial Liability
All financial liabilities are initially recognised at fair value. The Companyâs financial liabilities include trade and other payables, loans and borrowings including bank overdraft and derivative financial instruments.
Subsequent measurement of financial liabilities depends on their classification as fair value through Profit and loss or at amortized cost.
All changes in fair value of financial liabilities classified as FVTPL is recognized in the Statement of Profit and Loss. Amortised cost category is applicable to loans and borrowings, trade and other payables. After initial recognition the financial liabilities are measured at amortised cost using the EIR method. Gains and losses are recognized in profit and loss when the liabilities are derecognized as well as through the EIR amortization process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or cost that are integral part of the EIR. The EIR amortization is included as finance cost in the Statement of Profit and Loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of the new liability. The difference in the respective carrying amounts is recognized in the Statement of Profit and Loss.
Derivatives
The Company uses derivative financial instruments such as forward currency contracts to hedge its foreign currency risk. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered and are subsequently re measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to Statement of Profit and Loss.
Embedded derivatives: An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract - with the effect that some of the cash flows of the combined instrument vary in a way similar to a standalone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through Statement of Profit or Loss.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract. Derivatives embedded in all other host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss, unless designated as effective hedging instruments.
Reclassification of financial instruments
After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets, which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. If the Company reclassifies the financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in the business model.
Offsetting financial assets and financial liabilities
Financial assets and liabilities are offset and the net amount is reported in the Balance Sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
t) Dividend distribution
Dividend distribution to the Companyâs shareholders is recognised as a liability in the Companyâs financial statements in the period in which the dividends are approved by the Companyâs shareholders.
Mar 31, 2015
A) Basis of preparation of financial statements
(i) These financial statements have been prepared in accordance with
the generally accepted accounting principles in India under the
historical cost convention on accrual basis. Pursuant to section 133 of
the Companies Act, 2013 read with Rule 7 of the Companies (Accounts)
Rules, 2014, till the standards of accounting or any addendum thereto
are prescribed by Central Government in consultation with and
recommendations of the National Financial Reporting Authority, the
Accounting Standards notified under the Companies (Accounting
Standards) Rules, 2006, as amended (the ''Rules''), continue to be
applicable, accordingly, these financial statements have been prepared
to comply in all material aspects with the accounting standards
notified under the Rules and other relevant provisions of the Companies
Act, 2013.
(ii) All assets and liabilities have been classified as current and
non-current as per the Company''s normal operating cycle and other
criteria set out in the Schedule III to the Companies Act, 2013. Based
on the nature of products and services 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 12
months for the purpose of current and non-current classification of
assets and liabilities.
(iii) The preparation 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 preparing the accompanying financial statements.
Any revisions to accounting estimates are recognised prospectively in
current and future periods.
b) Fixed assets and depreciation
(i) Tangible assets are stated at cost of acquisition or construction
less accumulated depreciation. All significant costs relating to the
acquisition and installation of Tangible assets are capitalised.
Subsequent expenditures related to an item of Fixed Asset are added to
its book value only if they increase the future benefits from the
existing assets beyond its previously assessed standard of performance.
Depreciation is computed on straight line method based on useful lives,
determined based on internal technical evaluation and are in line with
the useful lives specified by Schedule II to the Companies Act, 2013.
Consequent to this, where the Company has changed the estimate of
useful life, the carrying amount of the asset as on April 1, 2014 is
depreciated over the remaining useful life of the asset. Further where
remaining useful life of an asset as on April 1, 2014 was Nil, the
carrying amount of the asset after retaining the residual value has
been recognised in the opening balance of retained earnings.
Leasehold land is amortised on the straight line method over period of
the lease.
(ii) Intangible assets are recorded at the consideration paid for
acquisition. Intangible assets are amortized over their respective
useful lives ranging between three years to seven years.
(iii) Loss arising from the retirement of, and gains and losses arising
from disposal of fixed assets which are carried at cost are recognised
in the Statement of Profit and Loss.
(iv) Items of fixed assets that have been retired from active use and
are held for disposal are stated at the lower of their net book value
and net realisable value and are classified under other current assets
in financial statements. Any expected loss is recognised immediately in
the Statement of Profit and Loss.
c) Investments
Investments that are readily realisable and are intended to be held for
not more than one year from the date, on which such investments are
made, are classified as current investments. All other investments are
classified as long-term investments. Current investments (excluding
current portion of long-term investments) are carried at cost or fair
value, whichever is lower. Long-term investments are carried at cost.
However, provision for diminution is made to recognise a decline, other
than temporary, in the value of investments.
d) Inventories
Inventories are stated at lower of cost and net realisable value after
providing for obsolescence. The material costs are determined on
weighted average basis and the valuation of finished goods and work in
progress represents the combined cost of material, labour and all
manufacturing overheads. Net realisable value is estimated selling
price in the ordinary course of business, less the estimated cost of
completion and the estimated cost necessary to make the sale. Material
in transit is valued at cost incurred till date.
e) Foreign currency transactions
Transactions in foreign currencies are accounted at the exchange rates
prevailing on the date of transactions. Monetary foreign currency
current assets and liabilities are translated at the year-end exchange
rates. The resulting exchange differences are appropriately recognised
in the Statement of Profit and Loss.
The Company uses forward exchange contracts to cover its foreign
currency cash flow risks, arising from exposures from exports and
imports, against movements in foreign exchange rates. Forward exchange
contracts are not used for trading or speculation purpose. The premium
or discount arising at the inception of forward exchange contracts
entered into, is amortised as expense or income over the life of the
contract. Exchange differences on such a contract are recognised in the
Statement of Profit and Loss in the reporting period in which the
exchange rates change. Any profit or loss arising on cancellation or
renewal of such a forward exchange contract are recognised as income or
as expense for the period.
f) Revenue recognition
(i) Sales are recognised when the significant risks and rewards of
ownership in the goods are transferred to the buyer as per the terms of
the contract and are recognised net of sales tax/value added tax and
excise duty.
(ii) Revenue from Long Term Service Contracts is recognized using the
proportionate completion method, and recognised net of service tax.
