significant accounting policies of five major indian companies

Book prepared by CA Raju S Narayanan who can be contacted at [email protected]

SIGNIFICANT ACCOUNTING POLICIES OF FIVE MAJOR INDIAN COMPANIES

BY

CA RAJU S NARAYANAN


TABLE OF CONTENTS:

SIGNIFICANT ACCOUNTING POLICIES OF BHEL ………… Page 3

SIGNIFICANT ACCOUNTING POLICIES OF CIPLA ………. Page 17

SIGNIFICANT ACCOUNTING POLICIES OF DLF ……….. 8

SIGNIFICANT ACCOUNTING POLICIES OF INFOSYS ………. Page 50

SIGNIFICANT ACCOUNTING POLICIES OF TATA MOTORS ……. Page 58


SIGNIFICANT ACCOUNTING POLICIES OF BHEL:

Significant Accounting Policies of Standalone Company

1 Basis of preparation of Financial Statements

The financial statements have been prepared as of a going concern on historical cost convention and

on accrual method of accounting in accordance with the generally accepted accounting principles

and the provisions of the Companies Act, 1956 as adopted consistently by the Company.

2 Fixed Assets

Fixed assets (other than land acquired free from State Government) are carried at the cost of

acquisition or construction or book value less accumulated depreciation.

Cost includes value of internal transfers for capital works, taken at actual / estimated factory cost or

market price, whichever is lower. Effect of extraordinary events such as devaluation / revaluation in

respect of long term liabilities / loans utilised for acquisition of fixed assets is added to / reduced

from the cost.

Land acquired free of cost from the State Government is valued at Re 1/- except for that acquired

after 16th July 1969, in which case the same is valued at the acquisition price of the State

Government concerned, by corresponding credit to capital reserve.

3 Leases

Finance Lease

A) (i) Assets Given on Lease Prior to 1st April 2001

Assets manufactured and given on finance lease are capitalised at the normal sale price/fair

value/contracted price and treated as sales.

Depreciation on the same is charged at the rate applicable to similar type of fixed assets as per

Accounting Policy on ‘Depreciation’. Against lease rentals, matching charge is made through Lease

Equalisation Account.

Finance income is recognised over the lease period.

(ii) Assets Given on Lease on or after 1st April 2001

Assets manufactured and given on finance lease are recognised as sales at normal sale price / fair

value / NPV.

Finance income is recognised over the lease period.

Initial direct costs are expensed at the commencement of lease.

B) Assets Taken on Lease on or after 1st April 2001

Assets taken on lease are capitalised at fair value / NPV / contracted price.


Depreciation on the same is charged at the rate applicable to similar type of fixed asse ts as per

Accounting Policy on ‘Depreciation’.

If the lease assets are returnable to the lessor on expiry of lease period, the same is depreciated

over its useful life or lease period, whichever is shorter.

Lease payments made are apportioned between finance charges and reduction of outstanding

liability in relation to assets taken on lease.

Operating Lease

A) Assets Given on Lease:

Assets manufactured and given on operating lease are capitalised. Lease income arising therefrom is

recognised as income over the lease period.

B) Assets Taken on Lease:

Lease payments made for assets taken on operating lease are recognised as expense over the lease

period.

4 Intangible Assets

A) Intangible assets are capitalised at cost if

a. it is probable that the future economic benefits that are attributable to the asset will flow to the

company, and

b. the company will have control over the assets, and

c. the cost of these assets can be measured reliably and is more than Rs. 10,000/-. Intangible assets

are amortised over their estimated useful lives not exceeding three years in case of software and not

exceeding ten years in case of others on a straight line pro-rata monthly basis.

B) a. Expenditure on research including the expenditure during the research phase of Research &

Development Projects is charged to statement of profit and loss account in the year of incurrence.

b. Expenditure incurred on Development including the expenditure during the development phase of

Research & Development Project meeting the criteria as per Accounting Standard on Intangible

Assets, is treated as intangible asset.

c. Fixed assets acquired for purposes of research and development are capitalised.

5 Borrowing Costs

Borrowing costs that are attributable to the manufacture, acquisition or construction of qualifying

assets, are included as part of the cost of such assets.

A qualifying asset is one that necessarily takes more than twelve months to get ready for intended

use or sale.

Other borrowing costs are recognised as expense in the period in which they are incurred.


6 Depreciation

(i) Depreciation on fixed assets (other than those used abroad under contract) is charged upto the

total cost of the assets on straight-line method as per the rates prescribed in Schedule XIV of the

Companies Act, 1956, except where depreciation is charged at rates determined on the basis of the

technically assessed estimated useful lives shown hereunder:

Single Shift Double Shift Triple Shift

General Plant & Machinery

8% 12% 16%

Automatic/Semi-Automatic Machines

10% 15% 20%

Erection Equipment, Capital Tools & Tackles

20%

Township Buildings – Second Class – Third Class

2.5% 3.5%

Railway Sidings 8% Locomotives & Wagons

8%

Electrical Installations 8% Office & Other Equipments

8%

Drainage, Sewerage & Water supply

3.34%

Electronic Data Processing Equipment

20%

In respect of additions to/deductions from the fixed assets, depreciation is charged on pro rata

monthly basis.

(ii) Fixed assets used outside India pursuant to long term contracts are depreciated over the duration

of the initial contract.

(iii) Fixed assets costing Rs. 10,000/- or less and those whose written down value as at the beginning

of the year is Rs. 10,000/- or less, are depreciated fully. In so far as township buildings are

concerned, the cost per tenement is the basis for the limit of Rs. 10,000/-.

(iv) At erection/project sites: The cost of roads, bridges and culverts is fully amortized over the

tenure of the contract, while sheds, railway sidings, electrical installations and other similar enabling

works (other than purely temporary erections, wooden structures) are so depreciated after retaining

10% as residual value.

(v) Purely Temporary Erection such as wooden structures are fully depreciated in the year of

construction.

(vi) Leasehold Land and Buildings are amortised over the period of lease. Buildings constructed on

land taken on lease are depreciated over their useful life or the lease period, whichever is earlier.


7 Investments

(i) Long–term investments are carried at cost.

Decline, other than temporary, in the value of such investments, is recognised and provided for.

(ii) Current investments are carried at cost or quoted/fair value whichever is lower.

Unquoted current investments are carried at cost.

(iii) The cost of investment includes acquisition charges such as brokerage, fees and duties. Any

reduction in the carrying amount & any reversals of such reductions are charged or credited to the

Statement of Profit & Loss.

8 Inventory Valuation

(i) Inventory is valued at actual/estimated cost or net realisable value, whichever is lower.

(ii) Finished goods in Plant and work in progress involving Hydro and Thermal sets including gas

based power plants, boilers, boiler auxiliaries, compressors and industrial turbo sets are valued at

actual/estimated factory cost or at 97.5% of the realisable value, whichever is lower.

(iii) In respect of valuation of finished goods in plant and work-in-progress, cost means factory cost;

actual/estimated factory cost includes excise duty payable on manufactured goods.

(iv) In respect of raw material, components, loose tools, stores and spares cost means weighted

average cost.

(v) (a) For Construction contracts entered into on or after 01.04.2003:

Where current estimates of cost and selling price of a contract indicates loss, the anticipated loss in

respect of such contract is recognised immediately irrespective of whether or not work has

commenced.

b) For all other contracts:

Where current estimates of cost and selling price of an individually identified project forming part of

a contract indicates loss, the anticipated loss in respect of such project on which the work had

commenced, is recognised.

c) In arriving at the anticipated loss, total income including incentives on exports/ deemed exports is

taken into consideration.

(vi) The components and other materials purchased / manufactured against production orders but

declared surplus are charged off to revenue retaining residual value based on technical estimates.

9 Revenue Recognition

Sales are recorded based on significant risks and rewards of ownership being transferred in favour of

the customer. Sales include goods dispatched to customers by partial shipment.

A. For construction contracts entered into on or after 01.04.2003 :


Revenue is recognized on percentage completion method based on the percentage of actual cost

incurred upto the reporting date to the total estimated cost of the contract.

B. For all other contracts

(i) Recognition of sales revenue in respect of long production cycle items (Hydro and Thermal sets

including gas-based power plants, boilers, boiler auxiliaries, compressors and industrial turbo sets) is

made on technical estimates. When the aggregate value of shipments represents 30% or more of the

realizable value, they are considered at 97.5% of the realizable value or in its absence, quoted price.

Otherwise, they are considered at actual/estimated factory cost or 97.5% of the realizable value,

whichever is lower. The balance 2.5% is recognized as revenue on completion of supplies under the

contract.

(ii) Income from erection and project management services is recognized on work done based on:

Percentage of completion; or

The intrinsic value, reckoned at 97.5% of contract value, the balance 2.5% is recognized as income

when the contract is completed.

(iii) Income from engineering services rendered is recognized at realizable value based on

percentage of work completed.

(iv) Income from supply/erection of non-BHEL equipment/systems and civil works is recognized

based on dispatches to customer/work done at project site.

10 Accounting for Foreign Currency Transactions

Transactions in foreign currencies are recorded at the exchange rates prevailing on the date of the

transaction. Foreign currency monetary assets and liabilities are translated at year end exchange

rates. Exchange difference arising on settlement of transactions and translation of monetary items

are recognized as income or expense in the year in which they arise.

11 Translation of Financial Statements of Integral

Foreign Operations

(i) Items of income and expenditure are translated at average rate except depreciation, which is

converted at the rates adopted for the corresponding fixed assets.

(ii) Monetary items are translated at the closing rate; non-monetary items carried at historical cost

are translated at the rates in force on the date of the transaction; non-monetary items carried at fair

value are translated at exchange rates that existed when the value were determined.

(iii) All translation variances are taken to Profit & Loss Account.


12 Employee Benefits

Provident Fund and Employees’ Family Pension Scheme contributions are accounted for on accrual

basis. Liability for Earned Leave, Half Pay Leave, Gratuity, Travel claims on retirement and Post

Retirement Medical Benefits are accounted for in accordance with actuarial valuation.

Compensation under Voluntary Retirement Scheme is charged off in the year of incurrence on a pro-

rata monthly basis.

13 Claims by/against the Company

(i) Claims for liquidated damages against the Company are recognised in accounts based on

management’s assessment of the probable outcome with reference to the available information

supplemented by experience of similar transactions.

(ii) Claims for export incentives / duty drawbacks / duty refunds and insurance claims etc. are taken

into account on accrual.

(iii) Amounts due in respect of price escalation claims and/or variations in contract work are

recognised as revenue only when there are conditions in the contracts for such claims or variations

and/or evidence of the acceptability of the same from customers.

However, escalation is restricted to intrinsic value.

14 Provision for Warranties

(i) For construction contracts entered into on or after 01.04.2003:

The company provides warranty cost at 2.5% of the revenue progressively as and when it recognises

the revenue and maintain the same through the warranty period.

(ii) For all other contracts:

Provision for contractual obligations in respect of contracts under warranty at the year end is

maintained at 2.5% of the value of contract. In the case of contracts for supply of more than a single

product 2.5% of the value of each completed product is provided.

