Mar 31, 2023
The investment properties consist of office premises and plants. As at March 31,2023 the fair value of the properties is '' 1,453.73 Crore (As at March 31,2022: '' 1,293.29 Crore). These fair values are based on valuations performed by a registered valuer as defined under rule 2 of Companies (Registered Valuers and Valuation) Rules, 2017. 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 rental income considered in the table above is from the date of rental agreement or date of transfer from property, plant and equipment as applicable.
As per the DCF method, fair value is defined as the present value of future cash flows that can be withdrawn from the Company.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.
# The Board of directors of Cummins Research and Technology India Private Limited (âCRTIâ) at its meeting held on March 21,2016, had decided to cease operations of CRTI. Accordingly, it ceased its operations from April 1,2016. The shareholders of CRTI, in their extra-ordinary general meeting held on April 1, 2022, passed a resolution to initiate voluntary winding-up of CRTI under Companies Act, 2013 and Insolvency and Bankruptcy Code, 2016. The liquidator, appointed by the shareholders at the extra-ordinary general meeting, completed all the procedures pertaining to the voluntary winding-up, and has submitted the dissolution application with the Mumbai Bench of The National Company Law Tribunal (NCLTâ) on May 20, 2023.
A Contract assets mainly include unbilled revenue accrued against service contracts. The balances vary depending on the volume of services remaining unbilled at the end of the year.
# Foreign exchange forward contracts at fair value through profit and loss reflect the positive change in fair value of those foreign exchange forward contracts that are not designated in hedge relationship, but are nevertheless, intended to reduce the level of foreign currency risk exposure.
* Others primarily include warranty receivable, royalty receivable from dealers, cross charge etc.
Other current financial assets receivable from firms or private companies in which any director is a partner, a director or a member amounts to '' 2.95 Crore (March 31,2022: '' 6.25 Crore). Refer note 41 for related party transactions.
b) Rights, preferences and restrictions attached to shares
The Company has only one class of equity shares having a par value of '' 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.
Dividend not recognised at the end of the reporting period
In addition to the above dividends, since the year end the directors have recommended payment of final dividend of '' 360.36 Crore for the year ended March 31, 2023 (March 31, 2022: '' 291.06 Crore) which is '' 13 per fully paid up share (March 31, 2022: '' 10.50 per fully paid up share). This proposed dividend is subject to approval of shareholders in the ensuing Annual General Meeting.
The Company has compiled this information based on intimations received from the suppliers of their status as Micro or Small Enterprises and / or their registration with the appropriate authority under the Micro, Small and Medium Enterprises Development Act, 2006.
35 Significant accounting judgements, estimates and assumptions
The preparation of the Companyâs financial statements requires management to make judgements, 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.
In the process of applying the Companyâs accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognized in the financial statements:
Determining the lease term of contracts with renewal and termination options - Company as lessee
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
Operating lease commitments - Company as lessor
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.
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 40.
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 judgement 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 44 for further disclosures.
Warranty, statutory matters and New Engine Performance Inspection (NEPI)
For estimates relating to warranty, statutory matters and NEPI (refer note 39)
Leases - Estimating the incremental borrowing rate
The lease payments are discounted using the interest rate implicit in the lease or, if not readily determinable, using the incremental borrowing rate (IBR).The Company uses IBR to discount lease liablities.The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
36 Contingent liabilities |
|||
As at |
|||
March 31, 2023 March 31, 2022 '' Crore '' Crore |
|||
a. |
Income tax matters* |
12.31 |
1.06 |
b. |
Central excise duty/service tax matters* |
3.29 |
3.14 |
c. |
Duty drawback matters |
26.04 |
26.04 |
d. |
Sales Tax matters* |
34.61 |
34.50 |
e. |
Civil liability / secondary civil liability in respect of suits filed against the Company* |
1.29 |
1.73 |
f. |
Goods and service tax matters |
2.07 |
0.44 |
Total |
79.61 |
66.91 |
* Excludes interest and penalties if any. The above matters pertain to certain disallowances/demand raised by respective authorities.
The Company is contesting the demands and the management, including its tax/legal advisors, believe that its position will likely be upheld in the appeal process.
There are numerous interpretative issues relating to the Supreme Court (SC) judgement on Provident Fund dated February 28, 2019. The Company has implemented the SC decision prospectively.
The Company has various on-going litigations by/or against the Company with respect to tax and other legal matters, other than those disclosed above. The Company believes that it has sufficient and strong arguments on facts as well as on point of law and accordingly no provision/disclosure in this regard has been considered in the financial statements.
The Company has entered into leases for office premises. These lease arrangements range for a period between 12 and 108 months with lock in period between 36 and 108 months, which include both renewable and non-renewable leases.
The maturity analysis of lease liabilities is disclosed in note 43(c). Lease liability has been discounted using the lesseeâs incremental borrowing rate. There are no variable lease payments.
The following are the amounts recognised in statement of profit and loss during the year ended
39 Disclosure on provisions made, utilised and reversed during the year
i) Provision for warranty
Provision for warranty is on account of warranties given on products sold by the Company. The amount of provision is based on historical information of the nature, frequency and average cost of warranty claims and management estimates regarding possible future incidence. The timing and amount of cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in next 12 months is classified as current.
Provisions for statutory matters are on account of legal matters where the Company anticipates probable outflow. The amount of provision is based on estimates made by the Company considering the facts and circumstances of each case. The timing and amount of cash flows that will arise from these matters will be determined by the relevant authorities only on settlement of these cases.
Provision for New Engine Performance Inspection (NEPI) is on account of checks to be carried out by the Company at specified intervals. The amount of provision is based on historical information of the nature, frequency and average cost of claims and management estimates regarding possible future incidence. The timing and amount of the cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in next 12 months is classified as current.
The sensitivity analysis above has been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The sensitivity analysis are based on a change in a significant assumption, keeping all other assumptions constant. The sensitivity anlysis may not be representative of an actual change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation from one another.
ii) The sales to and purchase from related parties are made on terms equivalent to those that prevail in armâs length transaction. Outstanding balances at the year end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended March 31, 2023, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (March 31, 2022: Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
iii) Liability for post employment benefits, other long term benefits, termination benefits and certain short term benefits such as compensated absences is provided on an actuarial basis for the Company as a whole. Accordingly the amount for above pertaining to key management personnel is not ascertainable and, therefore, not included above.
iv) Related party transaction, the amount of which is in excess of 10% of the total related party transactions of the same type are disclosed separately.
v) The information given above has been reckoned on the basis of information available with the Company and relied upon by the auditors.
vi) Services rendered include renting services, testing services, business support services, etc.
vii) Services received include testing services, solution contract support services, license fees, etc.
viii) Includes recoveries on account of employee cost, travel costs, training, IT services, etc.
42 As set out in section 135 of the Companies Act, 2013, the Company is required to contribute '' 15.57 Crores (March 31, 2022: '' 15.54 Crores) towards Corporate Social Responsibility activities, as calculated basis 2% of its average net profits of the last three financial years. Accordingly, during the current year, the Board has approved and the Company has contributed '' 15.57 Crores (March 31, 2022: '' 15.54 Crores) to Cummins India Foundation towards eligible projects as mentioned in Schedule III (including amendments thereto) of the Companies Act, 2013. Apart from the above contribution to Cummins India Foundation, the Company has not made any direct expenditure/ contributions of capital nature.
43 Financial risk management objectives and policies
The Company has well written policies covering specific areas, such as foreign exchange risk and investments which seek to minimise potential adverse effects on the Companyâs financial performance due to external factors. The Company uses derivatives to hedge foreign exchange risk exposures. The Companyâs senior management oversees the management of these risks. All derivatives and investment activities for risk management purposes are carried out by specialist team that has appropriate skills, experience and supervision. As per the Companyâs policy no trading in derivatives for speculation purpose may be undertaken. The Board of Directors reviews and approves policies for managing each of these risks.
The Companyâs activities are exposed to variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risks as follows:
i) Foreign currency risk
The Company is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, GBP and Euro. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities denominated in a currency that is not the entityâs functional currency.
Management has set up a policy to manage their foreign exchange risk against their functional currency. To manage the foreign exchange risk arising from recognised assets and liabilities, the Company uses forward contracts.
The movement in the pre-tax effect is a result of a change in the fair value of derivative financial instruments not designated in a hedge relationship and financial assets and liabilities denominated in various currencies. Although the derivatives have not been designated in a hedge relationship, they act as economic hedge and offset the underlying transactions when they occur.
Interest rate risk is the fair value of future cash flows of a financial instrument which fluctuates because of changes in the market interest rates. In order to optimise the Companyâs position with regards to interest income and interest expense, treasury team manages the interest rate risk by balancing the portion of fixed rate and floating rate in its total portfolio.
Borrowings of '' 350.04 Crores outstanding as at March 31, 2023 (As at March 31, 2022: '' 393.31 Crores) were at floating rate linked to T-bill applicable spread.
The Company invests its surplus funds in mutual funds which are linked to debt markets. The Company is exposed to price risk for investments in mutual funds that are classified as fair value through profit or loss. To manage its price risk arising from investments in mutual funds, the Company diversifies its portfolio. Diversification and investment in the portfolio is done in accordance with the limits approved by the Board of Directors.
Profit after tax for the year would increase / decrease as a result of gains / losses on mutual funds classified as at fair value through profit or loss.
Credit risk is the risk that counterparty will not meet its obligation under financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk primarily from trade receivables, contract assets, other receivables, deposits with banks and loans given.
Senior management is responsible for managing and analysing the credit risk for each new customer before standard payment, delivery terms and conditions are offered. The Company assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external assessment. The utilisation of credit limits is regularly monitored.
An impairment analysis is performed at each reporting date for all customers. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 10 and 13.
Credit risk from balances with banks is managed by the Companyâs treasury department in accordance with Companyâs policy approved by the Risk Management Committee. Investments of surplus funds are made within the credit limits and as per the policy approved by the Board of Directors.
No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance of the above assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 5, 9, 11, 12 and 13.
Cash flow forecasting is performed by Treasury function. Treasury team monitors rolling forecasts of the Companyâs liquidity requirements to ensure it has sufficient cash to meet the operational needs. Such forecasting takes into consideration the compliance with internal cash management policy.
As per the Companyâs policy, treasury team invests surplus cash in marketable securities and time deposits with appropriate maturities or sufficient liquidity to provide headroom to meet the operational needs. At the reporting date, the Company held mutual funds of '' 689.93 Crores (March 31,2022: '' 572.37 Crores) and other liquid assets of '' 391.27 Crores (March 31,2022: '' 177.42 Crores) that are expected to readily generate cash inflows for managing liquidity risk.
The Companyâs objectives when managing capital is to provide maximum returns to shareholders, benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company manages its capital structure and makes adjustments in light of changes in economic conditions.
The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity as shown in the balance sheet plus all other reserves attributable to equity shareholders of the Company.
The Management assessed that the fair values of cash and cash equivalents, other bank balances, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short term maturities of these instruments.
The fair value of the financial assets and financial liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The fair value of investments in mutual funds is based on the price quotation at the reporting date obtained from the asset management companies. The Company enters into derivative financial instruments with various counterparties, principally financial institutions. Foreign exchange forward contracts are valued using valuation techniques, which employ the use of market observable inputs. The most frequently applied valuation techniques include forward pricing using present value calculations.
46 Standards issued but not yet effective
The amendment requires entities to disclose their material rather than their significant accounting policies. The amendments define what is âmaterial accounting policy informationâ and explain how to identify when accounting policy information is material. They further clarify that immaterial accounting policy information does not need to be disclosed. If it is disclosed, it should not obscure material accounting information.
The amendment clarifies how entities should distinguish changes in accounting policies from changes in accounting estimates. The distinction is important, because changes in accounting estimates are applied prospectively to future transactions and other future events, but changes in accounting policies are generally applied retrospectively to past transactions and other past events as well as the current period
The amendment requires entities to recognise deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. They will typically apply to transactions such as leases of lessees and decommissioning obligations and will require the recognition of additional deferred tax assets and liabilities. The amendment should be applied to transactions that occur on or after the beginning of the earliest comparative period presented. In addition, entities should recognise deferred tax assets (to the extent that it is probable that they can be utilised) and deferred tax liabilities at the beginning of the earliest comparative period for all deductible and taxable temporary differences associated with:
⢠right-of-use assets and lease liabilities, and
⢠decommissioning, restoration and similar liabilities, and the corresponding amounts recognised as part of the cost of the related assets.
The cumulative effect of recognising these adjustments is recognised in retained earnings, or another component of equity, as appropriate. Ind AS 12 did not previously address how to account for the tax effects of on-balance sheet leases and similar transactions and various approaches were considered acceptable. Some entities may have already accounted for such transactions consistent with the new requirements. These entities will not be affected by the amendments
The other amendments to Ind AS notified by these rules are primarily in the nature of clarifications.
47 The company announced a Voluntary Retirement Scheme (âVRSâ or the âSchemeâ) on May 16, 2022 for eligible employees who meet all the following conditions:
- Permanent employees on the shop floor and in office working at Kothrud Engine, Plant
- Employees between 45 and 57 years of age as on May 16, 2022
- Employees on the permanent rolls of the Company for at least 10 years as on May 16, 2022
Exceptional Items during the year ended March 31,2023 comprise expenses on account of Voluntary Retirement Scheme (âVRSâ or the âSchemeâ) aggregating to '' 14.30 Crores.
48 Exceptional Items during the year ended March 31, 2022 comprise gain on sale of property aggregating to '' 132.36 Crores
In accordance with paragraph 4 of Ind AS 108 âOperating segmentsâ, the Company has disclosed segment information only on the basis of the consolidated financial statements.