Completion is determined as a proportion of cost incurred till date to
the total estimated contract cost. Provision is made for any loss in
the period in which it is foreseen. Billing in excess of contract
revenue has been reflected as ''Unearned Revenue'' under ''Liabilities'' in
the Balance Sheet. In case of other Service contracts, revenue is
recognized when services are rendered or on receipt of confirmation
from customers, as the case may be.
(iii) Dividend income from investments is recognised when the right to
receive payment is established.
(iv) Interest income is recognised on a time proportion basis taking
into account the amount outstanding and the rate applicable.
(v) Rental income is recognised on a straight-line basis over the lease
term.
(vi) Export incentives are accounted for on export of goods if the
entitlements can be estimated with reasonable accuracy and conditions
precedent to claim are fulfilled.
g) Lease charges under operating leases
Lease charges under operating leases are recognised as expense on
straight-line basis over the lease term.
h) Product warranty and New Engine Performance Inspection (NEPI) fees
Product warranty costs and New Engine Performance Inspection fees are
accrued in the year of sale of products, based on past experience.
The Company periodically reviews the adequacy of above provisions and
adjusts, if necessary, the accrued provision, based on actual
experience.
i) Employee benefits
(i) Post-employment Benefits
a) Defined Contribution Plans:
The Company has Defined Contribution Plans for Post employment benefits
in the form of Superannuation Fund for management employees and
Provident Fund for non management employees which is administered by
Life Insurance Corporation / Regional Provident Fund Commissioner. In
case of Superannuation Fund for management employees and Provident Fund
for non management employees, the Company has no further obligation
beyond making the contributions.
b) Defined Benefit Plans:
Funded Plan: The Company has defined benefit plans for Post-employment
benefits in the form of Gratuity for all employees, pension for non
management employees and Provident Fund for management employees which
are administered through Company managed Trust / Life Insurance
Corporation (LIC).
Unfunded Plan: The Company has unfunded Defined Benefit plans in the
form of Post Retirement Medical Benefits and Ex-gratia benefits as per
the policy of the Company.
Liability for above defined benefit plans is provided on the basis of
valuation, as at the Balance Sheet date, carried out by independent
actuary. The actuarial method used for measuring the liability is the
Projected Unit Credit method. In case of Provident Fund for management
employees, the Company has an obligation to make good the shortfall, if
any, between the return from the investments of the trust and the
notified interest rate. The Company''s contributions and such shortfall
are charged to the Statement of Profit and Loss as and when incurred.
(ii) Other Long-term Employee Benefits (Unfunded):
Liability for Compensated Absences is provided on the basis of
valuation, as at the Balance Sheet date, carried out by independent
actuary. The Actuarial valuation method used for measuring the
liability is the Projected Unit Credit method. Under this method, "
projected accrued benefit " is calculated at the beginning of the year
and again at the end of the year for each benefit that will accrue for
active members of the Plan. The " projected accrued benefit" is based
on the Plan''s accrual formula and upon service as of the beginning or
end of the year, but using a member''s final compensation, projected to
the age at which the employee is assumed to leave active service. The
Plan liability is the actuarial present value of the "projected accrued
benefits" as at the end of the year for active members.
(iii) Termination benefits are recognized in the Statement of Profit
and Loss as an expense as and when incurred.
(iv) The Actuarial gains and losses arising during the year are
recognized in the Statement of Profit and Loss of the year without
resorting to any amortization.
j) Research and development costs
Revenue expenditure incurred for research activities is expensed off in
the year in which it is incurred.
k) Income Tax
Current tax is measured at the amount expected to be paid to the tax
authorities in accordance with the taxation laws prevailing and
applicable for the relevant assessment year.
Deferred income taxes are recognised for the future tax consequences
attributable to timing differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. The effect on deferred tax assets and liabilities
of a change in the tax rates is recognised using the tax rates and tax
laws that have been enacted or substantively enacted by the balance
sheet date. Deferred tax assets arising from unabsorbed depreciation or
carry forward of losses under tax laws are recognised only to the
extent that there is virtual certainty of realization supported by
convincing evidence. Other deferred tax assets are recognised and
carried forward to the extent that there is reasonable certainty of
realization.
Minimum Alternate Tax
Minimum Alternate Tax (''MAT'') credit is recognized as an asset only
when and to the extent there is convincing evidence that the Company
will pay normal income tax during the specified period. Such asset is
reviewed at each Balance Sheet date and the carrying amount of MAT
credit asset is written down to the extent there is no longer a
convincing evidence to the effect that the Company will pay normal
income tax during the specified period.
l) Provisions and Contingent Liabilities
A provision is recognised when there is a present obligation as a
result of past event; it is probable that an outflow of resources will
be required to settle the obligation, and in respect of which a
reliable estimate can be made. These are reviewed at each balance
sheet date and adjusted to reflect the current best estimates. A
disclosure for a contingent liability is made where there is a possible
obligation arising out of past event, the existence of which will be
confirmed only by the occurrence or non occurrence of one or more
uncertain future events not wholly within the control of the company or
a present obligation arising out of past event where it is either not
probable that an outflow of resources will be required to settle or a
reliable estimate of the amount cannot be made.
m) Impairment of Asset
The Company tests for impairments at the close of the accounting period
if and only if there are indications that suggest a possible reduction
in the recoverable value of an asset. If the recoverable value of an
Asset, i.e. the net realizable value or the economic value in use of a
cash generating unit, is lower than the carrying amount of the asset
the difference is provided for as impairment. However, if subsequently
the position reverses and the recoverable amount becomes higher than
the then carrying value the provision to the extent of the then
difference is reversed, but not higher than the amount provided for.
Mar 31, 2014
A) Basis of preparation of financial statements
(i) These financial statements have been prepared in accordance with
the generally accepted accounting principles in India under the
historical cost convention on accrual basis. Pursuant to circular
15/2013 dated 13.09.2013 read with circular 08/2014 dated 04.04.2014,
till the standards of accounting or any addendum thereto are prescribed
by Central Government in consultation and recommendation of the
National Financial Reporting Authority, the existing accounting
standards notified under the Companies Act, 1956 shall continue to
apply. Consequently, these financial statements have been prepared to
comply in all material aspects with accounting standards notified under
section 211(3C) [Companies (Accounting Standards) Rules, 2006, as
amended] and other relevant provisions of the Companies Act, 1956.