(iii) Warranty claims/ expenses on rectification work are accounted for against natural heads as and

when incurred and charged to provisions in the year end.

15 Government Grants

Government Grants are accounted when there is reasonable certainty of their realisation.

Grants related to fixed depreciable assets are adjusted against the gross cost of the relevant assets

while those related to non-depreciable assets are credited to capital reserve. Grants related to

revenue, unless received as compensation for expenses/losses, are recognised as revenue over the

period to which these are related on the principle of matching costs to revenue.

Grants in the form of non-monetary assets are accounted for at the acquisition cost, or at nominal

value if received free.


Significant Accounting Policies (Consolidated Financial Statement)

1 Basis of preparation of Financial Statements

The financial statements have been prepared as of a going concern on historical cost convention and

on accrual method of accounting in accordance with the generally accepted accounting principles

and the provisions of the Companies Act, 1956 as adopted consistently by the Company.

2 Fixed Assets

(a) Fixed assets (other than land acquired free from State Government) are carried at the cost of

acquisition or construction or book value less accumulated depreciation.

(b) Cost includes value of internal transfers for capital works, taken at actual / estimated factory cost

or market price, whichever is lower. Effect of extraordinary events such as devaluation / revaluation

in respect of long term liabilities / loans utilized for acquisition of fixed assets is added to / reduced

from the cost.

(c) Land acquired free of cost from the State Government is valued at Rs.1/- except for that acquired

after 16th July 1969, in which case the same is valued at the acquisition price of the State

Government concerned, by corresponding credit to capital reserve.

3 Leases

Finance Lease

A) i) Assets Given on Lease Prior to 1st April 2001

Assets manufactured and given on finance lease are capitalized at the normal sale price/ fair

value/contracted price and treated as sales.


Accounting Policy on ‘Depreciation’. Against lease rentals, matching charge is made through Lease

Equalization Account.

Finance income is recognized over the lease period.

(ii) Assets Given on Lease on or after 1st April 2001

Assets manufactured and given on finance lease are recognized as sales at normal sale price / fair

value / NPV.

Finance income is recognized over the lease period.

Initial direct costs are expensed at the commencement of lease.

B) Assets Taken on Lease on or after 1st April 2001

Assets taken on lease are capitalized at fair value /NPV/contracted price.


Accounting Policy on ‘Depreciation’. If the lease assets are returnable to the lesser on expiry of


lease period, the same is depreciated over its useful life or lease period, whichever is shorter.

Lease payments made are apportioned between finance charges and reduction of outstanding

liability in relation to assets taken on lease.

Operating Lease

Assets Given on Lease:

Assets manufactured and given on operating lease are capitalized . Lease income arising there from

is recognized as income over the lease period.

Assets Taken on Lease:

Lease payments made for assets taken on operating lease are recognized as expense over the lease

period.

4 Intangible Assets

A. Intangible assets are capitalized at cost if

a. It is probable that the future economic benefits that are attributable to the asset will flow to the

company, and

b. The company will have control over the assets, and

c. The cost of these assets can be measured reliably and is more than R 10,000/-.

Intangible assets are amortized over their estimated useful lives not exceeding three years in case of

software and not exceeding ten years in case of others on a straight line pro-rata monthly basis.

B. a. Expenditure on research including the expenditure during the research phase of Research &

Development Projects is charged to profit and loss account in the year of incurrence.

b. Expenditure incurred on Development including the expenditure during the development phase of

Research & Development Project meeting the criteria as per Accounting Standard on Intangible

Assets, is treated as intangible asset.

c. Fixed assets acquired for purposes of research and development are capitalized.

5 Borrowing Costs

Borrowing costs that are attributable to the manufacture, acquisition or construction of qualifying

assets, are included as part of the cost of such assets.

A qualifying asset is one that necessarily takes more than twelve months to get ready for intended

use or sale.

Other borrowing costs are recognized as expense in the period in which they are incurred.


6 Depreciation

(i) Depreciation on fixed assets (other than those used abroad under contract) is charged up to the

total cost of the assets on straight-line method as per the rates prescribed in Schedule XIV of the

Companies Act, 1956, except where depreciation is charged at rates determined on the basis of the

technically assessed estimated useful lives shown hereunder:

Single Shift Double Shift Triple Shift

General Plant & Machinery

8% 12% 16%

Automatic/Semi-Automatic Machines

10% 15% 20%

Erection Equipment, Capital Tools & Tackles

20%

Township Buildings – Second Class – Third Class

2.5% 3.5%

Railway Sidings 8% Locomotives & Wagons

8%

Electrical Installations 8% Office & Other Equipments

8%

Drainage, Sewerage & Water supply

3.34%

Electronic Data Processing Equipment

20%

In respect of additions to/deductions from the fixed assets, depreciation is charged on pro-rata

monthly basis.

(ii) Fixed assets used outside India pursuant to long term contracts are depreciated over the duration

of the initial contract.

(iii) Fixed assets costing R10,000/- or less and those whose written down value as at the beginning of

the year is R10,000/- or less, are depreciated fully. In so far as township buildings are concerned, the

cost per tenement is the basis for the limit of Rs. 10,000/-.

(iv) At erection/project sites: The cost of roads, bridges and culverts is fully amortized over the

tenure of the contract, while sheds, railway sidings, electrical installations and other similar enabling

works (other than purely temporary erections, wooden structures) are so depreciated after retaining

10% as residual value.

(v) Purely Temporary Erection such as wooden structures are fully depreciated in the year of

construction.

(vi) Leasehold Land and Buildings are amortized over the period of lease. Buildings constructed on

land taken on lease are depreciated over their useful life or the lease period, whichever is earlier.


In the case of BGGTS (50% JV)

Depreciation on fixed assets is provided using the straight line method over the useful life of the

assets as estimated by the management. The rates of depreciation prescribed in Schedule XIV to the

Companies Act, 1956 are considered the minimum rates. If the management’s estimate of the useful

life of a fixed asset at the time of acquisition of the asset or of the remaining useful life on a

subsequent review is shorter than the envisaged in the aforesaid schedule, depreciation is provided

at a higher rate based on the management’s estimate of the useful life / remaining useful life.

Pursuant to this policy, depreciation on assets has been provided at the rates based on the following

useful lives of fixed assets as estimated by management.

Asset category Estimated useful life

Plant and machinery 2-15

Electrical Installations 3-10

Civil Structures 5-10

Furniture and fixtures 1-8

Computers 3

Office equipment 3-5

Depreciation is calculated on a pro-rata basis from / up to the month the assets are purchased /sold.

Individual assets costing less than R 5,000/each are depreciated in full in the year of purchase.

In the case of RAICHUR POWER CORPORATION LIMITED (46% JV)

Depreciation is provided on straight line method at the rates prescribed in the Electricity Supply Act

1948. In respect of assets for which rates are not specified in the Electricity Supply Act 1956,

depreciation is provided at the rates specified under schedule XIV of the Companies Act 1956.

Assets are depreciated to the extent of 90% of the cost and 10% is retained as residual value.

Depreciation on additions to assets is provided for the full year irrespective of the date of addition.

In the case of NTPC BHEL POWER PROJECTS PVT LTD.

Depreciation on fixed assets is charged upto the total cost of the assets on a straight line method as

per the rates prescribed in Schedule XIV of the Companies Act, 1956.

In the case of UDANGUDI POWER CORPORATION LTD.

Depreciation on some assets is provided on the straight line method based on useful life of assets as

estimated by management. Depreciation on other assets is provided on Straight line methods per

the rates and in the manner prescribed under Schedule XIV of the Companies Act,1956.


Depreciation for assets purchased/sold during the period is proportionately charged. 100%

depreciation is charged on assets acquired for price up to Rs. 5000/-, Management estimates useful

life of assets as follows

1. Temporary Shed 1 Year

2. Computer & Accessories 5 Years

7 Investments

(i) Long–term investments are carried at cost.

Decline, other than temporary, in the value of such investments, is recognized and provided for.

(ii) Current investments are carried at cost or quoted/ fair value whichever is lower. Unquoted

current investments are carried at cost.

(iii) The cost of investment includes acquisition charges such as brokerage, fees and duties.

Any reduction in the carrying amount & any reversals of such reductions are charged or credited to

the Profit & Loss Account.

8 Inventory Valuation

(i) Inventory is valued at actual/estimated cost or net realizable value, whichever is lower.

(ii) Finished goods in Plant and work in progress involving Hydro and Thermal sets including gas

based power plants, boilers, boiler auxiliaries, compressors and industrial turbo sets are valued at

actual/estimated factory cost or at 97.5% of the realizable value, whichever is lower.

(iii) In respect of valuation of finished goods in plant and work-in-progress, cost means factory cost;

actual/estimated factory cost includes excise duty payable on manufactured goods.

(iv) In respect of raw material, components, loose tools, stores and spares cost means weighted

average cost.

(v) a) For Construction contracts entered into on or after 01.04.2003:

Where current estimates of cost and selling price of a contract indicates loss, the anticipated loss in

respect of such contract is recognized immediately irrespective of whether or not work has

commenced.

b) For all other contracts: Where current estimates of cost and selling price of an individually

identified project forming part of a contract indicates loss, the anticipated loss in respect of such

project on which the work had commenced, is recognized.

c) In arriving at the anticipated loss, total income including incentives on exports/ deemed exports is

taken into consideration.

(vi) The components and other materials purchased/ manufactured against production orders but

declared surplus are charged off to revenue retaining residual value based on technical estimates.



Traded stock is valued at the lower of cost and net realizable value. Cost is determined under the

first-in-first-out method.

9 Revenue Recognition

Sales are recorded based on significant risks and rewards of ownership being transferred in favour of

the customer. Sales include goods dispatched to customers by partial shipment.

A. For construction contracts entered into on or after 01.04.2003:

Revenue is recognized on percentage completion method based on the percentage of actual cost

incurred up to the reporting date to the total estimated cost of the contract.

B. For all other contracts:

(i) Recognition of sales revenue in respect of long production cycle items (Hydro and Thermal sets

including gas-based power plants, boilers, boiler auxiliaries, compressors and industrial turbo sets) is

made on technical estimates. When the aggregate value of shipments represents 30% or more of the

realizable value, they are considered at 97.5% of the realizable value or in its absence, quoted price.

Otherwise, they are considered at actual/estimated factory cost or 97.5% of the realizable value,

whichever is lower. The balance 2.5% is recognized as revenue on completion of supplies under the

contract.

(ii) Income from erection and project management services is recognized on work done based on:

Percentage of completion; or The intrinsic value, reckoned at 97.5% of contract value, the balance

2.5% is recognized as income when the contract is completed.

(iii) Income from engineering services rendered is recognized at realizable value based on

percentage of work completed.

(iv) Income from supply/erection of non-BHEL equipment/systems and civil works is recognized

based on dispatches to customer/ work done at project site.

10 Accounting for Foreign Currency Transactions



rates. Exchange difference arising on settlement of transactions and translation of monetary items

are recognized as income or expense in the year in which they arise.