50 Relationship with struck off companies
During the year ended March 31,2023, the Company has not entered into any transactions with the companies whose names were struck off under applicable regulations.
Government of Indiaâs Code for Social Security 2020 (the âCodeâ) received assent from the President in September 2020. However, the date from when the Code will become applicable and the relevant Rules have not yet been notified. The Company will assess the impact of the Code and account for the same once the effective date and the rules are notified.
Mar 31, 2022
The investment properties consist of office premises and plants. As at March 31,2022 the fair value of the properties is ? 129,329 lacs (As at March 31,2021: ? 122,861 lacs). These fair values are based on valuations performed by a registered valuer as defined under rule 2 of Companies (Registered Valuers and valuation) Rules, 2017. 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 rental income considered in the table above is from the date of rental agreement or date of transfer from property, plant and equipment as applicable.
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 44.
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.
# The Board of directors of Cummins Research and Technology India Private Limited (âCRTIâ) at its meeting held on March 21, 2016, had decided to cease operations of CRTI. Accordingly, it ceased its operations from April 1,2016. The shareholders of CRTI, in their extra-ordinary general meeting held on April 1, 2022, passed a resolution to initiate voluntary winding-up of CRTI under Companies Act, 2013 and Insolvency and Bankruptcy Code, 2016. Accordingly, the control over and operations of CRTI have been handed over to a registered Insolvency Professional effective from April 1,2022, in accordance with the applicable statutory provisions.
No trade receivable or advances are due from directors or other officers of the Company either severally or jointly with any other person. Trade or other receivable are due from firms or private companies in which any director is a partner, a director or a member amounts to R 1,342 lacs (March 31,2021: R 1,668 lacs). Trade receivables are non interest bearing and are generally on terms of 30 to 90 days.
For terms and conditions and transactions with related parties refer note 41.
The Company has only one class of equity shares having a par value of ? 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.
In addition to the above dividends, since the year end the directors have recommended payment of final dividend of t 29,106 lacs for the year ended March 31,2022 (March 31, 2021: t 22,176 lacs) which is t 10.50 per fully paid up share (March 31,2021: t 8 per fully paid up share). This proposed dividend is subject to approval of shareholders in the ensuing Annual General Meeting.
The Company has compiled this information based on intimations received from the suppliers of their status as Micro or Small Enterprises and / or its registration with the appropriate authority under the Micro, Small and Medium Enterprises Development Act, 2006.
35 Significant accounting judgements, estimates and assumptions
The preparation of the Companyâs financial statements requires management to make judgements, 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.
In the process of applying the Companyâs accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognized in the financial statements:
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
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.
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.
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 40.
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 judgement 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 44 for further disclosures.
For estimates relating to warranty, statutory matters and NEPI (refer note 39)
The lease payments are discounted using the interest rate implicit in the lease or, if not readily determinable, using the incremental borrowing rate (IBR).The Company uses IBR to discount lease liablities.The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
* Excludes interest and penalties if any. The above matters pertain to certain disallowances/demand raised by respective authorities.
The Company is contesting the demands and the management, including its tax/legal advisors, believe that its position will likely be upheld in the appeal process.
There are numerous interpretative issues relating to the Supreme Court (SC) judgement on Provident Fund dated February 28, 2019. The Company has implemented the SC decision prospectively.
The Company has various on-going litigations by/or against the Company with respect to tax and other legal matters, other than those disclosed above. The Company believes that they have sufficient and strong arguments on facts as well as on point of law and accordingly no provision/disclosure in this regard has been considered in the financial statements.
The Company has entered into leases for office premises. These lease arrangements range for a period between 12 and 108 months with lock in period between 36 and 108 months, which include both renewable and non-renewable leases.
39 Disclosure on provisions made, utilised and reversed during the year
i) Provision for warranty
Provision for warranty is on account of warranties given on products sold by the Company. The amount of provision is based on historical information of the nature, frequency and average cost of warranty claims and management estimates regarding possible future incidence. The timing and amount of cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in next 12 months is classified as current.
Provisions for statutory matters are on account of legal matters where the Company anticipates probable outflow. The amount of provision is based on estimates made by the Company considering the facts and circumstances of each case. The timing and amount of cash flows that will arise from these matters will be determined by the relevant authorities only on settlement of these cases.
Provision for New Engine Performance Inspection (NEPI) is on account of checks to be carried out by the Company at specified intervals. The amount of provision is based on historical information of the nature, frequency and average cost of claims and management estimates regarding possible future incidence. The timing and amount of the cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in next 12 months is classified as current.
The sensitivity analysis above has been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The sensitivity analysis are based on a change in a significant assumption, keeping all other assumptions constant. The sensitivity anlysis may not be representative of an actual change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation from one another.
Terms and conditions of transactions with related parties:
ii) The sales to and purchase from related parties are made on terms equivalent to those that prevail in armâs length transaction. Outstanding balances at the year end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended March 31,2022, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (March 31,2021: Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
iii) Liability for post employment benefits, other long term benefits, termination benefits and certain short term benefits such as compensated absences is provided on an actuarial basis for the Company as a whole. Accordingly the amount for above pertaining to key management personnel is not ascertainable and, therefore, not included above.
iv) Related party transaction, the amount of which is in excess of 10% of the total related party transactions of the same type are disclosed separately.
v) The information given above has been reckoned on the basis of information available with the Company and relied upon by the auditors.
vi) Services rendered include renting services, testing and engineering services, business support services, etc.
vii) Services received include testing and engineering services, solution contract support services, license fees, etc.
viii) Includes recoveries on account of employee cost, travel costs, training, IT services, etc.
42 As set out in section 135 of the Companies Act, 2013, the Company is required to contribute ? 1,554 Lacs (March 31, 2021: ? 1,608 Lacs) towards Corporate Social Responsibility activities, as calculated basis 2% of its average net profits of the last three financial years. Accordingly, during the current year, the Board has approved and the Company has contributed ? 1,554 Lacs (March 31,2021: ? 1,608 Lacs) to Cummins India Foundation towards eligible projects as mentioned in Schedule III (including amendments thereto) of the Companies Act, 2013. Apart from the above contribution to Cummins India Foundation, the Company has not made any direct expenditure/contributions of capital nature.
43 Financial risk management objectives and policies
Financial risk factors:
The Company has well written policies covering specific areas, such as foreign exchange risk and investments which seek to minimise potential adverse effects on the Companyâs financial performance due to external factors. The Company uses derivatives to hedge foreign exchange risk exposures. The Companyâs senior management oversees the management of these risks. All derivatives and investment activities for risk management purposes are carried out by specialist team that has appropriate skills, experience and supervision. As per the Companyâs policy no trading in derivatives for speculation purpose may be undertaken. The Board of Directors reviews and approves policies for managing each of these risks.
The Companyâs activities are exposed to variety of financial risks: market risk (including currency risk, fair value interest rate risk and price risk), credit risk and liquidity risk.
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risks as follows:
The Company is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, GBP and Euro. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities denominated in a currency that is not the entityâs functional currency.
Management has set up a policy to manage their foreign exchange risk against their functional currency. To manage the foreign exchange risk arising from recognised assets and liabilities, the Company uses forward contracts.
The following table demonstrates the sensitivity relating to possible change in foreign currencies with all other variables held constant:
The movement in the pre-tax effect is a result of a change in the fair value of derivative financial instruments not designated in a hedge relationship and financial assets and liabilities denominated in various currencies. Although the derivatives have not been designated in a hedge relationship, they act as economic hedge and offset the underlying transactions when they occur.
Interest rate risk is the fair value of future cash flows of a financial instrument which fluctuates because of changes in the market interest rates. In order to optimise the Companyâs position with regards to interest income and interest expense, treasury team manages the interest rate risk by balancing the portion of fixed rate and floating rate in its total portfolio.
Borrowings of t 39,331 Lacs outstanding as at March 31,2022 (As at March 31,2021: t Nil) were at floating rate linked to T-bill applicable spread.
The Company invests its surplus funds in mutual funds which are linked to debt markets. The Company is exposed to price risk for investments in mutual funds that are classified as fair value through profit or loss. To manage its price risk arising from investments in mutual funds, the Company diversifies its portfolio. Diversification and investment in the portfolio is done in accordance with the limits approved by the Board of Directors.
The following table demonstrates the sensitivity relating to possible change in investment value with all other variables held constant:
Credit risk is the risk that counterparty will not meet its obligation under financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk primarily from trade receivables, contract assets, other receivables, deposits with banks and loans given.
Senior management is responsible for managing and analysing the credit risk for each new customer before standard payment, delivery terms and conditions are offered. The Company assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external assessment. The utilisation of credit limits is regularly monitored.
An impairment analysis is performed at each reporting date for all customers. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 10.
Credit risk from balances with banks is managed by the Companyâs treasury department in accordance with Companyâs policy approved by the Risk Management Committee. Investments of surplus funds are made within the credit limits and as per the policy approved by the Board of Directors.
No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance of the above assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 5, 9, 12 and 13.
Cash flow forecasting is performed by Treasury function. Treasury team monitors rolling forecasts of the Companyâs liquidity requirements to ensure it has sufficient cash to meet the operational needs. Such forecasting takes into consideration the compliance with internal cash management policy.
As per the Companyâs policy, treasury team invests surplus cash in marketable securities and time deposits with appropriate maturities or sufficient liquidity to provide headroom to meet the operational needs. At the reporting date, the Company held mutual funds of t 57,236 Lacs (March 31,2021: t 32,669 Lacs) and other liquid assets of t 17,742 Lacs (March 31,2021: t 12,152 Lacs) that are expected to readily generate cash inflows for managing liquidity risk.
The Companyâs objectives when managing capital is to provide maximum returns to shareholders, benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company manages its capital structure and makes adjustments in light of changes in economic conditions.
The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity as shown in the balance sheet plus all other reserves attributable to equity shareholders of the Company.
The following table provides a comparison by class of the carrying amounts and fair value of the Companyâs financial instruments other than those with carrying amounts that are reasonable approximations of fair values and investment properties.
The Management assessed that the fair values of cash and cash equivalents, other bank balances, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short term maturities of these instruments.
The fair value of the financial assets and financial liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The fair value of investments in mutual funds is based on the price quotation at the reporting date obtained from the asset management companies. The fair value of investments in equity is based on the price quotation at the reporting date derived from quoted market prices in active market. The Company enters into derivative financial instruments with various counterparties, principally financial institutions. Foreign exchange forward contracts are valued using valuation techniques, which employ the use of market observable inputs. The most frequently applied valuation techniques include forward pricing using present value calculations.
46 Standards issued but not yet effective
The Ministry of Corporate Affairs has vide notification dated March 23, 2022 notified Companies (Indian Accounting Standards) Amendment Rules, 2022 which amends certain accounting standards, and are effective April 1,2022.
Proceeds before intended use of property, plant and equipment.
The amendment clarifies that an entity shall deduct from the cost of an item of property, plant and equipment any proceeds received from selling items produced while the entity is preparing the asset for its intended use (for example, the proceeds from selling samples produced when testing a machine to see if it is functioning properly).
Onerous Contracts - Cost of fulfilling a contract
The amendment explains that the cost of fulfilling a contract comprises: the incremental costs of fulfilling that contract and an allocation of other costs that relate directly to fulfilling contracts.
The amendment adds a new exception in Ind AS 103 for liabilities and contingent liabilities.
Fees included in the 10% test for derecognition of financial liabilities.
The amendment clarifies which fees an entity includes when it applies the â10%â test in assessing whether to derecognise a financial liability. An entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the otherâs behalf.
47 Exceptional Items during the year ended March 31,2022 comprise gain on sale of property aggregating to ? 13,236 lacs (March 31,2021: ? Nil).
In accordance with paragraph 4 of Ind AS 108 âOperating segmentsâ, the Company has disclosed segment information only on the basis of the consolidated financial statements.
49 Relationship with struck off companies
During the year ended March 31, 2022, the Company has not entered into any transactions with the companies whose names were struck off under applicable regulations.
50 The company announced a Voluntary Retirement Scheme (âVRSâ or the âSchemeâ) on May 16, 2022 for eligible employees who meet all the following conditions:
- Permanent employees on the shop floor and in office working at Kothrud Engine, Plant
- Employees between 45 and 57 years of age as on May 16, 2022
- Employees on the permanent rolls of the Company for at least 10 years as on May 16, 2022 No financial impact of the scheme has been recorded in these financial statements.
Government of Indiaâs Code for Social Security 2020 (the âCodeâ) received assent from the President in September 2020. However, the date from when the Code will become applicable and the relevant Rules have not yet been notified. The Company will assess the impact of the Code and account for the same once the effective date and the rules are notified.
Mar 31, 2021
The investment properties consist of office premises and plants. As at March 31, 2021 the fair value of the properties is f 122,861 lacs (As at March 31, 2020: f 121,584 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 rental income considered in the table above is from the date of rental agreement or date of transfer from property, plant and equipment as applicable.
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 44.
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.
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.
Of the above equity shares, 141,372,000 (March 31, 2020 : 141,372,000) shares of f 2 each are held by the Holding Company, Cummins Inc. USA.
During the year March 31, 2020, 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. With effect from April 1, 2020, the Dividend Distribution Tax (âDDTâ) payable by the company under section 115O of Income Tax Act was abolished and a withholding tax was introduced on the payment of dividend. As a result, dividend is now taxable in the hands of the recipient.