(ii) All assets and liabilities have been classified as current and
non-current as per the Company''s normal operating cycle and other
criteria set out in the Schedule VI to the Companies Act, 1956. Based
on the nature of products and services and their realisation in cash
and cash equivalents, the Company has ascertained its operating cycle
as 12 months for the purpose of current and non-current classification
of assets and liabilities.
(iii) The preparation 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 preparing the accompanying financial statements.
Any revisions to accounting estimates are recognised prospectively in
current and future periods.
b) Fixed assets and depreciation
(i) Tangible assets are stated at cost of acquisition or construction
less accumulated depreciation. All significant costs relating to the
acquisition and installation of Tangible assets are capitalised.
Subsequent expenditures related to an item of Fixed Asset are added to
its book value only if they increase the future benefits from the
existing assets beyond its previously assessed standard of performance.
Depreciation is provided using the straight-line method in the manner
specified in Schedule XIV to the Companies Act, 1956 and at rates
prescribed therein or based on the useful life of assets, whichever is
higher. Leasehold land is amortised over the period of lease. Computers
and related assets are depreciated over a period of four years.
(ii) Intangible assets are recorded at the consideration paid for
acquisition. Intangible assets are amortized over a period of their
respective useful lives ranging between three years to seven years.
c) Investments
Investments that are readily realisable and are intended to be held for
not more than one year from the date, on which such investments are
made, are classified as current investments. All other investments are
classified as long-term investments. Current investments (excluding
current portion of long-term investments) are carried at cost or fair
value, whichever is lower. Long-term investments are carried at cost.
However, provision for diminution is made to recognise a decline, other
than temporary, in the value of investments.
d) Inventories
Inventories are stated at lower of cost and net realisable value after
providing for obsolescence. The material costs are determined on
weighted average basis and the valuation of manufactured goods
represents the combined cost of material, labour and all manufacturing
overheads. Material in transit is valued at cost incurred till date.
e) Foreign currency transactions
Transactions in foreign currencies are accounted at the exchange rates
prevailing on the date of transactions. Monetary foreign currency
current assets and liabilities are translated at the year-end exchange
rates. The resulting profits and losses are appropriately recognised in
the Statement of Profit and Loss.
The Company uses foreign exchange forward contracts to cover its
foreign currency cash flow risks, arising from exposures from exports
and imports, against movements in foreign exchange rates. Foreign
exchange forward contracts are not used for trading or speculation
purpose. Premium/Discounts are recognized over the life of the
contracts. Exchange differences at the end of each accounting period
are recognized in the Statement of Profit and Loss and correspondingly
in the Balance sheet against the respective line items covered.
f) Revenue recognition
(i) Sales are recognised when the substantial risks and rewards of
ownership in the goods are transferred to the buyer as per the terms of
the contract and are recognised net of sales tax/value added tax and
excise duty.
(ii) Revenue from Long Term Service Contracts is recognized using the
proportionate completion method. Completion is determined as a
proportion of cost incurred to date to the total estimated contract
cost. Provision is made for any loss in the period in which it is
foreseen. Billing in excess of contract revenue has been reflected as
''Unearned Revenue'' under ''Liabilities'' in the Balance Sheet. In case of
other Service contracts, revenue is recognized on a straight line basis
based on confirmation received from customers.
(iii) Dividend income from investments is recognised when the right to
receive payment is established.
(iv) Interest income is recognised on a time proportion basis taking
into account the amount outstanding and the rate applicable.
g) Lease charges under operating leases
Lease charges under operating leases are recognised as expense on
straight-line basis over the lease term.
h) Product warranty and New Engine Performance Inspection (NEPI) fees
Product warranty costs and New Engine Performance Inspection fees are
accrued in the year of sale of products, based on past experience.
The Company periodically reviews the adequacy of above provisions and
adjusts, if necessary, the accrued provision, for actual experience.
i) Employee benefits
(i) Post-employment Benefits
a) Defined Contribution Plans:
The Company has Defined Contribution Plans for Post employment benefits
in the form of Superannuation Fund for management employees and
Provident Fund for non management employees which is administered by
Life Insurance Corporation / Regional Provident Fund Commissioner. In
case of Superannuation Fund for management employees and Provident Fund
for non management employees the Company has no further obligation
beyond making the contributions.
b) Defined Benefit Plans:
Funded Plan: The Company has defined benefit plans for Post-employment
benefits in the form of Gratuity for all employees, pension for non
management employees and Provident Fund for management employees which
are administered through Company managed Trust / Life Insurance
Corporation (LIC).
Unfunded Plan: The Company has unfunded Defined Benefit plans in the
form of Post Retirement Medical Benefits and Ex-gratia benefits as per
the policy of the Company.
Liability for above defined benefit plans is provided on the basis of
valuation, as at the Balance Sheet date, carried out by independent
actuary. The actuarial method used for measuring the liability is the
Projected Unit Credit method. In case of Provident Fund for management
employees, the Company has an obligation to make good the shortfall, if
any, between the return from the investments of the trust and the
notified interest rate. The Company''s contributions and such shortfall
are charged to the Statement of Profit and Loss as and when incurred.
(ii) Other Long-term Employee Benefits:
Liability for Compensated Absences is provided on the basis of
valuation, as at the Balance Sheet date, carried out by independent
actuary. The Actuarial valuation method used for measuring the
liability is the Projected Unit Credit method. Under this method, "
projected accrued benefit " is calculated at the beginning of the year
and again at the end of the year for each benefit that will accrue for
active members of the Plan. The " projected accrued benefit" is based
on the Plan''s accrual formula and upon service as of the beginning or
end of the year, but using a member''s final compensation, projected to
the age at which the employee is assumed to leave active service. The
Plan liability is the actuarial present value of the "projected accrued
benefits" as at the end of the year for active members.
(iii) Termination benefits are recognized in the Statement of Profit
and Loss as an expense as and when incurred.
(iv) The Actuarial gains and losses arising during the year are
recognized in the Statement of Profit and Loss of the year without
resorting to any amortization.
j) Research and development costs
Research and development expenditure of a capital nature is added to
Fixed Assets. All other research and development expenditure is written
off in the year in which it is incurred.
k) Income Tax
Provision for current income tax is made on the assessable income at
the tax rate applicable to the relevant assessment year.