11 Translation of Financial Statements of Integral Foreign Operations

(i) Items of income and expenditure are translated at average rate except depreciation, which is

converted at the rates adopted for the corresponding fixed assets.

(ii) Monetary items are translated at the closing rate; non-monetary items carried at historical cost

are translated at the rates in force on the date of the transaction; non-monetary items carried at fair

value are translated at exchange rates that existed when the value were determined.


(iii) All translation variances are taken to Profit & Loss Account.


Forward contracts are entered into to hedge the foreign currency risk of the underlying outstanding

at the year end. The premium or discount on all such contracts arising at the inception of each

contract is amortised as expense or income over the life of the contract. The exchange differences

on such a forward contract is the difference between (i) the foreign currency amount of the contract

translated at the exchange rate on the reporting date, or the settlement date where the transaction

is settled during the period and (ii) the same foreign currency amount translated at the latter of the

date of inception of the forward exchange contract or the last reporting date. Any profit or loss

arising on such cancellation or renewal of such a forward contract is recognised as income or

expense for the year.

12 Employee Benefits

Provident Fund and Employees’ Family Pension Scheme contributions are accounted for on accrual

basis. Liability for Earned Leave, Half Pay Leave, Gratuity, Travel claims on retirement and Post

Retirement Medical Benefits are accounted for in accordance with actuarial valuation.

Compensation under Voluntary Retirement Scheme is charged off in the year of incurrence on a pro-

rata monthly basis.

13 Claims by /against the Company

(i) Claims for liquidated damages against the Company are recognized in accounts based on

management’s assessment of the probable outcome with reference to the available information

supplemented by experience of similar transactions.

(ii) Claims for export incentives / duty drawbacks / duty refunds and insurance claims etc. are taken

into account on accrual.

(iii) Amounts due in respect of price escalation claims and/or variations in contract work are

recognized as revenue only when there are conditions in the contracts for such claims or variations

and/or evidence of the acceptability of the same from customers. However, escalation is restricted

to intrinsic value.

14 Provision for Warranties

(i) For construction contracts entered into on or after 01.04.2003:

The company provides warranty cost at 2.5% of the revenue progressively as and when it recognises

the revenue and maintain the same through the warranty period.

(ii) For all other contracts:

Provision for contractual obligations in respect of contracts under warranty at the year end is

maintained at 2.5% of the value of contract. In the case of contracts for supply of more than a single

product 2.5% of the value of each completed product is provided.


(iii) Warranty claims/ expenses on rectification work are accounted for against natural heads as and

when incurred and charged to provisions in the year end.

15 Government Grants

Government Grants are accounted when there is reasonable certainty of their realization.

Grants related to fixed depreciable assets are adjusted against the gross cost of the relevant assets

while those related to non-depreciable assets are credited to capital reserve.

Grants related to revenue, unless received as compensation for expenses/losses, are recognized as

revenue over the period to which these are related on the principle of matching costs to revenue.

Grants in the form of non-monetary assets are accounted for at the acquisition cost, or at nominal

value if received free.


SIGNIFICANT ACCOUNTING POLICIES OF CIPLA

Significant Accounting Policies of Cipla Standalone Company

A Basis of Preparation

The financial statements are prepared in accordance with generally accepted accounting principles

in India.

The Company has prepared these financial statements to comply in all material respects with the

Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 issued

under section 211(3C) of the Companies Act, 1956. The financial statements have been prepared on

an accrual basis and under the historical cost convention. The accounting policies adopted in

preparation of the financial statements are consistent with those of the previous year. During the

financial year ended 31st March 2012 the revised Schedule VI notified under the Companies Act,

1956 has become applicable to the Company, for preparation and presentation of its financial

statements. The Company has also re-classified the previous year figures in accordance with the

requirements applicable in the current year.

B Use of Estimates

The preparation of financial statements requires the Management of the Company to make

estimates and assumptions that affect the reported balance of assets and liabilities, revenue and

expenses and disclosures relating to contingent liabilities. The Management believes that the

estimates used in the preparation of the financial statements are prudent and reasonable. Future

results could differ from these estimates. Any revision of accounting estimates is recognised

prospectively in the current and future periods.

C. Fixed Assets

Fixed assets are stated at cost of acquisition (net of recoverable taxes and Government grants and

other subsidies, wherever availed) or construction or other amounts substituted for historical costs

on revaluation less accumulated depreciation. Where several fixed assets are acquired for

consolidated price, the consideration is apportioned to fixed assets on fair value basis.

D Depreciation

Depreciation on fixed assets is provided on the Straight Line Method at the rates and in the manner

prescribed under Schedule XIV of the Companies Act, 1956.

All individual items of fixed assets, where the actual cost does not exceed ̀ 5000 have been written

off entirely in the year of acquisition.

Cost of leasehold land including premium is amortised over the primary period of lease.


E Valuation of Inventories

Raw materials and packing materials are valued at lower of cost or net realisable value after

providing for obsolescence, if any. However, these items are considered to be realisable at cost if the

finished products, in which they will be used, are expected to be sold at or above cost.

Work-in-process and finished goods are valued at lower of cost or net realisable value. Finished

goods and work-in-process include costs of raw material, labour, conversion costs and other costs

incurred in bringing the inventories to their present location and condition.

Cost of finished goods includes excise duty, wherever applicable.

Cost of inventories is computed on weighted average basis.

F Investments

Long term investments are stated at cost, less provision for diminution (other than temporary) in

value.

Current investments are stated at lower of cost or fair value.

G Foreign Exchange Transactions


transaction.

Foreign currency monetary assets & liabilities and forward contracts are restated at year end

exchange rates. Exchange differences arising on the settlement of foreign currency monetary items

or on reporting Company’s foreign currency monetary items at rates different from those at which

they were initially recorded during the year or reported in the previous financial statements, are

recognised as income or expense in the year in which they arise.

Non-monetary foreign currency items are carried at the rates prevailing on the date of the

transaction.

In respect of forward contracts, the premium or discount on these contracts is recognised as income

or expenditure over the period of the contract. Any profit or loss arising on cancellation or renewal

of such contracts is recognised as income or expense of the year.

Foreign branches are identified as integral foreign operations. All transactions are transferred at

rates prevailing on the date of transaction. Monetary assets and liabilities of the branch are restated

at the year end rates.

H Provisions, Contingent Liabilities and Contingent Assets

A provision is recognised when the Company has a present obligation as a result of a past event, it is

probable that an outflow of resources will be required to settle the obligation, in respect of which a

reliable estimate can be made. Provisions are not discounted to its present value and are

determined based on best estimate required to settle the obligation at the Balance Sheet date.


A disclosure of contingent liability is made when there is a possible obligation or a present obligation

that may, but probably will not, require an outflow of resources. Where there is a possible obligation

or a present obligation in respect of which the likelihood of outflow of resources is remote, no

provision or disclosure is made.

Contingent assets are neither recognised nor disclosed in the financial statements.

I. Revenue Recognition

Revenue is recognised to the extent that is probable that the economic benefits will flow to the

Company and the revenue can be reliably measured.

Revenue from sale of goods is recognised when significant risks and rewards of ownership of the

goods have been passed to the buyer, which ordinarily coincides with despatch of goods to

customers. Revenues are recorded at invoice value, net of sales tax, returns and trade discounts.

Revenue from rendering of services are recognised on completion of services.

Benefits on account of entitlement of export incentives are recognised as and when the right to

receive is established.

Technical Know-how/Fees are recognised as and when the right to receive such income is

established as per terms and conditions of relevant agreement.

Interest income is recognised on time proportion basis.

Dividend income is recognised when the right to receive is established.

J Employee Benefits

Liability on account of short term employee benefits is recognised on an undiscounted and accrual

basis during the period when the employee renders service/vesting period of the benefit.

Post retirement contribution plans such as Provident Fund are charged to the Statement of Profit

and Loss for the year when the contributions to the respective funds accrue.

Post retirement benefit plans such as gratuity and leave encashment are determined on the basis of

actuarial valuation made by an independent actuary as at the Balance Sheet date. Actuarial gains

and losses are recognised immediately in the Statement of Profit and Loss.

K Income Tax

Current income tax is measured at the amount expected to be paid to the tax authori ties in

accordance with the provisions of local Income Tax Laws as applicable to the financial year.

Deferred income taxes reflect the impact of current year timing differences between taxable income

and accounting income of the year and reversal of timing differences of earlier years. Deferred tax is

measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance

Sheet date.


The Company offsets, on a year-on-year basis, the current tax assets and liabilities, where it has a

legally enforceable right and where it intends to settle such assets and liabilities on a net basis.

L. Borrowing Costs

Borrowing costs attributable to acquisition and/or construction of qualifying assets are capitalised as

a part of the cost of such assets, up to the date such assets are ready for their intended use. Other

financing/ borrowing costs are charged to the Statement of Profit and Loss.

M Impairment of Assets

At each Balance Sheet date, the Company assesses whether there is any indication that any asset

may be impaired. If any such indication exists, the carrying value of such assets is reduced to its

estimated recoverable amount and the amount of such impairment loss is charged to the Statement

of Profit and Loss. If, at the Balance Sheet date, there is an indication that a previously assessed

impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at

the recoverable amount subject to a maximum of depreciated historical cost.

N Research and Development

Revenue expenditure on Research and Development is recognised as expense in the year in which it

is incurred.

Capital expenditure on Research and Development is shown as addition to Fixed Assets.

O Expenditure on Regulatory Approvals

Expenditure incurred for obtaining regulatory approvals and registration of products for overseas

markets is charged to revenue.

P Government Grants and Subsidies

Capital subsidy/Government grants are accounted for where it is reasonably certain that the

ultimate collection will be made.

Capital subsidy/Government grants related to specific depreciable assets are shown as deduction

from the gross value of the asset concerned in arriving at its book value. The grant/subsidy is thus

recognised in the Statement of Profit and Loss over the useful life of such depreciable assets by way

of a reduced depreciation charge.

Q Leases

Where the Company is a Lessee

Lease rentals on assets taken on operating lease are recognised as expense in the Statement of

Profit and Loss on an accrual basis over the lease term in accordance with the lease agreement.

Where the Company is a Lessor

Lease rentals on assets given on operating lease are recognised as income in the Statement of Profit

and Loss on an accrual basis in accordance with the lease agreement.


R Earnings Per Share

Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to

equity shareholders by the weighted average number of equity shares outstanding during the

period.

For the purpose of calculating diluted earnings per share, the net profit attributable to equity

shareholders and the weighted average number of shares outstanding are adjusted for the effect of

all dilutive potential equity shares from the exercise of options on unissued share capital. The

number of equity shares is the aggregate of the weighted average number of Equity Shares and the

weighted average number of equity shares which would be issued on the conversion of all the

dilutive potential equity shares into equity shares.