In addition to the above dividends, since year end the directors have recommended payment of final dividend of f 22,176 lacs for the year ended March 31, 2021 (March 31, 2020: f 19,404 lacs) which is f 8 per fully paid up share (March 31,2020: f 7 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.
35 Significant accounting judgements, estimates and assumptions
The preparation of the Companyâs financial statements requires management to make judgements, 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.
In the process of applying the Companyâs accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognized in the financial statements:
The Company applied the following judgements that significantly affect the determination of the amount and timing of revenue from contracts with customers:
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.
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
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.
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.
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 40.
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 judgement 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 44 for further disclosures.
For estimates relating to warranty, statutory matters and NEPI (refer note 39)
The lease payments are discounted using the interest rate implicit in the lease or, if not readily determinable, using the incremental borrowing rate (IBR).The Company uses IBR to discount lease liablities.The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
* Excludes interest and penalties if any. The above matters pertain to certain disallowances/demand raised by respective authorities.
The Company is contesting the demands and the management, including its tax/legal advisors, believe that its position will likely be upheld in the appellate process.
There are numerous interpretative issues relating to the Supreme Court (SC) judgement on Provident Fund dated February 28, 2019. The Company has implemented the SC decision prospectively.
The Company has various on-going litigations by/or against the Company with respect to tax and other legal matters, other than those disclosed above. The Company believes that they have sufficient and strong arguments on facts as well as on point of law and accordingly no provision/disclosure in this regard has been considered in the financial statements.
ii) The sales to and purchase from related parties are made on terms equivalent to those that prevail in armâs length transaction. Outstanding balances at the year end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended March 31, 2021, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (March 31,2020: Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
iii) Liability for post employment benefits, other long term benefits, termination benefits and certain short term benefits such as compensated absences is provided on an actuarial basis for the Company as a whole. Accordingly the amount for above pertaining to key management personnel is not ascertainable and, therefore, not included above.
iv) Related party transaction, the amount of which is in excess of 10% of the total related party transactions of the same type are disclosed separately.
v) The information given above has been reckoned on the basis of information available with the Company and relied upon by the auditors.
vi) Services rendered include renting services, testing services, business support services, etc.
vii) Services received include testing services, solution contract support services, license fees, etc.
viii) Includes recoveries on account of employee cost, travel costs, training, IT services, etc.
42 As set out in section 135 of the Companies Act, 2013, the Company is required to contribute f 1,608 Lacs (March 31, 2020: f 1,723 Lacs) towards Corporate Social Responsibility activities, as calculated basis 2% of its average net profits of the last three financial years. Accordingly, during the current year, the Board has approved and the Company has contributed f 1,608 Lacs (March 31, 2020: f 1,723 Lacs) to Cummins India Foundation towards eligible projects as mentioned in Schedule III (including amendments thereto) of the Companies Act, 2013. Apart from the above contribution to Cummins India Foundation, the Company has not made any direct expenditure/contributions of capital nature.
43 Financial risk management objectives and policies
The Company has well written policies covering specific areas, such as foreign exchange risk and investments which seek to minimise potential adverse effects on the Companyâs financial performance due to external factors. The Company uses derivatives to hedge foreign exchange risk exposures. The Companyâs senior management oversees the management of these risks. All derivatives and investment activities for risk management purposes are carried out by specialist team that has appropriate skills, experience and supervision. As per the Companyâs policy no trading in derivatives for speculation purpose may be undertaken. The Board of Directors reviews and approves policies for managing each of these risks.
The Companyâs activities are exposed to variety of financial risks: market risk (including currency risk, fair value interest rate risk and price risk), credit risk and liquidity risk.
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risks as follows:
The Company is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, GBP and Euro. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities denominated in a currency that is not the entityâs functional currency.
Management has set up a policy to manage their foreign exchange risk against their functional currency. To manage the foreign exchange risk arising from recognised assets and liabilities, the Company uses forward contracts.
The following table demonstrates the sensitivity relating to possible change in foreign currencies with all other variables held constant:
Interest rate risk is the fair value of future cash flows of a financial instrument which fluctuates because of changes in the market interest rates. In order to optimise the Companyâs position with regards to interest income and interest expense, treasury team manages the interest rate risk by balancing the portion of fixed rate and floating rate in its total portfolio.
The Company does not have outstanding floating rate borrowings as at March 31, 2021. Interest on loans is payable at a rate of T-bill / Repo / CD Spread. While the interest provision as at March end is fixed, the interest for the remainder tenure of the loans is subject to fluctuate basis the movement in T-bill/Repo/CD rate.
Credit risk is the risk that counterparty will not meet its obligation under financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk primarily from trade receivables, contract assets, other receivables, deposits with banks and loans given.
Senior management is responsible for managing and analysing the credit risk for each new customer before standard payment, delivery terms and conditions are offered. The Company assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external assessment. The utilisation of credit limits is regularly monitored.
An impairment analysis is performed at each reporting date for all customers. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 10.
Credit risk from balances with banks is managed by the Companyâs treasury department in accordance with Companyâs policy approved by the Risk Management Committee. Investments of surplus funds are made within the credit limits and as per the policy approved by the Board of Directors.
No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance of the above assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 5, 9, 12 and 13.
c) Liquidity risk
Cash flow forecasting is performed by Treasury function. Treasury team monitors rolling forecasts of the Companyâs liquidity requirements to ensure it has sufficient cash to meet the operational needs. Such forecasting takes into consideration the compliance with internal cash management policy.
As per the Companyâs policy, treasury team invests surplus cash in marketable securities and time deposits with appropriate maturities or sufficient liquidity to provide headroom to meet the operational needs. At the reporting date, the Company held mutual funds of f 32,669 Lacs (March 31, 2020: f 78,146 Lacs) and other liquid assets of f 12,152 Lacs (March 31, 2020: f 18,142 Lacs) that are expected to readily generate cash inflows for managing liquidity risk.
The table below summarises the maturity profile of the Companyâs financial liabilities based on contractual undiscounted payments.
The Companyâs objectives when managing capital is to provide maximum returns to shareholders, benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company manages its capital structure and makes adjustments in light of changes in economic conditions.
The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity as shown in the balance sheet plus all other reserves attributable to equity shareholders of the Company.
The Management assessed that cash and cash equivalents, other bank balances, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short term maturities of these instruments.
The fair value of the financial assets and financial liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The fair value of investments in mutual funds is based on the price quotation at the reporting date obtained from the asset management companies. The fair value of investments in equity is based on the price quotation at the reporting date derived from quoted market prices in active market. The Company enters into derivative financial instruments with various counterparties, principally financial institutions. Foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing using present value calculations.
45 Standards issued but not yet effective
There are no new standards that are notified, but not yet effective, upto the date of issuance of these financial statements.
46 Exceptional Items comprise one time expense on account of Voluntary Retirement Program (VRP) and Reduction In Force (RIF) aggregating to f Nil (March 31,2020: f 1,605 Lacs) and f Nil (March 31,2020: f 380 Lacs) respectively.
In accordance with paragraph 4 of notified Ind AS 108 âOperating segmentsâ, the Company has disclosed segment information only on the basis of the consolidated financial statements.
48 The year ended March 31,2021 was severely impacted due to COVID-19, though there were improvements in market and supply chain conditions towards the end of the year. The Company has assessed the impact of COVID-19 on its assets, including property, plant and equipments, receivables, inventory etc. and it was concluded that the impact is not significant. However, the estimate of the impact of COVID-19 may differ from the same ascertained up to the date of approval of these financial statements by the Board of Directors, based on how the COVID-19 situation evolves over a period of time.
Government of Indiaâs Code for Social Security 2020 (the âCodeâ) received assent from the President in September 2020. However, the date from when the Code will become applicable and the Rules have not yet been notified. The Company will assess the impact of the Code and account for the same once the effective date and the rules are notified.
Mar 31, 2019
Warranty, statutory matters and New Engine Performance Inspection (NEPI)
For estimates relating to warranty, statutory matters and NEPI (refer note 41)
1. Loans to related party includes an amount of Rs, Nil (March, 31 2018: Rs, 12,866 Lacs) provided to Cummins Technologies India Private Limited, a fellow subsidiary, at an interest rate based on SBI lending rate. Maximum amount due during the year Rs, 12,866 Lacs (March 31, 2018: Rs, 12,866 Lacs).
2. Operating Leases
Lease commitments as a Lessee
The Company has entered into non-cancellable operating leases for office premises. These lease arrangements range for a period between 12 months and 108 months with lock in period between 36 months and 108 months, which include both renewable and non-renewable leases. These leases also include escalation clauses.
The minimum lease payments recognized in the statement of profit and loss (included under âRentâ and âComputer and other servicesâ in note 32) for the year amount to Rs, 5,215 Lacs (March 31, 2018: Rs, 5,673 Lacs).
Operating lease commitments as a lessor
The Company has entered into operating leases on its investment properties consisting of buildings and other related assets. These leases have term between 36 months and 120 months. Leases include a clause for upward revision of the rental charge once in 36 months on the basis of prevailing market conditions.
3.Disclosure on provisions made, utilized and reversed during the year
i) Provision for warranty
Provision for warranty is on account of warranties given on products sold by the Company. The amount of provision is based on historical information of the nature, frequency and average cost of warranty claims and management estimates regarding possible future incidence. The timing and amount of cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in next 12 months is classified as current.
ii) Provision for statutory matters
Provisions for statutory matters are on account of legal matters where the Company anticipates probable outflow. The amount of provision is based on estimates made by the Company considering the facts and circumstances of each case. The timing and amount of cash flows that will arise from these matters will be determined by the relevant authorities only on settlement of these cases.
iii) Provision for New Engine Performance Inspection (NEPI)
Provision for New Engine Performance Inspection (NEPI) is on account of checks to be carried out by the Company at specified intervals. The amount of provision is based on historical information of the nature, frequency and average cost of claims and management estimates regarding possible future incidence. The timing and amount of the cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in next 12 months is classified as current.
4. Related Party Disclosures (Contd.)
i) The names of the related parties under the appropriate relationship included in notes 43(b) and (c) above are as follows:
Nature of Relationship Name of the Party
Fellow subsidiaries Beijing Foton Cummins Engine Co., Ltd.
(with which there are transactions during the year) Chongqing Cummins Engine Co. Limited
Consolidated Diesel Company
Cummins (China) Investment Co. Limited
Cummins Afrique De L Ouest
Cummins Angola Limited
Cummins Asia Pacific Pte Limited
Cummins Belgium NV
Cummins Brasil Ltda
Cummins Commercializadora S.De R.L
Cummins Deutschland GmbH
Cummins DKSH (Singapore) Pte Limited
Cummins DKSH (Thailand) Limited
Cummins East Asia Research & Development Co. Limited
Cummins Eastern Canada LP
Cummins Engine (Shanghai) Trading & Services Co. Limited
Cummins Fuel Systems Wuhan Co. Limited
Cummins Generator Technologies Australia Pty Limited
Cummins Generator Technologies Limited
Cummins Ghana Limited
Cummins Hong Kong Limited
Cummins Italia SPA
Cummins Japan Limited
Cummins Limited
Cummins Makina Sanayi Ve Ticaret Limited Cummins Middle East FZE Cummins Mid-South LLC Cummins Natural Gas Engines Inc.
Cummins Norte de Colombia S.A.S.
Cummins Npower LLC Cummins NV Cummins Pacific, LLC
Cummins Power Generation (China) Co. Limited Cummins Power Generation (S) Pte. Limited Cummins Power Generation Inc.
Cummins Power Generation Limited
Cummins Qatar LLC
Cummins Romania SRL
Cummins Sales and Service Korea Co. Limited
43 Related Party Disclosures (Contd.)_
Nature of Relationship Name of the Party
Cummins Sales and Service Philippines Inc.
Cummins Sales and Service Sdn. Bhd.
Cummins Sales and Service Singapore Pte Limited Cummins South Africa (Pty.) Limited Cummins South Pacific Pty Limited Cummins Southern Plains LLC Cummins Spain SL
Cummins Technologies India Private Limited Cummins Turbo Technologies B.V.
Cummins West Africa Limited Cummins Westport Inc.
Distribuidora Cummins Centroamerica Costa Rica, S.de R.L. Distribuidora Cummins Centroamerica El Salvador, S.de R.L. Distribuidora Cummins Centroamerica Guatemala, Ltda. Distribuidora Cummins Centroamerica Honduras, S.de R.L. Distribuidora Cummins de Panama S.De R.L.