Deferred income taxes are recognised for the future tax consequences
attributable to timing differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. The effect on deferred tax assets and liabilities
of a change in the tax rates is recognised using the tax rates and tax
laws that have been enacted or substantively enacted by the balance
sheet date. Deferred tax assets arising from unabsorbed depreciation or
carry forward of losses under tax laws are recognised only to the
extent that there is virtual certainty of realization. Other deferred
tax assets are recognised and carried forward to the extent that there
is reasonable certainty of realization.
l) Provisions and Contingent Liabilities
A provision is recognised when there is a present obligation as a
result of past event; 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. These are reviewed at each balance sheet date and
adjusted to reflect the current best estimates. A disclosure for a
contingent liability is made where there is a possible obligation or a
present obligation that may, but probably will not, require an outflow
of resources.
m) Impairment of Asset
The Company tests for impairments at the close of the accounting period
if and only if there are indications that suggest a possible reduction
in the recoverable value of an asset. If the recoverable value of an
Asset, i.e. the net realizable value or the economic value in use of a
cash generating unit, is lower than the carrying amount of the asset
the difference is provided for as impairment. However, if subsequently
the position reverses and the recoverable amount becomes higher than
the then carrying value the provision to the extent of the then
difference is reversed, but not higher than the amount provided for.
Mar 31, 2013
A) Basis of preparation of financial statements
(i) The financial statements are prepared under historical cost
convention as a going concern on accrual basis and to comply in all
material aspects with all the applicable accounting principles in
India, the applicable accounting standards notified under section 211
(3C) of the Companies Act, 1956 and the relevant provisions of the
Companies Act, 1956.
(ii) All assets and liabilities have been classified as current and
non-current as per the Company''s normal operating cycle and other
criteria set out in the Schedule VI to the Companies Act, 1956. Based
on the nature of products and services and their realisation in cash
and cash equivalents, the Company has ascertained its operating cycle
as 12 months for the purpose of current and non-current classification
of assets and liabilities.
(iii) The preparation 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 preparing the accompanying financial statements.
Any revisions to accounting estimates are recognised prospectively in
current and future periods.
b) Fixed assets and depreciation
(i) Tangible assets are stated at cost of acquisition or construction
less accumulated depreciation. All significant costs relating to the
acquisition and installation of Tangible assets are capitalised.
Depreciation is provided using the straight-line method in the manner
specified in Schedule XIV to the Companies Act, 1956 and at rates
prescribed therein or based on the useful life of assets, whichever is
higher. Leasehold land is amortised over the period of lease.
Computers and related assets are depreciated over a period of four
years.
(ii) Intangible assets are recorded at the consideration paid for
acquisition. Intangible assets are amortized over a period of their
respective useful lives ranging between three years to seven years.
c) Investments
Investments that are readily realisable and are intended to be held for
not more than one year from the date, on which such investments are
made, are classified as current investments. All other investments are
classified as long-term investments. Current investments (excluding
current portion of long-term investments) are carried at cost or fair
value, whichever is lower. Long-term investments are carried at cost.
However, provision for diminution is made to recognise a decline, other
than temporary, in the value of investments.
d) Inventories
Inventories are stated at lower of cost and net realisable value after
providing for obsolescence. The material costs are determined on
weighted average basis and the valuation of manufactured goods
represents the combined cost of material, labour and all manufacturing
overheads. Material in transit is valued at cost incurred till date.
e) Foreign currency transactions
Transactions in foreign currencies are accounted at the exchange rates
prevailing on the date of transactions. Monetary foreign currency
current assets and liabilities are translated at the year-end exchange
rates. The resulting profits and losses are appropriately recognised in
the Statement of Profit and Loss.
The Company uses foreign exchange forward contracts to cover its
foreign currency cash flow risks, arising from exposures from exports
and imports, against movements in foreign exchange rates. Foreign
exchange forward contracts are not used for trading or speculation
purpose. Premium/Discounts are recognized over the life of the
contracts. Exchange differences at the end of each accounting period
are recognized in the Statement of Profit and Loss and correspondingly
in the Balance sheet against the respective line items covered.
f) Revenue recognition
(i) Sales are recognised when the substantial risks and rewards of
ownership in the goods are transferred to the buyer as per the terms of
the contract and are recognised net of sales tax/value added tax and
excise duty.
(ii) Revenue from Long Term Service Contracts is recognized using the
proportionate completion method. Completion is determined as a
proportion of cost incurred to date to the total estimated contract
cost. Provision is made for any loss in the period in which it is
foreseen. Billing in excess of contract revenue has been reflected as
''Unearned Revenue'' under ''Liabilities'' in the Balance Sheet. In
case of other Service contracts, revenue is recognized on a straight
line basis.
(iii) Dividend income from investments is recognised when the right to
receive payment is established.
(iv) Interest income is recognised on a time proportion basis taking
into account the amount outstanding and the rate applicable.
g) Lease charges under operating leases
Lease charges under operating leases are recognised as expense on
straight-line basis over the lease term.
h) Product warranty and New Engine Performance Inspection (NEPI) fees
Product warranty costs and New Engine Performance Inspection fees are
accrued in the year of sale of products, based on past experience.
The Company periodically reviews the adequacy of above provisions and
adjusts, if necessary, the accrued provision, for actual experience.
i) Employee benefits
(i) Post-employment Benefits
a) Defined Contribution Plans:
The Company has Defined Contribution Plans for Post employment benefits
in the form of Superannuation Fund for management employees and
Provident Fund for non management employees which is administered by
Life Insurance Corporation / Regional Provident Fund Commissioner. In
case of Superannuation Fund for management employees and Provident Fund
for non management employees the Company has no further obligation
beyond making the contributions.
b) Defined Benefit Plans:
Funded Plan: The Company has defined benefit plans for Post-employment
benefits in the form of Gratuity for all employees, pension for non
management employees and Provident Fund for management employees which
are administered through Company managed Trust / Life Insurance
Corporation (LIC).
Unfunded Plan: The Company has unfunded Defined Benefit plans in the
form of Post Retirement Medical Benefits and Ex-gratia benefits as per
the policy of the Company.
Liability for above defined benefit plans is provided on the basis of
valuation, as at the Balance Sheet date, carried out by independent
actuary. The actuarial method used for measuring the liability is the
Projected Unit Credit method. In case of Provident Fund for management
employees, the Company has an obligation to make good the shortfall, if
any, between the return from the investments of the trust and the
notified interest rate. The Company''s contributions and such shortfall
are charged to the Statement of Profit and Loss as and when incurred.