Significant Accounting Policies of Group

A Basis of Preparation

The consolidated financial statements are prepared under the historical cost convention on accrual

basis in accordance with the Companies (Accounting Standards) Rules, 2006 issued under section

211(3C) of the Companies Act, 1956. During the financial year ended 31st March 2012 the revised

Schedule VI notified under the Companies Act, 1956 has become applicable to the Company, for

preparation and presentation of its financial statements. The Company has also re -classified the

previous year figures in accordance with the requirements applicable in the current year.

B Use of Estimates

The preparation of financial statements requires the management of the Company to make

estimates and assumptions that affect the reported balance of assets and liabilities, reve nue and

expenses and disclosures relating to contingent liabilities. The management believes that the

estimates used in the preparation of the financial statements are prudent and reasonable. Future

results could differ from these estimates. Any revision of accounting estimates is recognised

prospectively in the current and future periods.

C Principles of Consolidation

The consolidated financial statements relate to Cipla Ltd. (the ‘Company’), its subsidiaries and

associates. The consolidated financial statements have been prepared on the following basis:

a. The financial statements of the Company and its subsidiaries have been combined on a line -by-

line basis by adding together the book values of like items of assets, liabilities, income and expenses,

after fully eliminating intra-group balances and intra-group transactions and resulting unrealised

profits or losses.

Unrealised losses resulting from intra-group transactions are eliminated unless cost cannot be

recovered.

b. The difference between the cost of investment in the subsidiaries, over the net assets at the time

of acquisition of the shares in the subsidiaries is recognised in the financial statements as

Goodwill/Capital Reserve as the case may be.

c. Entities in which the Company has significant influence but not a controlling interest are

considered as associates and investment therein are reported according to the equity method i.e.

the investment is initially recorded at cost identifying any Goodwill/Capital Reserve arising at the

time of acquisition. The carrying amount of the investment is adjusted thereafter for the post

acquisition change in the investor’s share of net assets of the associate, based on the available

information. The consolidated Statement of Profit and Loss includes the investor’s share of

Profit/Loss of the operations of the associate.

d. The financial statements of the subsidiaries and associates used in consolidation are drawn up to

the same reporting date as of the Company.


e. The consolidated financial statements have been prepared using uniform accounting policies for

like transactions and other events in similar circumstances and are presented to the extent possible,

in the same manner, as the Company’s separate financial statements.

f. The subsidiaries and associates considered in the consolidated financial statements are:

Name of the Company Country of Incorporation

% ownership interest as at 31st March 2012

With effect from

Subsidiaries (held directly)

Cipla FZE United Arab Emirates 100 04/10/2006 Goldencross Pharma Pvt. Ltd.

India 100 14/05/2010

Cipla (Mauritius) Ltd. Mauritius 100 27/01/2011 Meditab Specialities Pvt. Ltd.

India 100 01/10/2010

Subsidiaries (held indirectly) Four M Propack Pvt. Ltd.

India 100 14/05/2010

Cipla (UK) Ltd. United Kingdom 100 27/01/2011 Cipla-Oz Pty Ltd. Australia 100 04/03/2011

STD Chemicals Ltd. United Kingdom 100 27/01/2011

Medispray Laboratories Pvt. Ltd.

India 100 01/10/2010

Sitec Labs Pvt. Ltd. India 100 01/10/2010

Meditab Holdings Ltd. Mauritius 100 01/10/2010 Meditab Pharmaceuticals South Africa (Pty) Ltd.

South Africa 100 14/01/2011

Meditab Specialities New Zealand Ltd.

New Zealand 100 21/01/2011

Associates

Quality Chemical Industries Ltd.

Uganda 36.55 01/10/2010

Stempeutics Research Pvt. Ltd.

India 49 01/10/2010

Biomab Holding Ltd. Hong Kong 25 01/09/2011 Jiangsu Cdymax Pharmaceuticals Co. Ltd.

China 48.22 10/02/2012

Notes:

i. On 20th Februar y 2012, Cipla Ltd. (the Company) through its subsidiar y/step down subsidiaries

acquired a wholly owned subsidiar y Cipla Ilaç Ticaret Anonim Sirketi, Turkey. I ts first accounting

period shall end on 31st December 2012. In view of the Management, as there are no significant

transactions from the date of acquisition till 31st March 2012, other than transaction related to

investment mentioned herein, its consolidation is not considered necessary. The Company through

its subsidiary/step down subsidiaries has invested ̀ 0.14 crore in Cipla Ilaç Ticaret Anonim Sirk eti,

Turkey towards 50,000 fully paid-up shares of TRY 1 each.


ii. In September 2011, the Company entered into an agreement with Aspen Pharma Pty Ltd.,

Australia to form a Joint Venture entity Aspen-Cipla Australia Pty Ltd. Its first accounting period shall

end on 30th June 2012. In view of the Management, as there are no significant transactions from the

date of acquisition till 31st March 2012, other than transaction related to investment mentioned

herein, its consolidation is not considered necessary. The Company has invested `51.97 in Aspen-

Cipla Australia Pty Ltd. towards 1 fully paid-up ordinary share of AUD 1.

iii. During the year Meditab Specialities Pvt. Ltd. and Meditab Holdings Ltd. (together referred to as

“Meditab Group”) entered into an agreement to dispose of its investment in Desano Holdings Ltd.

for USD 78 million (equivalent ̀ 396.82 crore). Towards the said sale of investment, the Meditab

Group has received partial consideration during the year ended 31st March 2012 and the balance

consideration has been received in April 2012.

D Fixed Assets

Fixed Assets are stated at cost of acquisition (net of recoverable taxes and Government grants and

other subsidies, wherever availed) or construction or other amounts substituted for historical costs

on revaluation less accumulated depreciation. Where several fixed assets are acquired for

consolidated price, the consideration is apportioned to fixed assets on fair value basis.

E Depreciation

Depreciation on fixed assets is provided by the Company on the Straight Line Method at the rates

and in the manner prescribed under Schedule XIV to the Companies Act, 1956 in the parent

company.

The depreciation on fixed assets in Indian subsidiaries is provided on Written Down Value method at

the rates and in the manner prescribed under Schedule XIV to the Companies Act, 1956.

All individual items of fixed assets, where the actual cost does not exceed ̀ 5000 have been written

off entirely in the year of acquisition.

Cost of leasehold land including premium is amortised over primary period of lease.

F Valuation of Inventories

Raw materials and Packing materials are valued at lower of cost or net realisable value after

providing for obsolescence, if any. However, these items are considered to be realisable at cost if the

finished products, in which they will be used, are expected to be sold at or above cost.

Work-in-process and finished goods are valued at lower of cost or net realisable value. Finished

goods and work-in-process include costs of raw material, labour, conversion costs and other costs

incurred in bringing the inventories to their present location and condition.

Cost of finished goods includes excise duty, wherever applicable.

Cost of inventories is computed on weighted average basis.


G Investments

Long term investments, other than investment in associates, are stated at cost, less provision for

diminution (other than temporary) in value.

Current investments are stated at lower of cost and fair value.

H Foreign Exchange Transactions


transaction.

Foreign currency monetary assets & liabilities and forward contracts are restated at year end

exchange rates.

Exchange differences arising on the settlement of foreign currency monetary items or on reporting

Company’s foreign currency monetary items at rates different from those at which they were

initially recorded during the year or reported in the previous f inancial statements, are recognised as

income or expense in the year in which they arise.

Non-monetary foreign currency items are carried at the rates prevailing on the date of the

transaction.

In respect of forward contracts, the premium or discount on these contracts is recognised as income

or expenditure over the period of the contract. Any profit or loss arising on cancellation or renewal

of such contracts is recognised as income or expense of the year.

Foreign branches are identified as integral foreign operations. All transactions are transferred at

rates prevailing on the date of transaction. Monetary assets and liabilities of the branch are restated

at the year end rates.

Overseas subsidiaries are classified as non integral operations as per AS-11 - The Effects of Changes

in Foreign Exchange Rates. All the assets and liabilities are translated using exchange rate prevailing

at the Balance Sheet date and income/expenditure are translated using average exchange rate

prevailing during the reporting period. The resultant translation exchange gain/loss, have been

disclosed as “Foreign Currency Translation Reserve” under Reserves and Surplus.

I Provisions, Contingent Liabilities and Contingent Assets

A provision is recognised when the Company has a present obligation as a result of a past event, it is

probable that an outflow of resources will be required to settle the obligation, in respect of which a

reliable estimate can be made. Provisions are not discounted to its present value and are

determined based on best estimate required to settle the obligation at the Balance Sheet date.

A disclosure of contingent liability is made when there is a possible obligation or a present obligation

that may, but probably will not, require an outflow of resources. Where there is a possible obligation

or a present obligation in respect of which the likelihood of outflow of resources is remote, no

provision or disclosure is made.

Contingent assets are neither recognised nor disclosed in the financial statements.


J Revenue Recognition

Revenue is recognised to the extent that is probable that the economic benefits will flow to the

Company and the revenue can be reliably measured.

Revenue from sale of goods is recognised when significant risks and rewards of owners hip of the

goods have been passed to the buyer, which ordinarily coincides with despatch of goods to

customers. Revenues are recorded at invoice value, net of sales tax, returns and trade discounts.

Revenue from rendering of services are recognised on completion of services.

Benefits on account of entitlement of export incentives are recognised as and when the right to

receive is established.

Technical Know-how/Fees are recognised as and when the right to receive such income is

established as per terms and conditions of relevant agreement.

Interest income is recognised on time proportion basis.

Dividend income is recognised when the right to receive is established.

K Employee Benefits

Liability on account of short term employee benefits is recognised on an undiscounted and accrual

basis during the period when the employee renders service/vesting period of the benefit.

Post retirement contribution plans such as Provident Fund are charge d to the Statement of Profit

and Loss for the year when the contributions to the respective funds accrue.

Post retirement benefit plans such as gratuity and leave encashment are determined on actuarial

valuation made by an independent actuary as at the Balance Sheet date. Actuarial gains and losses

are recognised immediately in the Statement of Profit and Loss.

L Income Tax

Current income tax is measured at the amount expected to be paid to the tax authorities in

accordance with the provisions of local Income Tax Laws as applicable to the financial year.

Deferred income taxes reflect the impact of current year timing differences between taxable income

and accounting income of the year and reversal of timing differences of earlier years. Deferred tax is

measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance

Sheet date.

The Company offsets, on a year-on-year basis, the current tax assets and liabilities, where it has a

legally enforceable right and where it intends to settle such assets and liabilities on a net basis.

M Borrowing Costs

Borrowing costs attributable to acquisition and/or construction of qualifying assets are capitalised as

a part of the cost of such assets, up to the date such assets are ready for their intended use. Other

financing/borrowing costs are charged to the Statement of Profit and Loss.


N Impairment of Assets

At each Balance Sheet date, the Company assesses whether there is any indication that any asset

may be impaired. If any such indication exists, the carrying value of such assets is reduced to its

estimated recoverable amount and the amount of such impairment loss is charged to the Statement

of Profit and Loss. If, at the Balance Sheet date, there is an indication that a previously assessed

impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at

the recoverable amount subject to a maximum of depreciated historical cost.