Distribuidora Cummins SA
Distribuidora Cummins Sucursal Paraguay SRL
OOO Cummins
Shanghai Cummins Trade Co. Limited Taiwan Cummins Sales & Services Co. Limited
Key management personnel Anant J. Talaulicar - Chairman and Managing Director
(upto November 8, 2017)
Sandeep Sinha - Chief Operating Officer (upto January 31, 2018) andManaging Director (w.e.f. February 1, 2018)
Rajiv Batra (Chief Financial Officer)
K. Venkata Ramana (Group Vice President - Legal & Company Secretary) (upto December 31, 2018)
Mark Levett (Chairman of the Board w.e.f. March 2, 2018)
Antonio Leitao
Norbert Nusterer
Mark Smith (upto May 24, 2018)
Suzanne Wells
Hemiksha Bhojwani (Company Secretary w.e.f. April 1, 2019) Donald Jackson (w.e.f. October 30, 2018)
Independent Directors
- Nasser Munjee
- Prakash Telang
- Priya Dasgupta
- Rajeev Bakshi
- Venu Srinivasan
- Anjuly Chib Duggal (w.e.f. December 19, 2018)
5. Related Party Disclosures (Contd.)_
Nature of Relationship Name of the Party
Associate Cummins Generator Technologies India Private Limited
Joint venture Valvoline Cummins Private Limited
Cummins Research and Technology India Private Limited
Enterprise with common key management personnel Tata Cummins Private Limited
Cummins India Foundation
New Delhi Law Offices Private Limited
Ascot Infrastructure Private Limited (upto November 8, 2017) Tata Hitachi Construction Machinery Company Private Limited (upto November 2, 2018)
Valvoline Cummins Private Limited
Employees benefit plans where there is Cummins India Limited Officers Provident Fund
significant influence Cummins Group Employees Superannuation Scheme
Cummins Group Officers Gratuity Scheme
Terms and conditions of transactions with related parties:
ii) The sales to and purchase from related parties are made on terms equivalent to those that prevail in armâs length transaction. Outstanding balances at the yearend are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended March 31, 2019, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (March 31, 2018: Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
iii) Liability for post employment benefits, other long term benefits, termination benefits and certain short term benefits such as compensated absences is provided on an actuarial basis for the Company as a whole. Accordingly the amount for above pertaining to key management personnel is not ascertainable and, therefore, not included above.
iv) Related party transaction, the amount of which is in excess of 10% of the total related party transactions of the same type are disclosed separately.
v) The information given above has been reckoned on the basis of information available with the Company and relied upon by the auditors.
vi) Services rendered include renting services, testing services, business support services, etc.
vii) Services received include testing services, solution contract support services, license fees, etc.
viii) Includes recoveries on account of employee cost, travel costs, training, IT services, etc.
6. As set out in section 135 of the Companies Act, 2013, the Company is required to contribute Rs, 1,616 Lacs (March 31, 2018: Rs, 1,661 Lacs) towards Corporate Social Responsibility activities, as calculated basis 2% of its average net profits of the last three financial years. Accordingly, during the current year, the Company has contributed Rs, 1,616 Lacs (March 31, 2018: Rs, 1,661 Lacs) to Cummins India Foundation towards eligible projects as mentioned in Schedule III (including amendments thereto) of the Companies Act, 2013.
7. Financial risk management objectives and policies
Financial risk factors:
The Company has well written policies covering specific areas, such as foreign exchange risk and investments which seek to minimize potential adverse effects on the Companyâs financial performance due to external factors. The Company uses derivatives to hedge foreign exchange risk exposures. The Companyâs senior management oversees the management of these risks. All derivatives and investment activities for risk management purposes are carried out by specialist team that has appropriate skills, experience and supervision. As per the Companyâs policy that no trading in derivatives for speculation purpose may be undertaken. The Board of Directors reviews and approves policies for managing each of these risks.
The Companyâs activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and price risk), credit risk and liquidity risk.
a) Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risks as follows:
i) Foreign currency risk
The Company is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, GBP and Euro. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities denominated in a currency that is not the entityâs functional currency.
Management has set up a policy to manage their foreign exchange risk against their functional currency. To manage the foreign exchange risk arising from recognized assets and liabilities, the Company uses forward contracts.
The following table demonstrates the sensitivity relating to possible change in foreign currencies with all other variables held constant:
The movement in the pre-tax effect is a result of a change in the fair value of derivative financial instruments not designated in a hedge relationship and financial assets and liabilities denominated in various currencies. Although the derivatives have not been designated in a hedge relationship, they act as economic hedge and offset the under lying transactions when they occur.
ii) Interest rate risk
Interest rate risk is the fair value of future cash flows of a financial instrument which fluctuates because of changes in the market interest rates. In order to optimize the Companyâs position with regards to interest income and interest expense, treasury team manages the interest rate risk by balancing the portion of fixed rate and floating rate in its total portfolio.
The Company is not exposed to significant interest rate risk as at the respective reporting dates.
The Company invests its surplus funds in mutual funds which are linked to debt markets. The Company is exposed to price risk for investments in mutual funds that are classified as fair value through profit or loss. To manage its price risk arising from investments in mutual funds, the Company diversifies its portfolio. Diversification and investment in the portfolio is done in accordance with the limits approved by the Board of Directors.
The following table demonstrates the sensitivity relating to possible change in investment value with all other variables held constant:
Profit after tax for the year would increase / decrease as a result of gains / losses on mutual funds classified as at fair value through profit or loss.
b) Credit risk
Credit risk is the risk that counterparty will not meet its obligation under financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk primarily from trade receivables, other receivables, deposits with banks and loans given.
Trade receivable and contract assets
Senior management is responsible for managing and analysing the credit risk for each new customer before standard payment, delivery terms and conditions are offered. The Company assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external assessment. The utilisation of credit limits is regularly monitored.
An impairment analysis is performed at each reporting date for all customers. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 11.
Other receivables, deposits with banks and loans given
Credit risk from balances with banks is managed by the Companyâs treasury department in accordance with Companyâs policy approved by the Risk Management Committee. Investments of surplus funds are made within the credit limits and as per the policy approved by the Board of Directors.
No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance of the above assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 5, 9, 10, 12, 13 and 14.
c) Liquidity risk
Cash flow forecasting is performed by Treasury function. Treasury team monitors rolling forecasts of the Companyâs liquidity requirements to ensure it has sufficient cash to meet the operational needs. Such forecasting takes into consideration the compliance with internal cash management policy.
As per the Companyâs policy, treasury team invests surplus cash in marketable securities and time deposits with appropriate maturities or sufficient liquidity to provide headroom to meet the operational needs. At the reporting date, the Company held mutual funds of Rs, 24,248 Lacs (March 31, 2018: Rs, 50,410 Lacs) and other liquid assets of Rs, 19,534 Lacs (March 31, 2018: Rs, 15,231 Lacs) that are expected to readily generate cash inflows for managing liquidity risk.
d) Capital management
The Companyâs objectives when managing capital is to provide maximum returns to shareholders, benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company manages its capital structure and makes adjustments in light of changes in economic conditions.
The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity as shown in the balance sheet plus all other reserves attributable to equity shareholders of the Company.
8. Fair values
The following table provides a comparison by class of the carrying amounts and fair value of the Companyâs financial instruments other than those with carrying amounts that are reasonable approximations of fair values.
The Management assessed that cash and cash equivalents, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short term maturities of these instruments.
The fair value of the financial assets and financial liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The fair value of investments in mutual funds are based on the price quotation at the reporting date obtained from the asset management companies. The fair value of investments in equity is based on the price quotation at the reporting date derived from quoted market prices in active market. The Company enters into derivative financial instruments with various counterparties, principally financial institutions. Foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing using present value calculations.
9.Standards issued but not yet effective
The amendments to standards that are issued, but not yet effective, up to the date of issuance of the Companyâs financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.
The Ministry of Corporate Affairs (âMCAâ) has issued the Companies (Indian Accounting Standards) Amendment Rules, 2019 amending the following standards:
A. Ind AS 116 - Lease
Ind AS 116 Leases was notified on March 30, 2019 and it replaces Ind AS 17 Leases, including appendices thereto. Ind AS 116 is effective for annual periods beginning on or after April 1, 2019. Ind AS 116 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under Ind AS 17. The standard includes two recognition exemptions for lessees - leases of âlow-valueâ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.
Lessees will be also required to premeasured the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.
Less or accounting under Ind AS 116 is substantially unchanged from accounting under Ind AS 17. Lessors will continue to classify all leases using the same classification principle as in Ind AS 17 and distinguish between two types of leases: operating and finance leases.
The Company continues to evaluate the available transition methods and its lease contractual arrangements. The ultimate impact resulting from the application of Ind AS 116 will be subject to assessments that are dependent on terms of lease contractual arrangements .
B. Appendix C to Ind AS 12 Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of Ind AS 12 and does not apply to taxes or levies outside the scope of Ind AS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:
- Whether an entity considers uncertain tax treatments separately
- The assumptions an entity makes about the examination of tax treatments by taxation authorities
- How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
- How an entity considers changes in facts and circumstances
An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. In determining the approach that better predicts the resolution of the uncertainty, an entity might consider, for example, (a) how it prepares its income tax filings and supports tax treatments; or (b) how the entity expects the taxation authority to make its examination and resolve issues that might arise from that examination.
The interpretation is effective for annual reporting periods beginning on or after April 1, 2019, but certain transition reliefs are available. The Company will apply the interpretation from its effective date. The Company does not expect to have any material impact on its financial statements.
C. Amendments to Ind AS 19: Plan Amendment, Curtailment or settlement
The amendments to Ind AS 19 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to:
- Determine current service cost for the remainder of the period after the plan amendment, curtailment or settlement, using the actuarial assumptions used to premeasured the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event.
- Determine net interest for the remainder of the period after the plan amendment, curtailment or settlement using: the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event; and the discount rate used to premeasured that net defined benefit liability (asset).
The amendments also clarify that an entity first determines any past service cost, or a gain or loss on settlement, without considering the effect of the asset ceiling. This amount is recognized in profit or loss.An entity then determines the effect of the asset ceiling after the plan amendment, curtailment or settlement. Any change in that effect, excluding amounts included in the net interest, is recognized in other comprehensive income.
The amendments apply to plan amendments, curtailments, or settlements occurring on or after the beginning of the first annual reporting period that begins on or after April 1, 2019. These amendments will apply only to any future plan amendments, curtailments, or settlements of the Company. The Company does not expect to have any material impact on its financial statements.
10. Exceptional items represent profit on sale of assets.
11. Segment Information
In accordance with paragraph 4 of notified Ind AS 108 âOperating segmentsâ, the Company has disclosed segment information only on the basis of the consolidated financial statements.
Mar 31, 2018
a. Rights, preferences and restrictions attached to shares
The Company has only one class of equity shares having a par value of Rs.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.
b. Shares held by holding / ultimate holding company and / or their subsidiaries / associates
Of the above equity shares, 141,372,000 (March 31, 2017 : 141,372,000) shares of Rs.2 each are held by the Holding Company, Cummins Inc. USA.
Dividend not recognised 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.33,364 lacs for the year ended March 31, 2018 (March 31, 2017: Rs.30,027 lacs) which is Rs.10 per fully paid up share (March 31, 2017: Rs.9 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.
1 Earning per share (EPS)
Earnings per share is calculated by dividing the profit attributable to the equity shareholders by the weighted average number of equity shares outstanding during the year. The numbers used in calculating basic and diluted earnings are stated below :
The Company has compiled this information based on intimations received from the suppliers of their status as Micro or Small Enterprises and / or its registration with the appropriate authority under the Micro, Small and Medium Enterprises Development Act, 2006.
2 Significant accounting judgements, estimates and assumptions
The preparation of the Companyâs financial statements requires management to make judgements, 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.
Judgements
In the process of applying the Companyâs accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognized in the financial statements:
Operating lease commitments - Company as lessor
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 43.
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 judgement 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 47 for further disclosures.
Taxes
MAT credit entitlement is recognised to the extent it is probable that taxable profit will be available against which the MAT credit can be utilised. Significant management judgement is required to determine the amount of MAT credit that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
The Company has a MAT credit entitlement of Rs.5,494 lacs as at March 31, 2018 (March 31, 2017: Rs.7,255 lacs). The Company can utilise the MAT credit for a period oRs.15 years from the date of creation.
Warranty, statutory matters and New Engine Performance Inspection (NEPI)
For estimates relating to warranty, statutory matters and NEPI (refer note 42)
3 Loans to related party includes an amount of Rs.12,866 lacs (March, 31 2017: Rs.12,866 Lacs) placed with Cummins Technologies India Private Limited, a fellow subsidiary, at an interest rate based on SBI lending rate. Maximum amount due during the year Rs.12,866 lacs (March 31, 2017: Rs.12,866 lacs).
4 Operating Leases
Lease commitments as a Lessee
The Company has entered into non-cancellable operating leases for office premises. These lease arrangements range for a period between 12 months and 108 months with lock in period between 36 months and 108 months, which include both renewable and non-renewable leases. These leases also include escalation clauses.
The minimum lease payments recognised in the statement of profit and loss (included under âRentâ and âComputer and other servicesâ in note 33) for the year amount to Rs.5,673 lacs (March 31, 2017: Rs.6,138 lacs).
Operating lease commitments as a lessor
The Company has entered into operating leases on its investment properties consisting of buildings and other related assets. These leases have term between 36 months and 120 months. Leases include a clause for upward revision of the rental charge once in 36 months on the basis of prevailing market conditions.
5 Disclosure on provisions made, utilised and reversed during the year
i) Provision for warranty
Provision for warranty is on account of warranties given on products sold by the Company. The amount of provision is based on historical information of the nature, frequency and average cost of warranty claims and management estimates regarding possible future incidence. The timing and amount of cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in next 12 months is classified as current.
ii) Provision for statutory matters
Provisions for statutory matters are on account of legal matters where the Company anticipates probable outflow. The amount of provision is based on estimates made by the Company considering the facts and circumstances of each case. The timing and amount of cash flows that will arise from these matters will be determined by the relevant authorities only on settlement of these cases.
iii) Provision for New Engine Performance Inspection (NEPI)
Provision for New Engine Performance Inspection (NEPI) is on account of checks to be carried out by the Company at specified intervals. The amount of provision is based on historical information of the nature, frequency and average cost of claims and management estimates regarding possible future incidence. The timing and amount of the cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in next 12 months is classified as current.
6 Employee benefit plans
1. Defined contribution plans - The Company has recognised the following amounts in Statement of Profit and Loss for the year:
2. Defined benefit plans -
The following figures are as per actuarial valuation, as at the balance sheet date, carried out by an independent actuary. The figures in brackets are in respect of previous year.
*Amount is below the rounding off norm adopted by the Company
The sensitivity analysis above has been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period.