(ii) Other Long-term Employee Benefits:
Liability for Compensated Absences is provided on the basis of
valuation, as at the Balance Sheet date, carried out by independent
actuary. The Actuarial valuation method used for measuring the
liability is the Projected Unit Credit method. Under this method,
"projected accrued benefit" is calculated at the beginning of the
year and again at the end of the year for each benefit that will accrue
for active members of the Plan. The "projected accrued benefit" is
based on the Plan''s accrual formula and upon service as of the
beginning or end of the year, but using a member''s final compensation,
projected to the age at which the employee is assumed to leave active
service. The Plan liability is the actuarial present value of the
"projected accrued benefits" as at the end of the year for active
members.
(iii) Termination benefits are recognized in the Statement of Profit
and Loss as an expense as and when incurred.
(iv) The Actuarial gains and losses arising during the year are
recognized in the Statement of Profit and Loss of the year without
resorting to any amortization.
j) Research and development costs
Research and development expenditure of a capital nature is added to
Fixed Assets. All other research and development expenditure is written
off in the year in which it is incurred.
k) Income Tax
Provision for current income tax is made on the assessable income at
the tax rate applicable to the relevant assessment year.
Deferred income taxes are recognised for the future tax consequences
attributable to timing differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. The effect on deferred tax assets and liabilities
of a change in the tax rates is recognised using the tax rates and tax
laws that have been enacted or substantively enacted by the balance
sheet date. Deferred tax assets arising from unabsorbed depreciation or
carry forward of losses under tax laws are recognised only to the
extent that there is virtual certainty of realization. Other deferred
tax assets are recognised and carried forward to the extent that there
is reasonable certainty of realization.
l) Provisions and Contingent Liabilities
A provision is recognised when there is a present obligation as a
result of past event; 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. These are reviewed at each balance sheet date and
adjusted to reflect the current best estimates. A disclosure for a
contingent liability is made where there is a possible obligation or a
present obligation that may, but probably will not, require an outflow
of resources.
m) Impairment of Asset
The Company tests for impairments at the close of the accounting period
if and only if there are indications that suggest a possible reduction
in the recoverable value of an asset. If the recoverable value of an
Asset, i.e. the net realizable value or the economic value in use of a
cash generating unit, is lower than the carrying amount of the asset
the difference is provided for as impairment. However, if subsequently
the position reverses and the recoverable amount becomes higher than
the then carrying value the provision to the extent of the then
difference is reversed, but not higher than the amount provided for.
Mar 31, 2012
A) Basis of preparation of financial statements
(i) The financial statements are prepared under historical cost
convention as a going concern on accrual basis and to comply in all
material aspects with all the applicable accounting principles in
India, the applicable accounting standards notified under section 211
(3C) of the Companies Act, 1956 and the relevant provisions of the
Companies Act, 1956.
(ii) All assets and liabilities have been classified as current and
non-current as per the Company's normal operating cycle and other
criteria set out in the Schedule VI to the Companies Act, 1956. Based
on the nature of products and services and their realisation in cash
and cash equivalents, the Company has ascertained its operating cycle
as 12 months for the purpose of current and non-current classification
of assets and liabilities.
(iii) The preparation 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 preparing the accompanying financial statements.
Any revisions to accounting estimates are recognised prospectively in
current and future periods.
b) Fixed assets and depreciation
(i) Tangible assets are stated at cost of acquisition or construction
less accumulated depreciation. All significant costs relating to the
acquisition and installation of Tangible assets are capitalised. Assets
acquired under finance lease are recognised at the inception of the
lease at lower of the fair value or the present value of minimum lease
payments. The initial direct costs incurred in connection with finance
leases are recognised as an asset under the lease.
Depreciation is provided using the straight-line method in the manner
specified in Schedule XIV to the Companies Act, 1956 and at rates
prescribed therein or based on the useful life of assets, whichever is
higher. Leasehold land is amortised over the period of lease. Computers
and related assets are depreciated over a period of four years.
(ii) Intangible assets are recorded at the consideration paid for
acquisition. Intangible assets are amortized over a period of their
respective useful lives ranging between three years to seven years.
c) Investments
Investments that are readily realisable and are intended to be held for
not more than one year from the date, on which such investments are
made, are classified as current investments. All other investments are
classified as long-term investments. Current investments (excluding
current portion of long-term investments) are carried at cost or fair
value, whichever is lower. Long-term investments are carried at cost.
However, provision for diminution is made to recognise a decline, other
than temporary, in the value of investments.
d) Inventories
Inventories are stated at lower of cost and net realisable value after
providing for obsolescence. The material costs are determined on
weighted average basis and the valuation of manufactured goods
represents the combined cost of material, labour and all manufacturing
overheads. Material in transit is valued at cost incurred till date.
e) Foreign currency transactions
Transactions in foreign currencies are accounted at the exchange rates
prevailing on the date of transactions. Monetary foreign currency
current assets and liabilities are translated at the year-end exchange
rates. The resulting profits and losses are appropriately recognised in
the Statement of Profit and Loss.
The Company uses foreign exchange forward contracts to cover its
foreign currency cash flow risks, arising from exposures from exports
and imports, against movements in foreign exchange rates. Foreign
exchange forward contracts are not used for trading or speculation
purpose. Premium/Discounts are recognized over the life of the
contracts. Exchange differences at the end of each accounting period
are recognized in the Statement of Profit and Loss and correspondingly
in the Balance sheet against the respective line items covered.
f) Revenue recognition
(i) Sales are recognised when the substantial risks and rewards of
ownership in the goods are transferred to the buyer as per the terms of
the contract and are recognised net of sales tax/value added tax and
excise duty.
(ii) Revenue from Long Term Service Contracts is recognized using the
proportionate completion method. Completion is determined as a
proportion of cost incurred to date to the total estimated contract
cost. Provision is made for any loss in the period in which it is
foreseen. Billing in excess of contract revenue has been reflected as
'Unearned Revenue' under 'Liabilities' in the Balance Sheet. In case of
other Service contracts, revenue is recognized on a straight line
basis.
(iii) Dividend income from investments is recognised when the right to
receive payment is established.