O Research and Development

Revenue expenditure on Research and Development is recognised as expense in the year in which it

is incurred.

Capital expenditure on Research and Development is shown as addition to Fixed Assets.

P Expenditure on Regulatory Approvals

Expenditure incurred for obtaining regulatory approvals and registration of products for overseas

markets is charged to revenue.

Q Government Grants and Subsidies

Capital subsidy/Government grants are accounted for where it is reasonably certain that the

ultimate collection will be made.

Capital subsidy/Government grants related to specific depreciable assets are shown as deduction

from the gross value of the asset concerned in arriving at its book value. The grant/subsidy is thus

recognised in the Statement of Profit and Loss over the useful life of such depreciable assets by way

of a reduced depreciation charge.

R Leases

Where the Company is a Lessee

Lease rentals on assets taken on operating lease are recognised as expense in the Statement of

Profit and Loss on an accrual basis over the lease term in accordance with the lease agreement.

Where the Company is a Lessor

Lease rentals on assets given on operating lease are recognised as income in the Statement of Profit

and Loss on an accrual basis in accordance with the lease agreement.

The audited/unaudited financial statements of foreign subsidiaries/associates have been prepared in

accordance with the Generally Accepted Accounting Principles of its country of incorporation or

International Financial Reporting Standards. The differences in accounting policies of the Company

and its subsidiaries are not material.


SIGNIFICANT ACCOUNTING POLICIES OF DLF:

SIGNIFICANT ACCOUNTING POLICIES IN RELATION TO STANDALONE FINANCIAL STATEMENTS OF

DLF

a. Basis of accounting

The Financial Statements are prepared under historical cost convention, on accrual basis, in

accordance with the generally accepted accounting principles in India and to comply with the

Accounting Standards prescribed in the Companies (Accounting Standards) Rules, 2006 issued by the

Central Government in exercise of the power conferred under sub-section (1)(a) of Section 642 and

the relevant provisions of the Companies Act, 1956 (the “Act”).

All assets and liabilities have been classified as current or non-current, wherever applicable as per

the operating cycle of the Company as per the guidance as set out in the Revised Schedule VI to the

Companies Act, 1956.

b. Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles

requires the management to make estimates and assumptions that affect the reported amounts of

assets and liabilities and the disclosure of contingent liabilities on the date of the financial

statements and the results of operations during the reporting periods. Although these estimates are

based upon management’s knowledge of current events and actions, actual results could differ from

those estimates and revisions, if any, are recognised in the current and future periods.

c. Intangible assets and amortisation

i. Softwares which are not integral part of the hardware are classified as intangibles and are stated at

cost less accumulated amortisation. These are being amortised over the estimated useful life of 5

years, as determined by the management.

ii. The Company has acquired exclusive usage rights for 30 years under the build, own, operate and

transfer scheme of the Public Private Partnership (‘PPP’) Scheme in respect of properties developed

as automated multi-level car parking and commercial space and classified them under the

“Intangible Assets – Right on Building and Right on Plant & Machinery”. The Company has arrived at

the cost of such intangible assets in accordance with provisions of relevant Accounting Standards.

The cost of these rights is being amortised over the concession period in the proportion in which the

actual revenue received during the accounting year bears to the Projected Revenue from such

Intangibles till the end of concession period in accordance with the notification No. G.S.R. 298 (E)

dated April 17, 2012 as notified in Ministry of Corporate Affairs (“MCA”) on the Intangible Assets of

Schedule XIV of the Companies Act, 1956.

d. Fixed assets and depreciation

i. Fixed assets (gross block) are stated at historical cost less accumulated depreciation and

impairment (if any). Cost comprises the purchase price and any attributable cost of bringing the

asset to its working condition for its intended use.


Building/specific identifiable portions of building, including related equipments are capitalised when

the construction is substantially complete or upon receipt of the occupancy certificate, whichever is

earlier.

Depreciation on assets (including buildings and related equipment’s rented out and included under

current assets as inventories) is provided on straight-line method at the rates and in the manner

prescribed in Schedule XIV to the Companies Act, 1956.

ii. Capital work-in-progress (including intangible assets under development) represents expenditure

incurred in respect of capital projects/intangible assets under development and are carried at cost.

Cost includes land, related acquisition expenses, development/ construction costs, borrowing costs

and other direct expenditure.

iii. Leasehold land, under perpetual lease, is not amortised. Leasehold l and, other than on perpetual

lease, are being amortised on time proportion basis over their respective lease periods.

e. Investments

Investments are classified as non-current or current, based on management’s intention at the time

of purchase. Investments that are readily realisable and intended to be held for not more than a

year are classified as current investments. All other investments are classified as non-current

investments.

Trade investments are the investments made for or to enhance the Company ’s business interests.

Current investments are stated at lower of cost and fair value determined on an individual

investment basis. Non-current investments are stated at cost and provision for diminution in their

value, other than temporary, is made in the financial statements.

Profit/loss on sale of investments is computed with reference to the average cost of the investment.

f. Inventories

Inventories are valued as under:

i) Land and plots other than area transferred to constructed properties at the commencement of

construction are valued at lower of cost/ approximate average cost/ as revalued on conversion to

stock and net realisable value. Cost includes land (including development rights and land under

agreements to purchase) acquisition cost, borrowing cost, estimated internal development cost and

external development charges.

ii. Constructed properties other than Special Economic Zone (SEZ) projects includes the cost of land

(including development rights and land under agreements to purchase), internal development costs,

external development charges, construction costs, overheads, borrowing cost, development/

construction materials and is valued at lower of cost/ estimated cost and net realisable value.

iii. In case of SEZ projects, constructed properties include internal development costs, external

development charges, construction costs, overheads, borrowing cost, development / construction

materials, and is valued at lower of cost/ estimated cost, and net realisable value.


iv. Development rights represents amount paid under agreement to purchase land/ development

rights and borrowing cost incurred by the Company to acquire irrevocable and exclusive licenses/

development rights in identified land and constructed properties, the acquisition of whi ch is at an

advanced stage.

v. Construction / development material is valued at lower of cost and net realisable value.

vi. Rented buildings and related equipments are valued at lower of cost (less accumulated

depreciation) and net realisable value.

g. Revenue recognition

i. Revenue from constructed properties:

(a) Revenue from constructed properties, other than SEZ projects, is recognised on the “percentage

of completion method”. Total sale consideration as per the duly executed, agreements to sell /

application forms (containing salient terms of agreement to sell), is recognised as revenue based on

the percentage of actual project costs incurred thereon to total estimated project cost, subject to

such actual cost incurred being 30 per cent or more of the total estimated project cost. Estimated

project cost includes cost of land/ development rights, borrowing costs, overheads, estimated

construction and development cost of such properties.

The estimates of the saleable area and costs are reviewed periodically and effect of any changes in

such estimates is recognised in the period in which such changes are determined. However, when

the total project cost is estimated to exceed total revenues from the project, loss is recognised

immediately.

(b) For SEZ projects, revenue from development charges is recognised on the percentage of

completion method in accordance with the terms of the Co-developer Agreements/ Memorandum

of Understanding (‘MOU’), read with addendum, if any. The total development charges is recognised

as Revenue on the percentage of actual project cost incurred thereon to total estimated project

cost, subject to such actual cost incurred being 30 percent or more of the total estimated project

cost. The estimated project cost includes construction cost, development and construction material,

internal development cost, external development charges, borrowing cost and overheads of such

project. Revenue from Lease of land pertaining to such projects is recognised in accordance with the

terms of the Co-developer Agreements / MOU on accrual basis.

ii. Sale of land and plots (including development rights) is recognised in the financial year in which

the agreement to sell/ application forms (containing salient terms of agreement to sell) is executed.

Where the Company has any remaining substantial obligations as per the agreements, revenue is

recognised on the percentage of completion method of accounting, as per (i)(a) above.

iii. Sale of development rights is recognized in the financial year in whi ch the agreements of sale are

executed and there is no uncertainty in the ultimate collections.

iv. Revenue from wind power generation is recognised on the basis of actual power sold (net of

reactive energy consumed), as per the terms of the power purchase agreements entered into with

the respective purchasers.


v. Income from interest is accounted for on time proportion basis taking into account the amount

outstanding and the applicable rate of interest.

vi. Dividend income is recognised when the right to receive is established by the reporting date.

vii. Share of profit/ loss from firms in which the Company is a partner is accounted for in the financial

year ending on (or immediately before) the date of the balance sheet.

viii. Rent, service receipts and interest from customers under agreement to sell is accounted for on

accrual basis except in cases where ultimate collection is considered doubtful.

ix. Sale of Certified Emission Reductions (CERs) and Voluntary Emission Reductions (VERs) is

recognised as income on the delivery of the CERs/VERs to the customer’s account and receipt of

payment.

h. Unbilled receivables

Unbilled receivables disclosed under Note No. 19 - “Other Current Assets” represents revenue

recognised based on Percentage of completion method [as per para no. g (i) and g(ii) above], over

and above the amount due as per the payment plans agreed with the customers.

i. Cost of revenue

i. Cost of constructed properties other than SEZ projects, includes cost of land (including cost of

development rights/ land under agreements to purchase), estimated internal development costs,

external development charges, borrowing costs, overheads, construction costs and development /

construction materials, which is charged to the statement of profit and loss based on the percentage

of revenue recognised as per accounting policy no. - g (i) above, in consonance with the concept of

matching costs and revenue. Final adjustment is made upon completion of the specific project.

For SEZ projects, cost of constructed properties includes estimated internal development costs,

external development charges, borrowing costs, overheads, construction costs and development/

construction materials, which is charged to the statement of profit and loss based on the percentage

of revenue recognised as per accounting policy no. – g (i) above, in consonance with the concept of

matching costs and revenue. Final adjustment is made upon completion of the specific project.

ii. Cost of land and plots includes land (including development rights) acquisition cost, estimated

internal development costs and external development charges, which is charged to statement of

profit and loss based on the percentage of land/ plotted area in respect of which revenue is

recognised as per accounting policy no- g (ii) above to the saleable total land/ plotted area of the

scheme, in consonance with the concept of matching cost and revenue.

Final adjustment is made upon completion of the specific project.

iii. Cost of development rights is measured at the rate at which the same have been purchased from

the Land Owning Companies (LOCs) as per the agreement.

j. Borrowing costs


Borrowing costs that are attributable to the acquisition and/or construction of qualifying assets are

capitalised as part of the cost of such assets, in accordance with notified Accounting Standard 16

“Borrowing Costs”. A qualifying asset is one that necessarily takes a substantial period of time to get

ready for its intended use. Capitalisation of borrowing costs is suspended i n the period during which

the active development is delayed due to, other than temporary interruption. All other borrowing

costs are charged to the statement of profit and loss as incurred.

k. Taxation

Tax expense for the year comprises current income tax and deferred tax . Current income tax is

determined in respect of taxable income with deferred tax being determined as the tax effect of

timing differences representing the difference between taxable income and accounting income that

originate in one period, and are capable of reversal in one or more subsequent period(s).