Terms and conditions of transactions with related parties:
ii) The sales to and purchase from related parties are made on terms equivalent to those that prevail in armâs length transaction. Outstanding balances at the year end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended March 31, 2018, the Company has not recorded any impairment of receivables relating to amounts owned by related parties (March 31, 2017: Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
iii) Liability for post employment benefits, other long term benefits, termination benefits and certain short term benefits such as compensated absences is provided on an actuarial basis for the Company as a whole. Accordingly the amount for above pertaining to key management personnel is not ascertainable and, therefore, not included above.
iv) Related party transaction, the amount of which is in excess oRs.10% of the total related party transactions of the same type are disclosed separately.
v) The information given above has been reckoned on the basis of information available with the Company and relied upon by the auditors.
vi) Services rendered includes renting service, testing service, business support services, etc.
vii) Services received includes testing services, solution contract support services, license fees, etc.
viii) Figures in brackets are in respect of the previous year.
7 As set out in section 135 of the Companies Act, 2013, the Company is required to contribute Rs.1,661 lacs (March 31, 2017: Rs.1,616 lacs) towards Corporate Social Responsibility activities, as calculated basis 2% of its average net profits of the last three financial years. Accordingly, during the current year, the Company has contributed Rs.1,661 lacs (March 31, 2017: Rs.1,200 Lacs) to Cummins India Foundation towards eligible projects as mentioned in Schedule III (including amendments thereto) of the Companies Act, 2013.
8 Financial risk management objectives and policies
Financial risk factors:
The Company has well written policies covering specific areas, such as foreign exchange risk and investments which seeks to minimise potential adverse effects on the Companyâs financial performance due to external factors. The Company uses derivatives to hedge foreign exchange risk exposures. The Companyâs senior management oversees the management of these risks. All derivatives and investment activities for risk management purposes are carried out by specialist team that has appropriate skills, experience and supervision. It is the Companyâs policy that no trading in derivatives for speculation purpose may be undertaken. The Board of Directors reviews and approves policies for managing each of these risks.
The Company''s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and price risk), credit risk and liquidity risk.
a) Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risks as follows:
i) Foreign currency risk
The Company is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, GBP and Euro. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities denominated in a currency that is not the entity''s functional currency.
Management has set up a policy to manage their foreign exchange risk against their functional currency. To manage the foreign exchange risk arising from recognised assets and liabilities, the Company uses forward contracts.
The following table demonstrates the sensitivity relating to possible change in foreign currencies with all other variables held constant:
The movement in the pre-tax effect is a result of a change in the fair value of derivative financial instruments not designated in a hedge relationship and financial assets and liabilities denominated in various currencies. Although the derivatives have not been designated in a hedge relationship, they act as economic hedge and offset the under lying transactions when they occur.
ii) Interest rate risk
Interest rate risk is the fair value of future cash flows of a financial instrument which fluctuates because of changes in the market interest rates. In order to optimise the Company''s position with regards to interest income and interest expense, treasury team manages the interest rate risk by balancing the portion of fixed rate and floating rate in its total portfolio.
The Company is not exposed to significant interest rate risk as at the respective reporting dates.
iii) Price risk
The Company invests its surplus funds in mutual funds which are linked to debt markets. The Company is exposed to price risk for investments in mutual funds that are classified as fair value through profit or loss. To manage its price risk arising from investments in mutual funds, the Company diversifies its portfolio. Diversification and investment in the portfolio is done in accordance with the limits approved by the Board of Directors.
Profit after tax for the year would increase / decrease as a result of gains / losses on mutual funds classified as at fair value through profit or loss.
b) Credit risk
Credit risk is the risk that counterparty will not meet its obligation under financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk primarily from trade receivables, other receivables, deposits with banks and loans given.
Trade receivable
Senior management is responsible for managing and analysing the credit risk for each of their new customers before standard payment, delivery terms and conditions are offered. The Company assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external assessment. The utilisation of credit limits is regularly monitored.
An impairment analysis is performed at each reporting date for all customers. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 12.
Other receivables, deposits with banks and loans given
Credit risk from balances with banks is managed by the Companyâs treasury department in accordance with Companyâs policy approved by the Risk Management Committee. Investments of surplus funds are made within the credit limits and as per the policy approved by the Board of Directors.
No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance of the above assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 5, 6, 11, 14 and 15.
c) Liquidity risk
Cash flow forecasting is performed by Treasury function. Treasury team monitors rolling forecasts of the Companyâs liquidity requirements to ensure it has sufficient cash to meet the operational needs. Such forecasting takes into consideration the compliance with internal cash management policy.
As per the Companyâs policy, treasury team invests surplus cash in marketable securities and time deposits with appropriate maturities or sufficient liquidity to provide headroom to meet the operational needs. At the reporting date, the Company held mutual funds of Rs.50,410 lacs (March 31, 2017: Rs.65,723 lacs) and other liquid assets of Rs.15,231 lacs (March 31, 2017: Rs.12,376 lacs) that are expected to readily generate cash inflows for managing liquidity risk.
The Companyâs objectives when managing capital is to provide maximum returns to shareholders, benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company manages its capital structure and makes adjustments in light of changes in economic conditions.
The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity as shown in the balance sheet plus all other reserves attributable to equity shareholders of the Company.
9 Fair values
The following table provides a comparison by class of the carrying amounts and fair value of the Company''s financial instruments other than those with carrying amounts that are reasonable approximations of fair values.
The Management assessed that cash and cash equivalents, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short term maturities of these instruments.
The fair value of the financial assets and financial liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The fair value of investments in mutual funds are based on the price quotation at the reporting date obtained from the asset management companies. The fair value of investments in equity is based on the price quotation at the reporting date derived from quoted market prices in active market. The Company enters into derivative financial instruments with various counterparties, principally financial institutions. Foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing using present value calculations.
10 Standards issued but not yet effective
The amendments to standards that are issued, but not yet effective, up to the date of issuance of the Companyâs financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.
The Ministry of Corporate Affairs (âMCAâ) has issued the Companies (Indian Accounting Standards) Amendment Rules, 2017 and Companies (Indian Accounting Standards) Amendment Rules, 2018 amending the following standard:
A. Ind AS 115 - Revenue from Contracts with Customers
Ind AS 115 was notified on March 28, 2018 with guidance to account for revenue arising from contracts with customers. Under Ind AS 115, revenue is recognised 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.
The new revenue standard will supersede all current revenue recognition requirements under Ind AS. This new standard requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services. Ind AS 115 is effective for the Company in the first quarter of fiscal 2019 using either one of two methods: (i) retrospectively to each prior reporting period presented in accordance with Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors, with the option to elect certain practical expedients as defined within Ind AS 115 (the full retrospective method); or (ii) retrospectively with the cumulative effect of initially applying Ind AS 115 recognized at the date of initial application (April 1, 2018) and providing certain additional disclosures as defined in Ind AS 115 (the modified retrospective method).
The Company continues to evaluate the available transition methods and its contractual arrangements. The ultimate impact on revenue resulting from the application of Ind AS 115 will be subject to assessments that are dependent on many variables, including, but not limited to, the terms of the contractual arrangements and the mix of business. The Companyâs considerations also include, but are not limited to, the comparability of its financial statements and the comparability within its industry from application of the new standard to its contractual arrangements.
Sale of goods
For contracts with customers in which the sale of goods is generally expected to be the only performance obligation, adoption of Ind AS 115 is not expected to have any significant impact on Companyâs profit or loss. The Company expects the revenue recognition to occur at a point in time when control of the asset is transferred to the customer, generally on delivery of the goods.
In preparing to adopt Ind AS 115, the Company is considering various other aspects in the same contracts such as elements of variable consideration, volume rebates, terms of service delivery and other considerations in service sale agreements etc. The Company is in the process of assessing the impact of these requirements on the financial statements.
B. Amendments to Ind AS 112 Disclosure of Interests in Other Entities: Clarification of the scope of disclosure requirements in Ind AS 112
The amendments clarify that the disclosure requirements in Ind AS 112, other than those in paragraphs B10-B16, apply to an entityâs interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale.
The Company has not included any of its subsidiary, joint ventures or associate in disposal group /classified as held for sale. Accordingly, the amendments in Ind AS 112 will not have any impact on the Company.
C. Amendments to Ind AS 12 Recognition of Deferred Tax Assets for Unrealised Losses
The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.
Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact.
These amendments are effective for annual periods beginning on or after April 1, 2018. These amendments are not expected to have any impact on the Company as the Company has no deductible temporary differences or assets that are in the scope of the amendments.
D. Amendments to Ind AS 40 Transfers of Investment Property
The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in managementâs intentions for the use of a property does not provide evidence of a change in use.
Entities should apply the amendments prospectively to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. An entity should reassess the classification of property held at that date and, if applicable, reclassify property to reflect the conditions that exist at that date. Retrospective application in accordance with Ind AS 8 is only permitted if it is possible without the use of hindsight.
The amendments are effective for annual periods beginning on or after April 1, 2018. The Company will apply amendments when they become effective. However, since Companyâs current practice is in line with the clarifications issued, the Company does not expect any effect on its financial statements.
E. Appendix B to Ind AS 21 Foreign Currency Transactions and Advance Consideration
The Appendix clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the nonmonetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration.
Entities may apply the Appendix requirements on a fully retrospective basis. Alternatively, an entity may apply these requirements prospectively to all assets, expenses and income in its scope that are initially recognised on or after:
(i) The beginning of the reporting period in which the entity first applies the Appendix, or
(ii) The beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the Appendix.
The Appendix is effective for annual periods beginning on or after April 1, 2018. Considering the nature and volume of transactions, the Company does not expect any material impact on its financial statement.
11 Exceptional items represent profit on sale of assets.
12 Disclosure relating to specified bank notes (SBN) are not applicable for year ending March 31, 2018. Disclosure for SBN''s held and transacted during the period from November 8, 2016 to December 30, 2016 as provided in the table below:
* Permitted receipts and payments of other denomination notes disclosed above should not be construed as permitted receipts and payments as permitted by RBI from time to time pursuant to the introduction of the demonetisation scheme by the Government vide RBI circular - RBI/2016-17/112 dated November 08, 2016.
** Amount is below the rounding off norm adopted by the Company.
13 Segment Information
In accordance with paragraph 4 of notified Ind AS 108 âOperating segmentsâ, the Company has disclosed segment information only on the basis of the consolidated financial statements.
Mar 31, 2017
1 Significant accounting judgements, estimates and assumptions
The preparation of the Companyâs financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, 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.
Judgements
In the process of applying the Companyâs accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognized in the financial statements:
Operating lease commitments - Company as lessor
The Company has leased out one of the commercial property (investment property) 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 judgement 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 47 for further disclosures.
Taxes
MAT credit entitlement is recognised to the extent it is probable that taxable profit will be available against which the MAT credit can be utilised. Significant management judgement is required to determine the amount of MAT credit that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
The Company has a MAT credit entitlement of Rs.7,255 lacs as at March 31, 2017 (March 31, 2016: Rs.7,230 lacs). The Company can utilise the MAT credit for a period oRs.15 years.
Warranty, statutory matters and New Engine Performance Inspection (NEPI)
For estimates relating to warranty, statutory matters and NEPI refer note 41
2 Loans to related party includes an amount of Rs.12,866 lacs (March, 31 2016: Rs.12,866 Lacs; April 1, 2015: Rs.12,866 lacs) placed with Cummins Technologies India Private Limited, a fellow subsidiary. Maximum amount due during the year Rs.12,866 lacs (March 31, 2016: Rs.12,866 lacs).
3 Operating Leases
Lease commitments as a Lessee
The Company has entered into non-cancellable operating leases for warehouse, office and residential premises. These lease arrangements range for a period between 12 months and 60 months with lock in period between 3 months and 24 months, which include both renewal and non-renewal leases. These leases also include escalation clauses.
The minimum lease payments recognised in the Statement of Profit and Loss (included under âRentâ and âComputer and other servicesâ in note 32) for the year amount to Rs.6,138 Lacs (March 31, 2016: Rs.6,437 lacs).
Operating lease commitments as a lessor
The Company has entered into operating leases on its investment property consisting of building. These leases have term between 36 months and 120 months. Leases include a clause for upward revision of the rental charge once in 36 months on the basis of prevailing market conditions.
4 Disclosure on provisions made, utilised and reversed during the year
i) Provision for warranty
Provision for warranty is on account of warranties given on products sold by the Company. The amount of provision is based on historical information of the nature, frequency and average cost of warranty claims and management estimates regarding possible future incidence. The timing and amount of cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in next 12 months is classified as current.
ii) Provision for statutory matters
Provisions for statutory matters are on account of legal matters where the Company anticipates probable outflow. The amount of provision is based on estimates made by the Company considering the facts and circumstances of each case. The timing and amount of cash flows that will arise from these matters will be determined by the relevant authorities only on settlement of these cases.
iii) Provision for New Engine Performance Inspection (NEPI)
Provision for New Engine Performance Inspection (NEPI) is on account of checks to be carried out by the Company at specified intervals. The amount of provision is based on historical information of the nature, frequency and average cost of claims and management estimates regarding possible future incidence. The timing and amount of the cash flows that will arise from these matters will be determined at the time of receipt of claims. Amount expected to be paid in next 12 months is classified as current.
ii) Terms and conditions of transactions with related parties:
The sales to and purchase from related parties are made on terms equivalent to those that prevail in armâs length transaction. Outstanding balances at the year end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended March 31, 2017, the Company has not recorded any impairment of receivables relating to amounts owned by related parties (March 31, 2016: Nil; April 1, 2015: Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
iii) The information given above has been reckoned on the basis of information available with the Company and relied upon by the auditors.
iv) Figures in brackets are in respect of the previous year.