(iv) Interest income is recognised on a time proportion basis taking
into account the amount outstanding and the rate applicable.
g) Lease charges under operating leases
Lease charges under operating leases are recognised as expense on
straight-line basis over the lease term.
h) Product warranty and New Engine Performance Inspection (NEPI) fees
Product warranty costs and New Engine Performance Inspection fees are
accrued in the year of sale of products, based on past experience.
The Company periodically reviews the adequacy of its product warranties
and adjusts, if necessary, the accrued warranty provision, for actual
experience.
New Engine Performance Inspection fee is included under 'Other
expenses'.
i) Employee benefits
(i) Post-employment Benefits
a) Defined Contribution Plans :
The Company has Defined Contribution Plans for Post employment benefits
in the form of Superannuation Fund for management employees and
Provident Fund for non management employees which is administered by
Life Insurance Corporation / Regional Provident Fund Commissioner. In
case of Superannuation Fund for management employees and Provident Fund
for non management employees the Company has no further obligation
beyond making the contributions.
b) Defined Benefit Plans :
Funded Plan: The Company has defined benefit plans for Post-employment
benefits in the form of Gratuity for all employees, pension for non
management employees and Provident Fund for management employees which
are administered through Company managed Trust / Life Insurance
Corporation (LIC).
Unfunded Plan: The Company has unfunded Defined Benefit plans in the
form of Post Retirement Medical Benefits and Ex-gratia benefits as per
the policy of the Company.
Liability for above defined benefit plans is provided on the basis of
valuation, as at the Balance Sheet date, carried out by independent
actuary. The actuarial method used for measuring the liability is the
Projected Unit Credit method. In case of Provident Fund for management
employees, the Company has an obligation to make good the shortfall, if
any, between the return from the investments of the trust and the
notified interest rate. The Company's contributions and such shortfall
are charged to the Statement of Profit and Loss as and when incurred.
(ii) Other Long-term Employee Benefits :
Liability for Compensated Absences is provided on the basis of
valuation, as at the Balance Sheet date, carried out by independent
actuary. The Actuarial valuation method used for measuring the
liability is the Projected Unit Credit method. Under this method, "
projected accrued benefit " is calculated at the beginning of the year
and again at the end of the year for each benefit that will accrue for
active members of the Plan. The " projected accrued benefit" is based
on the Plan's accrual formula and upon service as of the beginning or
end of the year, but using a member's final compensation, projected to
the age at which the employee is assumed to leave active service. The
Plan liability is the actuarial present value of the "projected accrued
benefits" as at the end of the year for active members.
(iii) Termination benefits are recognized in the Statement of Profit
and Loss as an expense as and when incurred.
(iv) The Actuarial gains and losses arising during the year are
recognized in the Statement of Profit and Loss of the year without
resorting to any amortization.
j) Research and development costs
Research and development expenditure of a capital nature is added to
Fixed Assets. All other research and development expenditure is written
off in the year in which it is incurred.
k) Income Tax
Provision for current income tax is made on the assessable income at
the tax rate applicable to the relevant assessment year.
Deferred income taxes are recognised for the future tax consequences
attributable to timing differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. The effect on deferred tax assets and liabilities
of a change in the tax rates is recognised using the tax rates and tax
laws that have been enacted or substantively enacted by the balance
sheet date. Deferred tax assets arising from unabsorbed depreciation or
carry forward of losses under tax laws are recognised only to the
extent that there is virtual certainty of realization. Other deferred
tax assets are recognised and carried forward to the extent that there
is reasonable certainty of realization.
l) Provisions and Contingent Liabilities
A provision is recognised when there is a present obligation as a
result of past event; 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. These are reviewed at each balance sheet date and
adjusted to reflect the current best estimates. A disclosure for a
contingent liability is made where there is a possible obligation or a
present obligation that may, but probably will not, require an outflow
of resources.
m) Impairment of Asset
The company tests for impairments at the close of the accounting period
if and only if there are indications that suggest a possible reduction
in the recoverable value of an asset. If the recoverable value of an
Asset, i.e. the net realizable value or the economic value in use of a
cash generating unit, is lower than the carrying amount of the asset
the difference is provided for as impairment. However, if subsequently
the position reverses and the recoverable amount becomes higher than
the then carrying value the provision to the extent of the then
difference is reversed, but not higher than the amount provided for.
Mar 31, 2011
A) Basis of accounting
(i) The financial statements have been prepared to comply in all
material aspects with all the applicable accounting principles in
India, the applicable accounting standards notified under section 211
(3C) of the Companies Act, 1956 and the relevant provisions of the
Companies Act, 1956.
(ii) The preparation 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 managements 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 preparing the accompanying financial statements.
Any revisions to accounting estimates are recognised prospectively in
current and future periods.
b) Fixed assets and depreciation
(i) Fixed assets are stated at cost of acquisition or construction less
accumulated depreciation. All significant costs relating to the
acquisition and installation of fixed assets are capitalised. Assets
acquired under finance lease are recognised at the inception of the
lease at lower of the fair value or the present value of minimum lease
payments. The initial direct costs incurred in connection with finance
leases are recognised as an asset under the lease.
(ii) Depreciation is provided using the straight-line method in the
manner specified in Schedule XIV to the Companies Act, 1956 and at
rates prescribed therein or based on the useful life of assets,
whichever is higher. Leasehold land is amortised over the period of
lease. Computers and related assets are depreciated over a period of
four years.
Intangible assets are amortized over a period of their respective
useful lives ranging between three years to seven years.
c) Investments
Long term investments are stated at cost. A provision for diminution is
made to recognize a decline, other than temporary, in the value of long
term investments. Current investments are stated at the lower of cost
and fair value. Fixed Income Securities (Bonds) are stated at their
cost of acquisition and held till maturity.
d) Inventories
Inventories are stated at lower of cost and net realisable value after
providing for obsolescence. The material costs are determined on
weighted average basis and the valuation of manufactured goods
represents the combined cost of material, labour and all manufacturing
overheads. Material in transit is valued at cost incurred till date.
e) Foreign currency transactions
Transactions in foreign currencies are accounted at the exchange rates
prevailing on the date of transactions. Monetary foreign currency
current assets and current liabilities are translated at the year-end
exchange rates. The resulting profits and losses are appropriately
recognised in the Profit and Loss Account.