Such deferred tax is quantified using rates and laws enacted or substantively enacted as at the end

of the financial year.

l. Foreign currency transactions

Transactions in foreign currency are accounted for at the exchange rate prevailing on the date of the

transaction. All monetary items denominated in foreign currency are converted into Indian rupees at

the year-end exchange rate. Income and expenditure of the overseas liaison office is translated at

the yearly average rate of exchange.

The exchange differences arising on such conversion and on settlement of the transactions are

recognised in the statement of profit and loss.

In terms of the clarification provided by Ministry of Corporate Affairs (“MCA”) vide a notification no.

G.S.R.913(E) on Accounting Standard – 11 “Changes in Foreign Exchange Rates”, the exchange

gain/loss on long-term foreign currency monetary items is adjusted in the cost of depreciable capital

assets. The other exchange gains/ losses have been recognised in the statement of profit and loss.

m. Employee benefits

Expenses and liabilities in respect of employee benefits are recorded in accordance with the notified

Accounting Standard 15 - Employee Benefits.

i. Provident fund

The Company makes contribution to statutory provident fund in accordance with the Employees’

Provident Funds and Miscellaneous Provisions Act, 1952. In terms of the Guidance on implementing

the revised AS – 15, issued by the Accounting Standards Board of the ICAI, the provident fund trust

set up by the Company is treated as a defined benefit plan since the Company has to meet the

interest shortfall, if any. Accordingly, the contribution paid or payable and the inte rest shortfall, if

any is recognised as an expense in the period in which services are rendered by the employee.

ii. Gratuity

Gratuity is a post-employment benefit and is in the nature of a defined benefit plan.


The liability recognised in the balance sheet in respect of gratuity is the present value of the defined

benefit/obligation at the balance sheet date, together with adjustments for unrecognised actuarial

gains or losses and past service costs. The defined benefit/obligation is calculated at or ne ar the

balance sheet date by an independent actuary using the projected unit credit method.

Actuarial gains and losses arising from past experience and changes in actuarial assumptions are

credited or charged to the statement of profit and loss in the year in which such gains or losses are

determined.

iii. Compensated absences

Liability in respect of compensated absences becoming due or expected to be availed within one

year from the balance sheet date is recognised on the basis of undiscounted value of estimated

amount required to be paid or estimated value of benefit expected to be availed by the employees.

Liability in respect of compensated absences becoming due or expected to be availed more than one

year after the balance sheet date is estimated on the basis of an actuarial valuation performed by an

independent actuary using the projected unit credit method.



determined.

iv. Employee Shadow Option Scheme

(Cash Settled Options)

Accounting value of Cash Settled Options granted to employees under the “Employees Shadow

Option Scheme” is determined on the basis of intrinsic value representing the excess of the average

market price, during the month before the reporting date, over the exercise price of the shadow

option. The same is charged as employee benefits over the vesting period, in accordance with

Guidance Note No. 18 “Share Based Payments”, issued by the ICAI.

v. Other short-term benefits

Expense in respect of other short-term benefits is recognised on the basis of the amount paid or

payable for the period during which services are rendered by the empl oyee.

Contribution made towards Superannuation Fund [funded by payments to Life Insurance

Corporation of India (LIC)] is charged to the statement of profi t and loss on accrual basis.

n. Leases

Assets subject to operating leases are included under fixed assets or current assets as appropriate.

Rent (Lease) income is recognised in the statement of profit and loss on a straight-line basis over the

lease term. Costs, including depreciation, are recognised as an expense in the statement of profit

and loss.


o. Employees Stock Option Plan (ESOP)

Accounting value of stock options is determined on the basis of “intrinsic value” representing the

excess of the market price on the date of grant over the exercise price of the options granted under

the “Employees Stock Option Scheme” of the Company, and is being amortised as “Deferred

employee compensation” on a straight-line basis over the vesting period in accordance with the SEBI

(Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and

Guidance Note No. 18 “Share Based Payments” issued by the ICAI.

p. Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset may

be impaired. If any such indication exists, the Company estimates the recoverable amount of the

asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit

to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its

recoverable amount and the reduction is treated as an impairment loss and is recognised in the

statement of profit and loss. If at the balance sheet date there is an indication that a previously

assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is

reflected at the recoverable amount subject to a maximum of depreciated historical cost and is

accordingly reversed in the statement of profit and loss.

q. Contingent liabilities and provisions

Depending upon the facts of each case and after due evaluation of legal aspects, claims against the

Company are accounted for as either provisions or disclosed as contingent liabilities. In respect of

statutory dues disputed and contested by the Company, contingent liabilities are provided for and

disclosed as per original demand without taking into account any interest or penalty that may accrue

thereafter.

The Company makes a provision when there is a present obligation as a result of a past event where

the outflow of economic resources is probable and a reliable estimate of the amount of obligation

can be made. Possible future or present obligations that may but will probably not require outflow

of resources or where the same cannot be reliably estimated, is disclosed as contingent liability in

the Financial Statements.

r. Earnings per share

Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to

equity shareholders by the weighted average number of equity shares outstanding during the

period. The weighted average numbers of equity shares outstanding during the period are adjusted

for events including a bonus issue, bonus element in a rights issue to existing shareholders, share

split, and reverse share split (consolidation of shares).

For the purpose of calculating diluted earnings per share, the net profit or loss for the period

attributable to equity shareholders and the weighted average number of shares outstanding during

the period are adjusted for the effects of all dilutive potential equity shares. The period during

which, number of dilutive potential equity shares change frequently, weighted average number of


shares are computed based on a mean date in the quarter, as impact is immaterial on earnings per

share.


SIGNIFICANT ACCOUNTING POLICIES IN RELATION TO CONSOLIDATED FINANCIAL STATEMENTS OF

DLF

a. Nature of operations

DLF Limited (‘DLF’ or the ‘Company’), a public limited Company, together with its subsidiaries, joint

ventures and associates (collectively referred to as the ‘Group’) is engaged primarily in the business

of colonisation and real estate development. The operations of the Group span all aspects of real

estate development, from the identification and acquisition of land, to planning, execution,

construction and marketing of projects. The Group is also engaged in the business of generation of

power, provision of maintenance services, hospitality and recreational activities, life insurance and

retail chain outlets.

b. Basis of accounting

The Consolidated Financial Statements are prepared under historical cost convention on an accrual

basis, in accordance with the generally accepted accounting principles in India and to comply with

the Accounting Standards prescribed in the Companies (Accounting Standards) Rules, 2006 issued by

the Central Government in exercise of the power conferred under sub-section (1) (a) of Section 642

of the Companies Act, 1956 (the ‘Act’), other pronouncements of The Institute of Chartered

Accountants of India (ICAI) and guidelines issued by The Securities and Exchange Board of India, to

the extent applicable.

c. Principles of consolidation

The Consolidated Financial Statements include the financial statements of DLF Limited, its

subsidiaries, joint ventures, partnership firms and associates. The Consolidated Financial Statements

of the Group have been prepared in accordance with Account ing Standard (AS) 21 ‘Consolidated

Financial Statements’, AS 23 ‘Accounting for Investments in Associates in Consolidated Financial

Statements’ and AS 27 ‘Financial Reporting of Interests in Joint Ventures’, (as applicable), notified

pursuant to the Companies (Accounting Standards) Rules, 2006. The Consolidated Financial

Statements are prepared on the following basis:

i. The Consolidated Financial Statements include consolidated balance sheet, consolidated

statement of profit and loss, consolidated statement of cash flows and notes to the Consolidated

Financial Statements and explanatory statements that form an integral part thereof. The

Consolidated Financial Statements are presented, to the extent possible, in the same format as that

adopted by the parent for standalone financial statements.

ii. The Consolidated Financial Statements include the financial statements of the Company and all its

subsidiaries, which are more than 50 per cent owned or controlled and partnership firms where the

Company’s share in the profit sharing ratio is more than 50 per cent during the year. Investments in

entities that were not more than 50 per cent owned or controlled and partnership firms where the

profit sharing ratio was not more than 50 per cent during the year have bee n accounted for in

accordance with the provisions of Accounting Standard 13 ‘Accounting for Investments’, or

Accounting Standard 23 ‘Accounting for Investments in Associates in Consolidated Financial

Statements’, or Accounting Standard 27 ‘Financial Reporting of Interests in Joint Ventures’ (as

applicable) notified pursuant to the Companies (Accounting Standards) Rules, 2006.


iii. The Consolidated Financial Statements have been combined on a line-by-line basis by adding the

book values of like items of assets, liabilities, income and expenses after eliminating intra-group

balances / transactions and resulting elimination of unrealised profits in full. The amounts shown in

respect of reserves comprise the amount of the relevant reserves as per the balance sheet of the

parent company and its share in the post-acquisition increase in the relevant reserves of the entity

to be consolidated. Financial interest in joint ventures has been accounted for under the

proportionate consolidation method.

iv. Investments in associates are accounted for using the equity method. The excess of cost of

investment over the proportionate share in equity of the associate as at the date of acquisition of

stake is identified as goodwill and included in the carrying value of the inve stment in the associate.

The carrying amount of the investment is adjusted thereafter for the post acquisition change in the

share of net assets of the associate. However, the share of losses is accounted for only to the extent

of the cost of investment. Subsequent profits of such associates are not accounted for unless the

accumulated losses (not accounted for by the Group) are recouped. Where the associate prepares

and presents Consolidated Financial Statements, such Consolidated Financial Statements of the

associate are used for the purpose of equity accounting. In other cases, standalone financial

statements of associates are used for the purpose of consolidation.

v. Minority interest represents the amount of equity attributable to minority shareholders/ partners

at the date on which investment in a subsidiary/ partnership firm is made and its share of

movements in equity since that date.

Any excess consideration received from minority shareholders of subsidiaries/ minority partners of

partnership firms over the amount of equity attributable to the minority on the date of investment is

reflected under Reserves and Surplus.

vi Notes to the Consolidated Financial Statements, represents notes involving items which are

considered material and are accordingly duly disclosed.

Materiality for the purpose is assessed in relation to the information contained in the Consolidated

Financial Statements.

Further, additional statutory information disclosed in separate financial statements of the subsidiary

and/or a parent having no bearing on the true and fair view of the Consolidated Financial

Statements has not been disclosed in the Consolidated Financial Statements.

d. Use of estimates

The preparation of Consolidated Financial Statements in conformity with generally accepted

accounting principles requires management to make estimates and assumptions that affect the

reported amounts of assets and liabilities and disclosure of contingent liabilities on the date of the

Consolidated Financial Statements and the results of operations for the reporting periods.

Although these estimates are based upon management’s knowledge of current events and actions,

actual results could differ from those estimates and revisions, if any, are recognised in the current

and future periods.


e. Tangible assets, capital work-in-progress and depreciation/amortisation

i) Fixed assets (gross block) are stated at historical cost less accumulated depreciation and

impairment, if any. Cost comprises the purchase price and any attributable cost of bringing the asset

to its working condition for its intended use.