5 As set out in section 135 of the Companies Act, 2013, the Company is required to contribute Rs.1,616 lacs (March, 31 2016: Rs.1,602 lacs) towards Corporate Social Responsibility activities, as calculated basis 2 % of its average net profits of the last three financial years. Accordingly, during the current year, the Company has contributed Rs.1,200 lacs (March, 31 2016: Rs.1,200 Lacs) to Cummins India Foundation towards the eligible projects as mentioned in Schedule III (including amendments thereto) of the Companies Act, 2013.
6 Financial risk management objectives and policies
Financial risk factors:
The Company has well written policies covering specific areas, such as foreign exchange risk and investments which seeks to minimise potential adverse effects on the Companyâs financial performance due to external factors. The Company uses derivatives to hedge foreign exchange risk exposures. The Companyâs senior management oversees the management of these risks. All derivatives and investment activities for risk management purposes are carried out by specialist team that have appropriate skills, experience and supervision. It is the Companyâs policy that no trading in derivatives for speculation purpose may be undertaken. The Board of Directors reviews and approves policies for managing each of these risks.
The Companyâs activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and price risk), credit risk and liquidity risk.
a) Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risks as follows:
i) Foreign currency risk
The Company is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, GBP and Euro. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities denominated in a currency that is not the entityâs functional currency.
Management has set up a policy to which the Company to manage their foreign exchange risk against their functional currency. To manage their foreign exchange risk arising from recognised assets and liabilities, the Company uses forward contracts to cover export sales, transacted by the treasury team.
The following table demonstrates the sensitivity relating to possible change in foreign currencies with all other variables held constant:
The movement in the pre-tax effect is a result of a change in the fair value of derivative financial instruments not designated in a hedge relationship and financial assets and liabilities denominated in various currencies. Although the derivatives have not been designated in a hedge relationship, they act as economic hedge and offset the under lying transactions when they occur.
ii) Interest rate risk
Interest rate risk is the fair value of future cash flows of a financial instrument which fluctuates because of changes in the market interest rates. In order to optimise the Companyâs position with regards to interest income and interest expense, treasury team manages the interest rate risk by balancing the portion of fixed rate and floating rate in its total portfolio.
The Company is not exposed to significant interest rate risk as at the respective reporting dates.
iii) Price risk
The Company invests its surplus funds in mutual funds which are linked to debt markets. The Company is exposed to price risk for investments in mutual funds that are classified as fair value through profit or loss. To manage its price risk arising from investments in mutual funds, the Company diversifies its portfolio. Diversification and investment in the portfolio is done in accordance with the limits set by the Board of Directors. Reports on investment portfolio are submitted to the Companyâs senior management on a regular basis.
Post-tax profit for the year would increase / decrease as a result of gains / losses on mutual funds classified as fair value through profit or loss.
b) Credit risk
Credit risk is the risk that counterparty will not meet its obligation under financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk primarily from trade receivables, other receivables, deposits with banks and loans given.
Trade receivable
Senior management is responsible for managing and analysing the credit risk for each of their new clients before standard payment, delivery terms and conditions are offered. The Company assess the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external assessment. The utilisation of credit limits is regularly monitored.
An impairment analysis is performed at each reporting date on an individual basis for all customers. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 11.
Other receivables, deposits with banks and loans given
Credit risk from balances with banks is managed by the Companyâs treasury department in accordance with Companyâs policy approved by the Risk Management Committee. Investments of surplus funds are made within the credit limits and as per the policy approved by the Board of Directors.
No credit limits were exceeded during the reporting period and management does not expect any losses from non-performance of the above assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 5,14 and 15.
c) Liquidity risk
Cash flow forecasting is performed by Treasury function. Treasury team monitors rolling forecasts of the Companyâs liquidity requirements to ensure it has sufficient cash to meet the operational needs. Such forecasting takes into consideration the compliance with internal cash management policy.
As per the Companyâs policy, treasury team invests surplus cash in marketable securities and time deposits with appropriate maturities or sufficient liquidity to provide headroom to meet the operational needs. At the reporting date, the Company held mutual funds of Rs.65,723 lacs (March 31, 2016: Rs.28,383 lacs and April 01, 2015: Rs.41,433 lacs) and other liquid assets of Rs.12,376 lacs (March 31, 2016: Rs.8,515 lacs and April 01, 2015: Rs.7,548 lacs) that are expected to readily generate cash inflows for managing liquidity risk.
The table below summarises the maturity profile of the Companyâs financial liabilities based on contractual undiscounted payments.
d) Capital management
The Companyâs objectives when managing capital is to provide maximum returns to shareholders, benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company manages its capital structure and makes adjustments in light of changes in economic conditions.
The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity as shown in the balance sheet plus all other equity reserves attributable to equity holders of the Holding Company. There are no borrowings as on March 31, 2016 and April 1, 2015, therefore, no gearing ratio is calculated.
7 Fair values
The following table provides a comparison by class of the carrying amounts and fair value of the Companyâs financial instruments other than those with carrying amounts that are reasonable approximations of fair values.
The Management assessed that cash and cash equivalents, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short term maturities of these instruments.
The fair value of the financial assets and financial liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The fair value of investments in mutual funds are based on the price quotation at the reporting date obtained from the asset management companies. The fair value of investments in equity are based on the price quotation at the reporting date derived from quoted market prices in active market.
There has been no transfer between Level 1 and Level 2 during the year. For details of valuation method, assumption used for valuation of investment property, refer note 3.
These financial statements, for the year ended March 31, 2017, are the first the Company has prepared in accordance with Ind AS. For periods up to and including the year ended March 31, 2016, the Company prepared its financial statements in accordance with Accounting Standards notified under Section 133 of the Companies Act 2013, read together with paragraph 7 of Companies (Accounts) Rules, 2014 (Indian GAAP).
Accordingly, the Company has prepared financial statements that comply with Ind AS applicable for the year ending March 31, 2017, together with the comparative period data as at and for the year ended March 31, 2016, as described in accounting policy 1(b). In preparing these financial statements, the Companyâs opening balance sheet was prepared as at April 1, 2015, the Companyâs date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the balance sheet as at April 1, 2015 and the financial statements as at and for the year ended March 31, 2016.
Ind AS 101 allows first-time adopters certain exemptions/ exceptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions:
i) Ind AS 102: Share-based payment has not been applied to equity instruments in share-based payment transactions that were vested or settled on or before April 1, 2015.
ii) Ind AS 17: Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. However, the Company has used Ind AS 101 exemption and assessed all arrangement based for embedded leases based on conditions in place as at the date of transition.
iii) Ind AS 16: Deemed Cost: The Company has elected to continue with the carrying value of property, plant and equipment as recognized in financial statements as per Indian GAAP and regard those values as deemed cost on the date of transition.
iv) Estimates: The estimates as at April 1, 2015 and March 31, 2016 are consistent with those made for the same dates in accordance with Indian GAAP except impairment of financial assets based on expected credit loss model.
v) Ind AS 109: Designation of previously recognized financial instruments: Financial assets and financial liabilities are classified as fair value through profit and loss or fair value through other comprehensive income based on facts and circumstances as at the date of transition to Ind AS i.e. April 1, 2015. Financial assets and liabilities are recognized at fair value as at the date of transition to Ind AS i.e. April 1, 2015 and not from the date of initial recognition.
a) Fair valuation of investments
Under Indian GAAP, investments in equity instruments, mutual funds, bonds were classified as long term investments or current investments based on the intended holding period and realisability. Long term investments were carried at cost other than temporary decline in the value of such investments. Current investments were carried at lower of cost and fair value.
Under Ind AS these investments are required to be measured at fair value. The resulting fair value changes of these investments have been recognised in retained earnings as at the date of transition and subsequently in Statement of Profit and Loss for the year ended March 31, 2016. This resulted in a reduction in retained earnings by Rs.188 lacs as at March 31, 2016 (April 1, 2015: Rs.68 lacs).
b) Forward contracts
Under Indian GAAP, the Company applied the requirements of AS 11 - The effects of changes in foreign exchange rates to account for forward contracts and the related underlying receivable/ payable. At the inception of the forward contract the forward premium was separated and amortised as an expenses over the tenure of the forward contract. The underlying receivable/ payable and the forward contracts were restated at the closing spot exchange rate.
Under Ind AS, derivatives that are not designated as hedging instruments are fair valued with resulting changes being recognised in the Statement of Profit and Loss. The fair valuation of forward contracts resulting in increase/ (decrease) in retained earnings by f (47) lacs as at March 31, 2016 (April 1, 2015: Rs.54 lacs).
c) Deferred tax
Deferred tax have been recognised on the adjustments made on transition to Ind AS.
d) Provisions
Under Indian GAAP, discounting of provisions was not allowed. Under Ind AS, provisions are measured at discounted amounts, if the effect of time value is material, accordingly, provisions have been discounted to their present values. Ind AS also provides that where discounting is used the carrying amount of the provision increases in each period to reflect the passage of time. This has resulted in a reduction of provisions by Rs.1,494 lacs as at March 31, 2016 (April 1, 2015: Rs.1,470 lacs).
Consequently, profit for the year and equity as at March 31, 2016 increased proportionately.
e) Excise duty
Under Indian GAAP, revenue from sale of products was presented excluding excise duty. Under Ind AS, revenue from sale of products is presented inclusive of excise duty. Excise duty paid is presented on the face of the Statement of Profit and Loss as part of expenses. This change has resulted in an increase in total revenue and total expenses for the year ended March 31, 2016 by Rs.37,924 lacs. There is no impact on total equity and profits.
f) Proposed dividend and dividend distribution thereon
Under Indian GAAP, dividends proposed by the Board of Directors after the balance sheet date but before the approval of financial statements were considered as adjusting events. Accordingly, provision for proposed dividend was recognised as a liability. Under Ind AS such dividends are recognised when the same are approved by the shareholders in the general meeting, accordingly, liability for proposed dividend for Rs.30,027 lacs as at March 31, 2016 (April 1, 2015: Rs.30,027 lacs) included under provisions has been reversed with corresponding adjustment to retained earnings. Correspondingly, total equity increased by this amount.
g) Remeasurements of post - employment benefits obligations
Under Ind AS, remeasurements i.e. actuarial gains and losses and return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognised in other comprehensive income instead of Statement of Profit and Loss. Under Indian GAAP, these Remeasurements were forming part of the Statement of Profit and Loss for the year. As a result of this change, the profit for the year ended March 31, 2016 has increased by Rs.538 lacs. There is no impact on total equity.
h) Employee stock option expense
Under Ind AS equity settled share based payment transactions between the employees of an entity and its parent company need to be recognised as an employee cost in the Statement of Profit and Loss with a corresponding impact in other equity as equity contribution from the Holding Company. Under Indian GAAP, equity settled transactions between employees of an entity and the Holding Company were not required to be accounted for. This change has resulted in an increase in other reserves by Rs.329 lacs and decrease in retained earnings as at April 1, 2015.
i) Retained earnings
Retained earnings as at April 1, 2015 have been adjusted consequent to the above Ind AS transition adjustments.
j) Other comprehensive income
Under Ind AS, all items of income and expense recognised in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognised in profit and loss but are shown in the Statement of Profit and Loss as âother comprehensive incomeâ includes remeasurements of defined benefit plans.
The concept of other comprehensive income did not exists under Indian GAAP. k) Revenue
Under Indian GAAP, discounts and certain customer incentives are reported as a separate expenditure in the Statement of Profit and Loss Under Ind AS, revenue is measured at fair value of the consideration received or receivable taking into account the amount of any trade discounts, volume rebates allowed by the entity. Accordingly, revenue for the year ended March 31, 2016 has reduced by Rs.1,999 lacs and correspondingly expenses have reduced. This change has no impact on the profits and total equity for the year.
8 Standards issued but not yet effective
In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7, âStatement of cash flowsâ and Ind AS 102, âShare-based payment.â These amendments are in accordance with the recent amendments made by International Accounting Standards Board (IASB) to IAS 7, âStatement of cash flowsâ and IFRS 2, âShare-based payment,â respectively. The amendments are applicable to the Company from April 1, 2017.
Ind AS 7- Cash flow statements
The amendment to Ind AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and noncash changes. These amendments are effective for annual periods beginning on or after April 1, 2017. Application of the amendments will result in additional disclosures provided by the Company.
Amendment to Ind AS 102: Share-based Payment
The amendment to Ind AS 102 address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled.
The amendments are effective for annual periods beginning on or after April 1, 2017.
These amendments are not expected to have any impact on the Company.
Mar 31, 2015
As at As at
March 31, 2015 March 31, 2014
Rs. Lacs Rs. Lacs
1. Contingent liabilities
a. Bills discounted not matured* 1,465 0
b. Income Tax matters 14,927 10,923
c. Central excise duty/service
tax matters 1,023 267
d. Duty drawback matters (excludes
interests, if any) 2,604 2,604
e. Sales Tax matters 8,380 8,650
f. Claims against the Company not
acknowledged as debts (excludes 9 9
interests, penalties if any,
and claims which cannot be
quantified)
g. Civil liability / secondary
civil liability in respect of
suits filed 51 21
against the Company
Total 28,459 22,474
* Amount below rounding off norm adopted by the Company
2. Inter corporate deposit includes an amount of Rs. 12,977 lacs
(March 31, 2014; Rs. 14,601 Lacs) placed with Cummins Technologies
India Private Limited, a fellow subsidiary. Maximum amount due during
the year Rs. 14,626 lacs (March 31, 2014; Rs. 14,601 lacs)
3. Other expenses include provision for doubtful debts Rs. 300 lacs
(March 31, 2014; Rs. 207 lacs)
4. Operating Leases
The company has entered into non-cancellable operating leases for
warehouse, office and residential premises. These lease arrangements
range for a period between 12 months and 60 months with lock in period
between 3 months and 24 months, which include both renewal and
non-renewal leases. These leases also include escalation clauses.