The Company uses foreign exchange forward contracts to cover its
foreign currency cash flow risks, arising from exposures from exports
and imports, against movements in foreign exchange rates. Foreign
exchange forward contracts are not used for trading or speculation
purpose. Premium/Discounts are recognized over the life of the
contracts. Gains and Losses at the end of each accounting period are
recognized in the profit and loss account and correspondingly in the
Balance sheet against the respective line items covered.
f) Revenue recognition
i) Sale of goods is recognised as per the terms of sale. Sales exclude
amounts recovered towards excise duty and sales tax.
ii) Revenue from Long Term Service Contracts is recognized using the
percentage completion method. Percentage of completion is determined as
a proportion of cost incurred to date to the total estimated contract
cost. Provision is made for any loss in the period in which it is
foreseen. Billing in excess of contract revenue has been reflected as
Advance Income under Current Liabilities in the Balance Sheet. In
case of other Service contracts, revenue is recognized on a straight
line basis.
iii) Dividend income from investments is recognised when the right to
receive payment is established.
g) Lease charges under operating leases
Lease charges under operating leases are recognised as expense on
straight-line basis over the lease term.
h) Product warranty and New Engine Performance Inspection fees
Product warranty costs and New Engine Performance Inspection fees are
accrued in the year of sale of products, based on past experience.
The Company periodically reviews the adequacy of its product warranties
and adjusts, if necessary, the accrued warranty provision, for actual
experience.
New Engine Performance Inspection fee is included under Other
expenses.
i) Employee benefits
i) Post-employment Benefits
a) Defined Contribution Plans:
The Company has Defined Contribution Plans for Post employment benefits
in the form of Superannuation Fund for management employees and
Provident Fund for non management employees which is administered by
Life Insurance Corporation / Regional Provident Fund Commissioner. In
case of Superannuation Fund for management employees and Provident Fund
for non management employees the Company has no further obligation
beyond making the contributions.
b) Defined Benefit Plans:
Funded Plan: The Company has defined benefit plans for Post-employment
benefits in the form of Gratuity for all employees, pension for non
management employees and Provident Fund for management employees which
are administered through Company managed Trust / Life Insurance
Corporation (LIC).
Unfunded Plan: The Company has unfunded Defined Benefit plans in the
form of Post Retirement Medical Benefits and Ex-gratia benefits as per
the policy of the company.
Liability for above defined benefit plans is provided on the basis of
valuation, as at the Balance Sheet date, carried out by independent
actuary. The actuarial method used for measuring the liability is the
Projected Unit Credit method. In case of Provident Fund for management
employees, the Company has an obligation to make good the shortfall, if
any, between the return from the investments of the trust and the
notified interest rate. The Companys contributions and such shortfall
are charged to the Profit and Loss Account as and when incurred.
ii) Other Long-term Employee Benefit:
Liability for Compensated Absences is provided on the basis of
valuation, as at the Balance Sheet date, carried out by independent
actuary. The Actuarial valuation method used for measuring the
liability is the Projected Unit
Credit method. Under this method," projected accrued benefit" is
calculated at the beginning of the year and again at the end of the
year for each benefit that will accrue for active members of the Plan.
The " projected accrued benefit" is based on the Plans accrual formula
and upon service as of the beginning or end of the year, but using a
members final compensation, projected to the age at which the employee
is assumed to leave active service. The Plan liability is the actuarial
present value of the "projected accrued benefits" as at the end of the
year for active members.
iii) Termination benefits are recognized as an expense as and when
incurred.
iv) The Actuarial gains and losses arising during the year are
recognized in the Profit and Loss Account of the year without resorting
to any amortization.
j) Research and development costs
Research and development expenditure of a capital nature is added to
Fixed Assets. All other research and development expenditure is written
off in the year in which it is incurred.
k) Income Tax
Provision for current income tax is made on the assessable income at
the tax rate applicable to the relevant assessment year.
Deferred income taxes are recognised for the future tax consequences
attributable to timing differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. The effect on deferred tax assets and liabilities
of a change in the tax rates is recognised using the tax rates and tax
laws that have been enacted or substantively enacted by the balance
sheet date. Deferred tax assets arising from unabsorbed depreciation or
carry forward of losses under tax laws are recognised only to the
extent that there is virtual certainty of realization. Other deferred
tax assets are recognised and carried forward to the extent that there
is reasonable certainty of realization.
I) Provisions
A provision is recognised when there is a present obligation as a
result of past event; 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. These are reviewed at each balance sheet date and
adjusted to reflect the current best estimates.
m) Impairment of Asset
The company tests for impairments at the close of the accounting period
if and only if there are indications that suggest a possible reduction
in the recoverable value of an asset. If the recoverable value of an
Asset, i.e. the net realizable value or the economic value in use of a
cash generating unit, is lower than the carrying amount of the asset
the difference is provided for as impairment. However, if subsequently
the position reverses and the recoverable amount becomes higher than
the then carrying value the provision to the extent of the then
difference is reversed, but not higher than the amount provided for.
Mar 31, 2010
A) Basis of accounting
i) The financial statements have been prepared to comply in all
material aspects with all the applicable accounting principles in
India, the applicable accounting standards notified under section 211
(3C) of the Companies Act, 1956 and the relevant provisions of the
Companies Act, 1956.
ii) The preparation 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 managementÃs 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 preparing the accompanying financial statements.
Any revisions to accounting estimates are recognised prospectively in
current and future periods.
b) Fixed assets and depreciation
i) Fixed assets are stated at cost of acquisition or construction less
accumulated depreciation. All significant costs relating to the
acquisition and installation of fixed assets are capitalised. Assets
acquired under finance lease are recognised at the inception of the
lease at lower of the fair value or the present value of minimum lease
payments. The initial direct costs incurred in connection with finance
leases are recognised as an asset under the lease.
ii) Depreciation is provided using the straight-line method in the
manner specified in Schedule XIV to the Companies Act, 1956 and at
rates prescribed therein or based on the useful life of assets,
whichever is higher. Leasehold land is amortised over the period of
lease. Computers (desktops, laptops) acquired under finance lease are
amortised over the period of lease and those acquired subsequently and
not covered by the lease are depreciated over the remaining period of
the said computer lease. Other computers and related assets are
depreciated over a period of four years.