Building / specific identifiable portions of building, including related equipments are capitalised

when the construction is substantially complete or upon receipt of the occupancy certi ficate,

whichever is earlier.

ii) In respect of certain overseas hotel properties that have commenced commercial operations, are

stated in the balance sheet at their revalued amounts, less any subsequent accumulated

depreciation and subsequent accumulated impairment losses. Revaluations are performed with

sufficient regularity such that the carrying amount does not differ materially from that which would

be determined using fair values at the balance sheet date. Any revaluation increase arising on the

revaluation of such hotel properties is credited to the revaluation reserve.

iii) Capital work-in-progress (including intangible assets under development) represents expenditure

incurred in respect of capital projects/intangible assets under development and i s carried at cost.

Cost includes land, related acquisition expenses, development / construction costs, borrowing costs

capitalised and other direct expenditure.

iv) Depreciation on fixed assets (including buildings and related equipment rented out and included

under current assets as inventories) is provided on a straight line method, at the rates and in the

manner prescribed in Schedule XIV to the Companies Act, 1956, or based on the estimated useful

lives of assets, whichever is higher, as applicable.

The useful lives as estimated by the management is as follows:

Description Estimated useful life (years)

Leasehold land Over the effective term of the lease

Buildings 25-62

Plant and machinery 4-20

Computers and software 2-6

Furniture and fixtures 10-15

Office equipment 8

Vehicles 2-10

Depreciation in respect of assets relating to the power generating division of one of the subsidiary

companies is provided on the straight line method in terms of the Electricity (Supply) Act, 1948 on

the basis of Central Government Notification No. S.O 266 (E) dated March 29, 1994, from the year


immediately following the year of commissioning of the assets in accordance with the clarification

issued by the Central Electricity Authority as per the accounting policy specified under the Electricity

(Supply) Annual Accounts Rules, 1985.

Depreciation on revalued properties of certain overseas hotel properties is charged to statement of

profit and loss. On subsequent sale or retirement of a revalued property, the attributable

revaluation surplus remaining in the revaluation reserve is transferred directly to reserves and

surplus.

v) Leasehold land under perpetual lease are not being amortised. The leasehold land, other than

perpetual lease, are being amortised on a time proportion basis over their respective lease periods.

f. Intangibles

i. Computer Software

Softwares which are not integral part of the hardware are classified as intangibles and are stated at

cost less accumulated amortisation.

Softwares are being amortised over the estimated useful life of three to five years, as applicable.

ii. Usage rights

The Company has acquired exclusive usage rights for 30 years under the build, own, operate and

transfer scheme of the public private partnership (‘PPP’) scheme in respect of properties developed

as automated multilevel car parking and commercial space and classified them under the “Intangible

Assets – Right on Building and Right on Plant & Machinery”. The Company has arrived at the cost of

such intangible assets in accordance with provisions of relevant Accounting Standards. The cost of

these rights is being amortised over the concession period in the proportion in which the actual

revenue received during the accounting year bears to the Projected Revenue from such Intangibles

till the end of concession period in accordance with the Notification No. G.S.R. 298 (E) dated A pril

17, 2012 as notified in Ministry of Corporate Affairs (“MCA”) on the Intangible Assets of Schedule XIV

of the Companies Act 1956.

iii. Goodwill

The difference between the cost of investment to the Group in Subsidiaries and Joint Ventures and

the proportionate share in the equity of the investee company as at the date of acquisition of stake

is recognised in the Consolidated Financial Statements as Goodwill or Capital Reserve, as the case

may be.

g. Investments

Investments are classified as non-current or current, based on management’s intention at the time

of purchase. Investments that are readily realisable and intended to be held for not more than a

year are classified as current investments. All other investments are classified as non-current

investments.

Trade investments are the investments made for or to enhance the Company’s business interests.


Current investments are stated at lower of cost and fair value determined on an individual

investment basis. Non-current investments are stated at cost and provision for diminution in their

value, other than temporary, is made in the financial statements.

Profit/loss on sale of investments is computed with reference to the average cost of the investment.

In respect of Life Insurance business, investments are made in accordance with the Insurance Act,

1938 and Insurance Regulatory & Development Authority (Investment) Regulations, 2000. These

Investments are recorded at cost on date of purchase including brokerage and statutory levies.

h. Inventories

Inventories are valued as under:

i) Land and plots other than area transferred to constructed properties at the commencement of

construction are valued at lower of cost / approximate average cost / as re -valued on conversion to

stock and net realisable value. Cost includes land (including development rights) acquisition cost,

borrowing cost, estimated internal development costs and external development charges.

ii) Constructed properties other than Special Economic Zone (SEZ) projects includes the cost of land

(including development rights and land under agreements to purchase), internal development costs,

external development charges, construction costs, overheads, borrowing cost, development /

construction materials, and is valued at lower of cost / estimated cost and net realisable value.

iii) In case of SEZ projects, constructed properties include internal development costs, external

development charges, construction costs, overheads, borrowing cost, development / construction

materials, and is valued at lower of cost/ estimated cost, and net realisable value.

iv) Development rights represent amount paid under agreement to purchase land/ development

rights and borrowing cost incurred by the Company to acquire irrevocable and exclusive licenses/

development rights in identified land and constructed properties, the acquisition of which is at an

advanced stage.

v) Cost of construction / development material is valued at lower of cost or net realisable value.

vi) Rented buildings and related equipments are valued at cost less accumulated depreciation.

vii) In respect of the power generating division of one of the subsidiary companies, materials &

components and stores & spares are valued at lower of cost or net realisable value. The cost is

determined on the basis of moving weighted average.

Loose tools are valued at depreciated value. Depreciation has been provided on a straight line

method at the rate of ten per cent per annum.

viii) Stocks for maintenance and recreational facilities (including stores and spares) are valued at

cost or net realisable value, whichever is lower. Cost of inventories is ascertained on a weighted

average basis.


ix) Inventories at retail chain outlets are valued at lower of cost, computed on a moving weighted

average basis and estimated net realisable value after providing for cost of obsolescence and other

anticipated losses wherever considered necessary.

x) Stock of food and beverages is valued at cost or net realisable value, whichever is lower. Cost

comprises of cost of material including freight and other related incidental expenses and is arrived at

on first in first out basis. Slow moving inventory is determined on management estimates.

i. Revenue recognition

i) Revenue from constructed properties

a) Revenue from constructed properties, other than SEZ projects, is recognised on the percentage of

completion method.

Total sale consideration as per the duly executed agreement to sell / application (containing salient

terms of agreement to sell), is recognised as revenue based on the percentage of actual project costs

incurred thereon to total estimated project cost, subject to such actual cost incurred being 30 per

cent or more of the total estimated project cost. Project cost includes cost of land, cost of

development rights, estimated construction and development cost, borrowing cost of such

properties. The estimates of the saleable area and costs are reviewed periodically and effect of any

change in such estimates is recognised in the period such changes are determined. However, when

the total project cost is estimated to exceed total revenues from the project, the loss is recognised

immediately.

b) For SEZ projects, revenue from development charges is recognised on the percentage of

completion method in accordance with the terms of the Co-developer Agreements / Memorandum

of Understanding (‘MOU’), read with addendum, if any. The total development charges are

recognised as Revenue on the percentage of actual project cost incurred thereon to total estimated

project cost, subject to such actual cost incurred being 30% or more of the total estimated project

cost. The estimated project cost includes construction cost, development and construction material,

internal development cost, external development charges, borrowing cost and overheads of such

project. Revenue from lease of land pertaining to such projects is recognised in accordance with the

terms of the Co-developer Agreements / MOU on accrual basis.

ii) Sale of land and plots

Sale of land and plots (including development rights) is recognised in the financial year in which the

agreement to sell / application containing salient terms of agreement to sell is executed. Where the

Company has any remaining substantial obligations as per agreements, revenue is recognised on

‘percentage of completion method’ as per (i)(a) above.

iii) Construction contracts

a) Revenue from cost plus contracts is recognised with respect to the recoverable costs incurred

during the period plus the margin in accordance with the terms of the agreement.


b) Revenue from fixed price contract is recognised under percentage of completion method.

Percentage of completion method is determined as a proportion of cost incurred up to the reporting

date to the total estimated contract cost.

iv) Rental income

Rental income is recognised in the statement of profit and loss on accrual basis in accordance with

the terms of the respective lease agreements.

v) Power supply

a) Revenue from power supply together with claims made on customers is recognised in terms of

power purchase agreements entered into with the respective purchasers.

b) Revenue from energy system development contracts is recognised on percentage of completion

method and accounted for inclusive of excise duty recovered, where applicable. Accordingly,

revenue is recognised when cost incurred (including appropriate portion of allocable overheads) on

the contract is estimated at 30 per cent or more, of the total cost to be incurred (including all

foreseeable losses and an appropriate portion of allocable overheads) for the completion of

contract, wherever applicable.

c) Revenue from wind power generation projects is recognised on the basis of actual pow er sold (net

of reactive energy consumed), as per the terms of the relevant power purchase agreements

with the purchasers.

d). Sale of Certified Emission Reductions (CERs) and Voluntary Emission Reductions (VERs) is

recognised as income on the delivery of the CERs / VERs to the customer’s account and receipt of

payment.

vi) Hospitality services and recreational facility income

a) Subscription and non-refundable membership fee is recognised on proportionate basis over the

period of the subscription / membership.

b) Revenue from food and beverage is recorded net of sales tax / value added tax and discounts.

c) Sales of merchandise are stated net of goods sold on consignment basis as

d) Revenue from hotel operations and related services is recognised net of discounts and sales

related taxes in the period in which the services are rendered.

e) Income from golf operations, course capitation, sponsorship etc. is fixed and recognised as per the

agreement with the parties, as and when services are rendered.

f) Sale of cinema tickets is stated net of discounts.

vii) Life insurance


a) Premium is recognised as income when due. Unallocated premium on lapsed policies is not

recognised as income unless reinstated.

b) For linked business, premium income is recognised when the associated units are allocated. Top -

up premium (i.e. premium paid in excess of annual target premium as per policy contract) are

recognised as single premium. Fees on linked policies including fund charges etc. are recovered from

the linked fund and recognised in accordance with terms and conditions of the policies.

c) Premium ceded is accounted at the time of recognition of premium income in accordance with

treaty or in principle agreement with the reinsurers.

viii) Retail chain outlets

Income from sales is recognised when significant risks and rewards in respect of ownership of the

goods are transferred to the customers and is stated net of trade discounts, value added taxes and

estimated sales return, wherever applicable.

ix) Others

a) Revenue from design and consultancy services is recognised on percentage of completion method

to the extent it is probable that the economic benefits will flow to the group and the revenue can be

reliably measured.

b) Revenue in respect of maintenance services is recognised on an accrual basis, in accordance with

the terms of the respective contract.

c) Dividend income is recorded when the right to receive the dividend is established by the reporting

date.

d) Service receipts and interest from customers under agreements to sell is accounted for on an

accrual basis except in cases where ultimate collection is considered doubtful.

e) Interest income is accounted for on time proportion basis taking into account the amount

outstanding and the applicable rate of interest.

f) Share of profit / loss from firms in which the Company is a partner is accounted for in the financial

year ending on (or immediately before) the date of the balance sheet.

j. Unbilled receivables

Unbilled receivables disclosed under Note 19 – ‘Other Current Assets’ represents revenue

recognised based on percentage of completion method (as per Para No. (i)(i) and (i)(ii) above), over

and above the amount due as per the payment plans agreed with the customers.

k. Cost of revenues

i) Cost of constructed properties other than SEZ projects, includes cost of land (including cost of

development rights/ land under agreements to purchase), estimated internal development costs,

external development charges, cost of development rights, construction and development cost,

borrowing cost, construction materials, which is charged to the statement of profit and loss based


on the percentage of revenue recognised as per accounting policy (i)(i) above, in consonance with

the concept of matching costs and revenue.