The minimum lease payments recognised in the Statement of Profit and
Loss (included under ''Rent'' in note no. 23) for the year amount to Rs.
487 lacs (March 31, 2014; Rs. 931 lacs).
5. Segment Information
a. Primary Segment
On a review of all the relevant aspects including, in particular, the
system of internal financial reporting to the Board of Directors and
Managing Director, the relative "risks and returns" governing the
operations and products & its related services, the Company is of the
view that it operates in a single segment viz. ''Engine Business
Segment''. This is in accordance with Accounting Standard 17, ''Segment
Reporting'' issued under Companies (Accounting Standards) Rules, 2006.
6. As set out in section 135 of the Companies Act, 2013, the Company
is required to contribute Rs. 1,590 lacs towards Corporate Social
Responsibility activities, as calculated basis 2 % of its average net
profits of the last three financial years. Accordingly, during the
current year, the Company has contributed Rs. 810 lacs to Cummins India
Foundation towards the eligible projects as mentioned in Schedule VII
(including amendments thereto) of the Companies Act, 2013.
7. Previous year''s figures have been regrouped / reclassified,
wherever necessary.
Mar 31, 2014
1) Purchase of fixed assets include payments for items in capital work
in progress and advances for purchase of fixed assets.
Adjustments for increase/decrease in liabilities related to acquisition
of fixed assets have been made to the extent identified.
2) The figures in brackets represent outflows of cash and cash
equivalents.
3) Previous year''s figures have been regrouped/reclassified, wherever
necessary.
Mar 31, 2013
1. Earning per share (EPS)
Earnings per share is calculated by dividing the profit attributable to
the Equity Shareholders by the weighted average number of Equity Shares
outstanding during the year. The numbers used in calculating basic and
diluted earnings are stated below :
As at As at
March 31, 2013 March 31, 2012
Rs. Lacs Rs. Lacs
2. Contingent liabilities
a. Bills discounted not matured 17 265
b. Income Tax matters 9,385 8,735
c. Central excise duty/service tax matters 456 456
d. Duty drawback matters (excludes
interests, if any) 4,816 4,816
e. Sales Tax matters 8,315 6,872
f. Claims against the Company not
acknowledged as debts (excludes 9 9
interests, penalties if any, and claims
which cannot be quantified)
g Civil liability / secondary civil
liability in respect of suits filed
against the Company 19 19
Total 23,017 21,172
3. Other expenses include provision for doubtful debts Rs.147 lacs
(previous year Rs. 354 lacs)
4. Operating Leases
The company has entered into non-cancellable operating leases for
warehouse, office and residential premises. These lease arrangements
range for a period between 12 months and 60 months with lock in period
between 12 months and 24 months, which include both renewal and
non-renewal leases. These leases also include escalation clauses.
The minimum lease payments recognised in the Statement of Profit and
Loss (included under ''Rent'' in note no. 23) for the year amount to Rs.
1,397 lacs (previous year Rs. 1,156 lacs).
5. Disclosure on Provisions made, utilised and reversed during the
year as per AS-29
(i) Provision for Warranty
The provision for warranty is on account of warranties given on
products sold by the Company. The provision is based on historical
information of the nature, frequency and average cost of warranty
claims and management estimates regarding possible future incidence.
The timing and amount of cash flows that will arise from these matters
will be determined at the time of receipt of claims. Amount expected to
be paid in 1 year is classified as Current
(ii) Provision for Statutory Matters
The provisions for statutory matters are on account of legal matters
where the Company anticipates probable outflow. The amount of
provision is based on estimates made by the Company considering the
facts and circumstances of each case. The timing and amount of cash
flows that will arise from these matters will be determined by the
relevant authorities only on settlement of these cases.
(iii) Provision for New Engine Performance Inspection (NEPI)
The provision for New Engine Performance Inspection (NEPI) is on
account of checks to be carried out by the Company at specified
intervals. The provision is based on historical information of the
nature, frequency and average cost of claims and management estimates
regarding possible future incidence. The timing and amount of the cash
flows that will arise from these matters will be determined at the time
of receipt of claims. Amount expected to be paid in 1 year is
classified as Current.
6. The Company has 50% interest in Joint Ventures namely Cummins
Research and Technology India Limited, Cummins Svam Sales & Service
Limited (w.e.f. January 17, 2012), and Valvoline Cummins Limited
incorporated in India. The following represents the Company''s share of
Assets and Liabilities as at 31st March, 2013 and Income and Expenses
for the year ended on that date.
7. Segment Information
a) Primary Segment
The Company had in the previous years identified two separate
reportable business segments, namely ''Engine Business Segment''
(manufacture and sale of Internal combustion engines, gensets and parts
thereof) and ''Others'' (Service solutions business). On a review of all
the relevant aspects including, in particular, the system of internal
financial reporting to the Board of Directors and Managing Director,
the relative "risks and returns" governing the operations and products
& its related services, the Company has now identified a single segment
viz. '' Engine Business Segment'' without distinguishing between the
products & its related services.
b) Secondary Segment
Two secondary segments have been identified based on the geographical
locations of customers: domestic and export.
8. Previous year''s figures have been regrouped / reclassified,
wherever necessary.
Mar 31, 2012
A. Rights, preferences and restrictions attached to shares
The Company has only one class of equity shares having a par value of
Rs. 2 per share. Each shareholder is entitled to one vote per share
held. 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.
b. Of the above equity shares, 141,372,000 (previous year 100,980,000)
shares of Rs. 2 each are held by the Holding Company, Cummins Inc. USA
* Exceptional item of Rs. 5,144 Lacs represents profit realised on
divestment of the Company's entire shareholding in Cummins Exhaust
India Limited (CEIL).
* The Company has issued Bonus shares in the ratio of 2:5 pursuant to
approval by the members at the Extra Ordinary General Meeting held on
September 9, 2011. Accordingly, Basic and Diluted Earnings Per Share
(EPS) have been restated for the corresponding period to give effect to
the said issue of Bonus shares, in accordance with Accounting Standard
(AS) 20 "Earnings Per Share" notified under Section 211(3C) of the
Companies Act, 1956.
1 The amount of further interest due and payable even in the succeeding
years, until such date when the interest dues as above are actually
paid to the small enterprise, for the purpose of disallowance as a
deductible expenditure under section 23 of the MSMED Act, 2006.
The Company has compiled this information based on intimations received
from the suppliers of their status as Micro or Small Enterprises and /
or its registration with the appropriate authority under the Micro,
Small and Medium Enterprises Development Act, 2006.
As at As at
March 31, 2012 March 31, 2011
Rs. in Lacs Rs. in Lacs
2. Contingent liabilities
a. Bills discounted not matured 265 326
b. Income tax matters 8,735 5,658
c. Central excise duty/service
tax matters 456 286
d. Duty drawback demand pending
in appeal 4,816 2,604
(excludes interests, if any)
e. Sales Tax Matters pending in
appeal 6,872 2,403
f. Claims against the Company not
acknowledged as debts 9 7
(excludes interests, penalties
if any, and claims which
cannot be quantified)
g. Civil liability / secondary civil
liability in respect of 19 19
suits filed against the Company
3. Inter corporate deposit includes an amount of Rs. NIL (previous
year Rs. 2,750 lacs) placed with Cummins Technologies India Limited, a
fellow subsidiary. Maximum amount due during the year Rs. 3,950 lacs
(previous year Rs. 2,908 lacs).
4. Other expenses include provision for doubtful debts Rs. 354 lacs
(previous year Rs. 178 lacs).
5. Operating Leases
The company has entered into non-cancellable operating leases for
warehouse and office premises. These lease arrangements range for a
period between 12 months and 60 months with lock in periods between 11
months and 24 months, which include both renewal and non-renewal
leases. These leases also include escalation clauses.
The minimum lease payments recognised in the statement of Profit and
Loss (included under 'Rent' in note no. 24) for the year amount to Rs.
1,156 lacs (previous year Rs. 753 lacs).
(i) Provision for Warranty
The provision for warranty is on account of warranties given on
products sold by the Company. The provision is based on the historic
data and estimated figures. The timing and amount of the cash flows
that will arise from these matters will be determined based on the
receipt of claims from customers. Amount expected to be paid in 1 year
is classified as Current.
(ii) Provision for Statutory Matters
The provisions for statutory matters are on account of legal matters
where the Company anticipates probable outflow. The amount of provision
is based on estimate made by the Company considering the facts and
circumstances of each case. The timing and amount of cash flows that
will arise from these matters will be determined by the relevant
authorities on settlement of these cases.
(iii) Provision for New Engine Performance Inspection (NEPI)
The provision for New Engine Performance Inspection (NEPI) is on
account of installation checks to be carried out by the Company at
specified intervals after the equipment is commissioned. The provision
is based on the historic data and estimated figures. The timing and
amount of the cash flows that will arise from these matters will be
determined based on the receipt of claims from dealers. Amount expected
to be paid in 1 year is classified as Current.
6. The Company has 50% interest in Joint Ventures namely Cummins
Research and Technology India Limited, Cummins Svam Sales & Service
Limited (w.e.f. January 17, 2012), Valvoline Cummins Limited and
Cummins Exhaust India Limited (upto April 29, 2011), incorporated in
India. The following represents the Company's share of Assets and
Liabilities as at 31st March, 2012 and Income and Expenses for the year
ended on that date.
Item (iii) includes the cost of accessories sold and cost of purchased
components sold as spare parts (for the goods manufactured and sold by
the Company), this activity being ancillary to the Company's
manufacturing activity.
All of the above have been included in the line 'Contribution to
provident and other funds', in Note 22 of the Stateme of Profit and
Loss.
The overall expected rate of return on assets is based on the
expectations of the average long term rate of return expected on
investments of the fund during the estimated term of obligations.
The estimates of future salary increases considered in actuarial
valuation takes into account inflation, seniority, promotion and other
relevant factors.
ii) Reimbursement of expenses incurred by related parties for and on
behalf of the company and vice-versa have not been included above.
iii) The Chairman and Managing Director and some senior employees are
also entitled to participate in the Employees Stock Option plan of
Cummins Inc. (the holding company), the cost of which is borne by
Cummins Inc.
iv) The information given above, has been reckoned on the basis of
information available with the Company and relied upon by the auditors.
v ) Figures in brackets are in respect of the previous year.
7. Segment Information
a. Primary Segment
The Company's operations predominantly relate to manufacture of
Internal combustion engines, gensets and parts thereof (Engine Business
segment) used for various applications such as power generation,
construction, compressor, mining, marine, locomotive, fire-fighting
etc. Others includes income from Service solutions business.
b. Secondary Segment
Two secondary segments have been identified based on the geographical
locations of customers: domestic and export.
Notes:
i) The Company's tangible assets are located entirely in India.
ii) Figures in brackets are in respect of the previous year.
* Amount is below the rounding off norm adopted by the Company.
8. The financial statements for the year ended March 31, 2011 had been
prepared as per the then applicable, pre-revised Schedule VI to the
Companies Act, 1956. Consequent to the notification of Revised Schedule
VI under the Companies Act, 1956, the financial statements for the year
ended March 31, 2012 are prepared as per Revised Schedule VI.
Accordingly, the previous year figures have also been reclassified to
conform to this year's classification. The adoption of Revised Schedule
VI for previous year figures does not impact recognition and
measurement principles followed for preparation of financial
statements.
Mar 31, 2011
1. a) Inter corporate deposit includes an amount of Rs. (000) 275,000
(previous year Rs. (000) 265,000) placed with Cummins Technologies
India Limited, a fellow subsidiary. Maximum amount due during the year
Rs. (000) 290,840 (previous year Rs. (000) 273,836).
2 The amount of further Interest remaining due and payable even in the
succeeding years, until such date when the interest dues as above are
actually paid to the small enterprise, for the purpose of disallowance
as a deductible expenditure under Section 23 of the Micro, Small and
Medium Enterprises Development Act, 2006.
Included in S. No. 4(b) above is Rs. NIL being interest on amounts
outstanding as at the beginning of the accounting year.
The figures in brackets are in respect of the previous year.
The Company has compiled this information based on intimations received
from the suppliers of their status as Micro or Small Enterprises and /
or its registration with the appropriate authority under the Micro,
Small and Medium Enterprises Development Act, 2006.
3. Contingent liabilities
As at As at
31st March, 2011 31st March, 2010
Rs. 000 Rs. 000
a) Bills discounted not matured 32,586 337,804
b) Income tax matters pending in appeal
including effect of similar matters in
respect of appeals decided in
favour of the Company (refer note below) 318,365 66,176
c) Central excise duty matters 28,598 25,141
d) Duty drawback demand pending in appeal
(excludes interests, if any) 260,357 -
e) Sales Tax Matters pending in appeal - 240,325 178,943
f) Claims against the Company not
acknowledged as debts (excludes
interests, penalties if any, and
claims which cannot be quantified) 667 665
g) Civil liability / secondary civil
liability in respect of suits
filed against the Company 1,944 1,944
In addition to above, the company has received a draft assessment order
u/s 143 (3) read with Section 144C of the Income Tax Act, 1961
proposing adjustments to income returned by the company by Rs.(OOO)
735,054 on account of transfer pricing matters for the assessment year
2007-08, the tax impact of which could range upto Rs. (000) 247,419
(previous year Rs (000) 171,900), The company has filed objections
with the Dispute Resolution Panel which are yet to be heard and only
post this hearing a demand may potentially be raised. Pending hearing
before the Dispute Resolution Panel, the management is of the opinion
that the said amount is not payable.