Intangible assets are amortized over a period of their respective
useful lives ranging between three years to seven years.
c) Investments
Long term investments are stated at cost. A provision for diminution is
made to recognize a decline, other than temporary, in the value of long
term investments. Current investments are stated at the lower of cost
and fair value. Fixed Income Securities (Bonds) are stated at their
cost of acquisition and held till maturity.
d) Inventories
Inventories are stated at lower of cost and net realisable value after
providing for obsolescence. The material costs are determined on
weighted average basis and the valuation of manufactured goods
represents the combined cost of material, labour and all manufacturing
overheads. Material in transit is valued at cost incurred till date.
e) Foreign currency transactions
Transactions in foreign currencies are accounted at the exchange rates
prevailing on the date of transactions. Monetary foreign currency
current assets and current liabilities are translated at the year-end
exchange rates. The resulting profits and losses are appropriately
recognised in the Profit and Loss Account.
The Company uses foreign exchange forward contracts to cover its
foreign currency cash flow risks, arising from exposures from exports
and imports, against movements in foreign exchange rates. Foreign
exchange forward contracts are not used for trading or speculation
purpose. Premium/Discounts are recognized over the life of the
contracts. Gains and Losses at the end of each accounting period are
recognized in the profit and loss account and correspondingly in the
Balance sheet against the respective line items covered.
f) Revenue recognition
i) Sale of goods is recognised as per the terms of sale. Sales exclude
amounts recovered towards excise duty and sales tax.
ii) Revenue from Long Term Service Contracts is recognized using the
percentage completion method. Percentage of completion is determined
as a proportion of cost incurred to date to the total estimated
contract cost. Provision is made for any loss in the period in which it
is foreseen. Billing in excess of contract revenue has been reflected
as ÃAdvance Incomeà under ÃCurrent Liabilitiesà in the Balance Sheet.
In case of other Service contracts, revenue is recognized on a straight
line basis.
iii) Dividend income from investments is recognised when the right to
receive payment is established.
g) Lease charges under operating leases
Lease charges under operating leases are recognised as expense on
straight-line basis over the lease term.
h) Product warranty and New Engine Performance Inspection fees
Product warranty costs and New Engine Performance Inspection fees are
accrued in the year of sale of products, based on past experience. The
Company periodically reviews the adequacy of its product warranties and
adjusts, if necessary, the warranty percentage and accrued warranty
provision, for actual experience and are included as under:
i) Cost of product warranty is included in ÃRaw materials and
components consumedà for free replacement of spares. Accrual of
warranties towards replacement of spares, labour charges etc., are
included in ÃOther expensesÃ.
ii) New Engine Performance Inspection fee is included under ÃOther
expensesÃ.
i) Employee benefits
i) Post-employment Benefits
a ) Defined Contribution Plans:
The Company has Defined Contribution Plans for Post employment benefits
in the form of Superannuation Fund for management employees and
Provident Fund for non management employees which is administered by
Life Insurance Corporation / Company managed Trust / Regional Provident
Fund Commissioner. In case of Superannuation Fund for management
employees and Provident Fund for non management employees the Company
has no further obligation beyond making the contributions.
b) Defined Benefit Plans:
Funded Plan: The Company has defined benefit plans for Post-employment
benefits in the form of Gratuity for all employees, pension for non
management employees and Provident Fund for management employees which
are administered through trust / Life Insurance Corporation (LIC) /
Regional Provident Fund Commissioner.
Unfunded Plan: The Company has unfunded Defined Benefit plans in the
form of Post Retirement Medical Benefits and Ex-gratia benefits as per
the policy of the company.
Liability for above defined benefit plans is provided on the basis of
valuation, as at the Balance Sheet date, carried out by independent
actuary. The actuarial method used for measuring the liability is the
Projected Unit Credit method. In case of Provident Fund for management
employees, the Company has an obligation to make good the shortfall, if
any, between the return from the investments of the trust and the
notified interest rate. The CompanyÃs contributions and such shortfall
are charged to the Profit and Loss Account as and when incurred.
ii) Other Long-term Employee Benefit:
Liability for Compensated Absences is provided on the basis of
valuation, as at the Balance Sheet date, carried out by independent
actuary. The Actuarial valuation method used for measuring the
liability is the Projected Unit Credit method. Under this method,
Ãprojected accrued benefità is calculated at the beginning of the year
and again at the end of the year for each benefit that will accrue for
active members of the Plan. The Ãprojected accrued benefità is based
on the PlanÃs accrual formula and upon service as of the beginning or
end of the year, but using a memberÃs final compensation, projected to
the age at which the employee is assumed to leave active service. The
Plan liability is the actuarial present value of the Ãprojected accrued
benefitsà as at the end of the year for active members.
iii) Termination benefits are recognized as an expense as and when
incurred.
iv) The Actuarial gains and losses arising during the year are
recognized in the Profit and Loss Account of the year without resorting
to any amortization.
j) Research and development costs
Research and development expenditure of a capital nature is added to
Fixed Assets. All other research and development expenditure is written
off in the year in which it is incurred.
k) Income Tax
Provision for current income tax is made on the assessable income at
the tax rate applicable to the relevant assessment year.
Deferred income taxes are recognised for the future tax consequences
attributable to timing differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. The effect on deferred tax assets and liabilities
of a change in the tax rates is recognised using the tax rates and tax
laws that have been enacted or substantively enacted by the balance
sheet date. Deferred tax assets arising from unabsorbed depreciation or
carry forward of losses under tax laws are recognised only to the
extent that there is virtual certainty of realization. Other deferred
tax assets are recognised and carried forward to the extent that there
is reasonable certainty of realization.
l) Provisions
A provision is recognised when there is a present obligation as a
result of past event; 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. These are reviewed at each balance sheet date and
adjusted to reflect the current best estimates.
m) Impairment of Asset
The company tests for impairments at the close of the accounting period
if and only if there are indications that suggest a possible reduction
in the recoverable value of an asset. If the recoverable value of an
Asset, i.e. the net realizable value or the economic value in use of a
cash generating unit, is lower than the carrying amount of the asset
the difference is provided for as impairment. However, if subsequently
the position reverses and the recoverable amount becomes higher than
the then carrying value the provision to the extent of the then
difference is reversed, but not higher than the amount provided for.
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