Notes:
i) The names of the related parties under the appropriate relationship
included in notes 5(b) and (c) above are as follows:
Nature of Relationship Name of the Party
Holding Company Cummins Inc.
Fellow subsidiaries
Name of the Party
Cummins Engine (China) Investment Co. Ltd.
Cummins, Belgium
Cummins Brazil Limited
Cummins Commercializadora S. de R.L. de C.V.
Cummins De Los Andes S.A.
Cummins Deutschland GmbH
Cummins Diesel Italia Spa
Cummins Diesel N.V.
Cummins Diesel Recon
Cummins Diesel Sales Corporation, Singapore
Cummins DKSH (Singapore) Re. Ltd.
Cummins DKSH (Thailand) Limited
Cummins Emission Solutions
Cummins Engine (Shanghai) Trading And Service Co.
Cummins Firepower
Cummins France, S.A.
Cummins Generator Technologies (China) Co. Ltd.
Cummins Ghana Limited
Cummins Japan Limited
Cummins Limited
Cummins Middle East Fze
Cummins Natural Gas Engines, Inc.
Cummins Power Generation (China) Co., Ltd.
Cummins Power Generation (S) Re. Ltd.
Cummins Power Generation Limited
Cummins Power Generation Limited, U.S.A.
Cummins Power Generation, Australia
Cummins Rocky Mountain LLC
Cummins S De R L De C V
Cummins Sales & Service Philippines, Inc.
Cummins Sales and Service Korea Co., Ltd.
Cummins Sales and Service Singapore Re. Ltd.
Cummins Serbomonte
Cummins South Africa (Pty.) Ltd.
Cummins South Pacific Pty. Limited
Cummins Spain S.L
Cummins Technologies India Limited
Cummins Turbo Technologies (US)
Cummins Turbo Technologies Limited
Cummins Westport
Diesel Recon UK Depot
Distribuidora Cummins S.A.
Dongfeng Cummins Engine Company
Komatsu Cummins Chile, Limited
OOO Cummins
Shanghai Cummins Trade Co. Ltd.
Key Management Personnel Anant Talaulicar (Chairman and Managing
Director)
Raj Menon (Chief Operating Officer)
Associate Cummins Generator Technologies India Limited
Joint Venture Valvoline Cummins Limited
Cummins Exhaust India Limited
Cummins Reseach and Technology India Limited
Enterprise with common Key Management Personnel Tata Cummins Limited
(Anant Talaulicar)
ii) Reimbursement of expenses incurred by related parties for and on
behalf of the company and vice-versa have not been included above.
iii) The information given above, has been reckoned on the basis of
information available with the Company and relied upon by the auditors.
iv) Figures in brackets are in respect of the previous year.
6. Segmental Information
a) Primary Segment
The Companys operations predominantly relate to manufacture of
Internal combustion engines, gensets and parts thereof (Engines
business segment) used for various applications such as power
generation, construction, compressor, mining, marine, locomotive,
fire-fighting etc. Others includes income from Service solutions
business.
b) Secondary Segment
Two secondary segments have been identified based on the geographical
locations of customers: domestic and export.
4. Lease commitments Operating lease:
There are no future minimum lease payments under these leases as at the
end of the year.
The minimum lease payments recognized in the statement of profit and
loss (included under other expenses) for the year are Rs. NIL (previous
year Rs. (000) 16,473).
5. The net exchange differences (gains/(losses)) arising during the
year appropriately recognised in the profit and loss account is Rs.
(000) 12,752 (previous year Rs. (000) 101,973).
c) The Chairman, Managing Director and some senior employees are also
entitled to participate in the Employees Stock Option plan of Cummins
Inc. (the holding company), the cost of which is borne by Cummins Inc.
6. a) Other expenses include provision for doubtful debts Rs. (000)
17,837 (previous year Rs. (000) 24,405). b) Other Income includes
commission income of Rs. (000) 541,863 (previous year Rs. (000)
154,182).
7. The Company has 50% interest in Joint Ventures namely Cummins
Exhaust India Limited, Cummins Research and Technology India Limited
and Valvoline Cummins Limited, incorporated in India. The following
represents the Companys share of Assets and Liabilities as at 31st
March, 2011 and Income and Expenses for the year ended on that date.
2. Defined Benefit Plans -
The following figures are as per actuarial valuation, as at the Balance
Sheet date, carried out by an independent actuary.
i. Para 132 of AS15 (revised 2005) does not require any specific
disclosures except where expense resulting from compensated absence is
of such size, nature or incidence that its disclosure is relevant under
Accounting Standard No. 5 or Accounting Standard No. 18. In the opinion
of the management the expense resulting from compensated absence is not
significant and hence no disclosures are prepared under various
paragraphs of AS 15 (revised 2005).
8. Previous years figures have been regrouped / reclassified,
wherever necessary.
Mar 31, 2010
1. a ) Inter Corporate deposits include Ã
i) An inter corporate deposit of Rs. (Ã000) 265,000 (previous year Rs.
(Ã000) 230,000) placed with Cummins Technologies India Limited
(previously known as Cummins Turbo Technologies India Limited), a
fellow subsidiary. Maximum amount due during the year Rs. (Ã000)
273,836 (previous year Rs. (Ã000) 235,361).
ii) An inter corporate deposit of Rs. (Ã000) NIL (previous year Rs.
(Ã000) 70,000) placed with Cummins Research and Technology India
Limited, a Joint Venture. Maximum amount due during the year Rs. (Ã000)
70,538 (previous year Rs. (Ã000) 70,490).
iii) An inter corporate deposit of Rs. (Ã000) NIL (previous year Rs.
(Ã000) 100,000) placed with Valvoline Cummins Limited, a Joint Venture.
Maximum amount due during the year Rs. (Ã000) 106,301(previous year Rs.
(Ã000) 104,242).
2 The amount of further Interest remaining due and payable even in the
succeeding years, until such date when the interest dues as above are
actually paid to the small enterprise, for the purpose of disallowance
as a deductible expenditure under Section 23 of the Micro, Small and
Medium Enterprises Development Act, 2006.
Included in S. No. 4(b) above is Rs. NIL being interest on amounts
outstanding as at the beginning of the accounting year.
The figures in brackets are in respect of the previous year.
The Company has compiled this information based on intimations received
from the suppliers of their status as Micro or Small Enterprises and /
or its registration with the appropriate authority under the Micro,
Small and Medium Enterprises Development Act, 2006.
3. Contingent liabilities
As at As at
31st March, 2010 31st March, 2009
Rs. Ã000 Rs. Ã000
a) Bills discounted
not matured 337,804 240,208
b) Income tax matters pending
in appeal including effect of
similar matters in respect of
appeals decided in favour of
the Company 66,176 58,345
c) Central excise duty/customs duty Ã
demands not accepted by the Company 25,141 23,564
d) Sales Tax Matters pending
in appeal 178,943 53,249
e) Claims against the Company
not acknowledged as debts
(excludes interests, penalties
if any, and claims which cannot
be quantified) 665 --
f) Civil liability / secondary
civil liability in respect of
suits filed against the Company 1,944 43,150
During the year the company has received a draft assessment order u/s
143 (3) read with Section 144C of the Income Tax Act, 1961 proposing
adjustments to income returned by the company by Rs. (Ã000) 510,700 on
account of transfer pricing and other matters for the assessment year
2006-07, the tax impact of which could range upto Rs. (Ã000) 171,900.
The company has filed objections with the Dispute Resolution Panel
which are yet to be heard and only post this hearing a demand may
potentially be raised. Pending hearing before the Dispute Resolution
Panel, the management is of the opinion that the said amount is not
payable.
4. Related Party Disclosures
a) Name of the related party and nature of relationship where control
exists
Name of the related party Nature of relationship
Cummins Inc. Holding Company
Notes:
i) The names of the related parties under the appropriate relationship
included in notes 5 (b) and (c) above are as follows:
Nature of Relationship Name of the Party
Holding Company Cummins Inc.
Fellow subsidiaries Cummins (China) Investment Company Ltd.
Cummins Business Services, Nashville
Cummins Commercializadora
Cummins Deutschland Gmbh
Cummins Diesel N.V.
Cummins Diesel Sales Corporation, Singapore
Cummins Diesel South Africa Pvt. Ltd.
Cummins Diesel UK
Cummins Diethelm Limited
Cummins Engine (China) Investment Co. Ltd.
Cummins Engine (Shanghai) Trading And Service Co.
Cummins Engine (Beijing) Co., Ltd.
Cummins Filtration Australia
Cummins Firepower
Cummins France Sa
Cummins Generator Technologies (China) Co., Ltd.
Cummins Generator Technologies Limited, UK
Cummins Hong Kong Limited
Cummins Indiana
Cummins Italia Spa
Cummins Japan Ltd.
Cummins Mexico Sa
Cummins Middle East Fze
Cummins Mid-South, LLC
Cummins Natural Gas Engines, Inc.
Cummins Power Generation (China) Co., Ltd.
Cummins Power Generation, Australia
Cummins Power Generation Limited, U.S.A.
Cummins Power Generation Limited, Kent
Cummins Power Generation Singapore PTE Ltd.
Cummins Power Generation(China) Co. Ltd.
Cummins Rocky Mountain Llc
Cummins Sales & Service Philippines Inc.
Cummins South Africa (Pty) Ltd.
Cummins Taiwan Pte. Ltd.
Cummins Technologies India Limited
Cummins Turbo Technologies (US)
Cummins Turbo Technologies Ltd.
Cummins UK
Cummins Westport
Cummmins Generator Technologies (China)
Co., Ltd.
Diesel Recon Co.
Diesel Recon, El Paso
Shanghai Cummins Trade Co. Ltd.
Cummins Npower
Cummins Brasil Ltd.
Cummins Limited
Cummins S De R L De C V
Nature of Relationship Name of the Party
Key Management Personnel Anant Talaulicar
Associate Cummins Generator Technologies India Limited
Joint Venture Valvoline Cummins Limited
Cummins Exhaust India Limited
Cummins Reseach and Technology India Limited
Enterprise with common Tata Cummins Limited
Key Management Personnel
ii) Reimbursement of expenses incurred by related parties for and on
behalf of the company and vice versa have not been included above.
iii) The information given above, has been reckoned on the basis of
information available with the Company and relied upon by the auditors.
iv) Figures in brackets are in respect of the previous year.
5. Segmental Information
a) Primary Segment
The CompanyÃs operations predominantly relate to manufacture of
Internal combustion engines, gensets and parts thereof (Engines
business segment) used for various applications such as power
generation, construction, compressor, mining, marine, locomotive,
fire-fighting, etc. Others includes income from Service solutions
business.
6. Disclosure on Provisions made, utilised and reversed during the
year as per Accounting Standard 29 issued by The Institute of Chartered
Accountants of India
i) The provision for warranty is on account of warranties given on
products sold by the Company. The provision is based on the historic
data and estimated figures. The timing and amount of the cash flows
that will arise from these matters will be determined at the time of
receipt of claims from customers.
ii) The provision for overhaul is on account of engines given on rent
to various customers. The provision is based on the data on overhaul
costs on various types of gensets as accumulated by the Company. The
timing and amount of the cash flows that will arise from these matters
will be determined at the time of actual overhauling of the gensets.
Provision for service costs comprise of dealer claims. Provision is
made on the amount claimed by the dealers. The timing and the amount
of cash flows that will arise from the dealer claims will be determined
at the time of settlement of these claims.
iii) The provisions for statutory matters are on account of legal
matters where the Company anticipates probable outflow. The amount of
provision is based on estimate made by the Company considering the
facts and circumstances of each case. The timing and amount of cash
flows that will arise from these matters will be determined by the
relevant authorities only on settlement of these cases.
7. Lease income
The Company has not provided any equipment under finance / operating
lease arrangements during the year and does not have any such
arrangements outstanding as at the end of the year.
8. Lease commitments
i) Finance lease :
The Company had acquired computers under finance lease arrangements in
earlier years for a period of three years which expired during the year
and no amount is outstanding as at the end of the year.
ii) Operating lease :
The Company had acquired equipment under operating lease arrangements
in earlier years at stipulated rentals for a period of five years.
There are no future minimum lease payments under these leases as at the
end of the year.
The minimum lease payments recognized in the statement of profit and
loss (included under other expenses) for the year are Rs. (Ã000) 16,473
(previous year Rs. (Ã000) 10,420).
9. The net exchange differences (gains/(losses)) arising during the
year appropriately recognised in the profit and loss account is Rs.
(Ã000) 101,973 (previous year Rs. (Ã000) 228,690).
10. Other expenses include provision for doubtful debts Rs. (Ã000)
24,405 (previous year Rs. (Ã000) 86,695).
11. The Company has 50% interest in Joint Ventures namely Cummins
Exhaust India Limited, Cummins Research and Technology India Limited
and Valvoline Cummins Limited, incorporated in India. The following
represents the CompanyÃs share of Assets and Liabilities as at 31st
March, 2010 and Income and Expenses for the year ended on that date.
12. The Company had sold its Power Generation Rental Power Business in
the previous year which resulted in a profit of Rs. 192,037 (Ã000)
which was reflected as ÃExceptional itemà in the Profit & Loss Account.
13. Previous yearÃs figures have been regrouped / reclassified,
wherever necessary.