Final adjustment is made on completion of the applicable project.

For SEZ projects, cost of constructed properties includes estimated internal development costs,

external development charges, construction and development cost, borrowing cost, construction

materials, which is charged to the statement of profit and loss based on the percentage of revenue

recognised as per accounting policy (i)(i) above, in consonance with the concept of matching costs

and revenue. Final adjustment is made on completion of the applicable project.

ii) Cost of land and plots includes land (including development rights), acquisition cost, estimated

internal development costs and external development charges, borrowing cost which is charged to

the statement of profit and loss based on the percentage of land/ plotted area in respect of which

revenue is recognised as per accounting policy (i)(ii) above to the saleable total land/ plotted area of

the scheme, in consonance with the concept of matching cost and revenue. Final adjustment is

made on completion of the specific project.

l. Borrowing costs

Borrowing costs that are attributable to the acquisition and/or construction of qualifying assets are

capitalised as part of the cost of such assets, in accordance with Accounting Standard 16 “Borrowing

Costs”. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its

intended use. Capitalisation of borrowing costs is suspended in the period during which the active

development is delayed due to, other than temporary, interruption. All other borrowing costs are

charged to the statement of profit and loss as incurred.

m. Taxation

Tax expense comprises current income tax and deferred tax and is determined and computed at the

standalone entity level.

Current income tax is measured at the amount expected to be paid to the tax authorities in

accordance with the Indian Income Tax Act and in the overseas branches / companies as per the

respective tax laws. Deferred income tax reflects the impact of current year timing differences

between taxable income and accounting income for the year and reversal of timing differences of

earlier years. Deferred tax is measured based on the tax rates and tax laws enacted or substantively

enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities across various

countries of operation are not set off against each other as the Company does not have a legal right

to do so. Deferred tax assets are recognised only to the extent that there is reasonable certainty that

sufficient future taxable income will be available against which such deferred tax assets can be

realised. In situations, where the Group entity has unabsorbed depreciation or carry forward tax

losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing

evidence that they can be realised against future taxable profits.

At each balance sheet date, the Group reassesses unrecognised deferred tax assets. It recognises

unrecognised deferred tax assets to the extent that it has become reasonably certain, as the case


may be, that sufficient future taxable income will be available against which such deferred tax assets

can be realised.

n. Lease transactions

a) Where a Group entity is the lessee Finance leases, which effectively transfer to the lessee

substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at

the lower of the fair value and present value of the minimum lease payments at the inception of the

lease term and disclosed as leased assets. Lease payments are apportioned between the finance

charges and reduction of the lease liability based on the implicit rate of return. Finance charges are

charged directly against income. Lease management fees, legal charges and other initial direct costs

are capitalised.

If there is no reasonable certainty that the Group entity will obtain the ownership by the end of

lease term, capitalised leased assets are depreciated over the shorter of the estimated useful life of

the asset or the lease term.

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of

the leased item, are classified as operating leases.

Operating lease payments are recognised as an expense in the statement of profit and loss on

straight line basis over the lease term.

b) Where a Group entity is the lessor Leases which effectively transfer to the lessee substantially all

the risks and benefits incidental to ownership of the leased item are classified and accounted for as

finance lease.

Assets subject to operating leases are included in fixed assets/current assets/ investment properties.

Lease income is recognised in the statement of profit and loss on a straight line basis over the lease

term. Costs, including depreciation are recognised as an expense in the statement of profit and loss.

Initial direct costs such as legal costs, brokerage costs etc are recognised immediately in the

statement of profit and loss.

o. Foreign currency transactions

a) Relating to Overseas entities

Indian Rupee (Re.) is the reporting currency for the Group. However, reporting currencies of certain

non-integral overseas subsidiaries are different from the reporting currency of the Group.

The translation of local currencies into Indian Rupee is performed for assets and liabilities (excluding

share capital, opening reserves and surplus), using the exchange rate as at the balance sheet date.

Revenues, costs and expenses are translated using weighted average exchange rate during the

reporting period.

Share capital, opening reserves and surplus are carried at historical cost. The resultant currency

translation exchange gain / loss is carried as foreign currency translation reserve under reserves and


surplus. Investments in foreign entities are recorded at the exchange rate prevailing on the date of

making the investment.

Income and expenditure items of integral foreign operations are translated at the monthly average

exchange rate of their respective foreign currencies. Monetary items at the balance sheet date are

translated using the rates prevailing on the balance sheet date. Non-monetary assets are recorded

at the rates prevailing on the date of the transaction.

b) Relating to Indian entities

Transactions in foreign currency are accounted for at the exchange rate prevailing on the date of the

transaction.

All monetary items denominated in foreign currency are converted into Indian Rupees at the year-

end exchange rate. Income and expenditure of the overseas liaison office is translated at the yearly

average rate of exchange.

The exchange differences arising on such conversion and on settlement of the transactions are


In terms of the clarification provided by Ministry of Corporate Affairs (“MCA”) vide a Notification no.

G.S.R.225(E) on Accounting Standard–11 “Changes in Foreign Exchange Rates”, the exchange

differences on long term foreign currency monetary items are adjusted in the cost of depreciable

capital assets.

p. Employee benefits

Expenses and liabilities in respect of employee benefits are recorded in accordance with the notified

Accounting Standard 15-Employee Benefits.

i) Provident fund

Certain entities of the group make contribution to statutory provident fund trust setup i n

accordance with the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. In terms

of the Guidance on implementing the revised AS–15, issued by the Accounting Standard Board of the

ICAI, the provident fund trust set up by the Company is treated as a defined benefit plan since the

Company has to meet the interest shortfall, if any. Accordingly, the contribution paid or payable and

the interest shortfall, if any, is recognised as an expense in the period in which services are rendered

by the employee.

Certain other entities of the Group make contribution to the statutory provident fund in accordance

with the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 which is a defined

contribution plan and contribution paid or payable is recognised as an expense in the period in

which the services are rendered.

ii) Gratuity

Gratuity is a post employment benefit and is in the nature of a defined benefit plan.


The liability recognised in the balance sheet in respect of gratuity is the present value of the defined

benefit / obligation at the balance sheet date less the fair value of plan assets, together with

adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit /

obligation are calculated at or near the balance sheet date by an independent actuary using the

projected unit credit method.



determined. For certain consolidated entities, contributions made to an approved gratuity fund

(funded by contributions to LIC under its group gratuity scheme) are charged to revenue on accrual

basis.

iii) Compensated absences

Liability in respect of compensated absences becoming due or expected to be availed within one

year from the balance sheet date is recognised on the basis of undiscounted value of estimated

amount required to be paid or estimated value of benefit expected to be availed by the employees.

Liability in respect of compensated absences becoming due or expected to be availed more than one

year after the balance sheet date is estimated on the basis of an actuarial valuation performed by an

independent actuary using the projected unit credit method.



determined.

iv) Superannuation benefit

Superannuation is in the nature of a defined benefit plan. Certain entities make contributions

towards superannuation fund (funded by payments to Life Insurance Corporation of India under its

Group Superannuation Scheme) which is charged to revenue on accrual basis.

v) Cash settled options

Accounting value of cash settled options granted to employees under the employees shadow /

phantom option scheme is determined on the basis of intrinsic value representing the excess of the

average market price, during the month before the reporting date, over the exercise price of the

shadow option. The same is charged as employee benefits over the vesting period, in accordance

with Guidance Note No. 18 “Share Based Payments”, issued by the ‘ICAI’.

vi) Other short term benefits

Expense in respect of other short term benefits is recognised on the basis of the amount paid or

payable for the period during which services are rendered by the employee.

vii) Overseas entities

Post employment benefits

Defined contribution


Payments to defined contribution retirement benefit plans are charged as an expense as they fall

due. Payments made to state-managed retirement benefit schemes, such as the Singapore Central

Provident Fund, are dealt with as payments to defined contribution plans where the Group’s

obligations under the plans are equivalent to those arising in a defined contribution retirement

benefit plan.

Defined benefit liability

Management estimates the defined benefit liability annually. The actual outcome may vary due to

estimation uncertainties. The estimate of its defined benefit liability is based on standard rates of

inflation, medical cost trends and mortality. It also takes into account the Group’s specific

anticipation of future salary increases. Discount factors are determined close to each year-end by

reference to high quality corporate bonds that are denominated in the currency in which the

benefits will be paid and that have terms to maturity approximating to the terms of the related

pension liability.

Estimation uncertainties exist particularly with regard to medical cost trends, which may vary

significantly in future appraisals of the Group’s defined benefit obligations.

Employee leave entitlement

Employee entitlements to annual leave are recognised when they accrue to employees. A provision

is made for the estimated liability for annual leave as a result of services rendered by employees up

to the balance sheet date.

q. Employee Stock Option Plan (ESOP)

The accounting value of stock options is determined on the basis of ‘intrinsic value’ representing the

excess of the market price on the date of the grant over the exercise price of the shares granted

under the ‘Employees Stock Option Scheme’ of the parent Company, and is amortised as ‘Deferred

employee compensation’ on a straight line basis over the vesting period in accordance with the SEBI

(Employees stock option scheme and Employees stock purchase scheme) Guidelines, 1999 and

Guidance Note 18 ‘Share Based payments’ issued by the “ICAI”.

r. Impairment of assets

Goodwill

Goodwill is tested for impairment on an annual basis. If on testing, any impairment exists, the

carrying amount of Goodwill is reduced to the extent of any impairment loss and such loss is


Other assets

At each balance sheet date, the Group assesses whether there is any indication based on internal /

external factors, that an asset may be impaired. If any such indication exists, the Group estimates

the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable

amount of the cash generating unit to which the asset belongs is less than its carrying amount, the

carrying amount is reduced to its recoverable amount and the reduction is treated as an impairment


loss and is recognised in the statement of profit and loss. If at the balance sheet date there is an

indication that a previously assessed impairment loss no longer exists, the recoverable amount is

reassessed and the asset is reflected at the recoverable amount subject to a maximum of

depreciated historical cost and is accordingly reversed in the statement of profit and loss.

s. Contingent liabilities and provisions

The Group makes a provision when there is a present obligation as a result of a past event where the

outflow of economic resources is probable and a reliable estimate of the amount of obligation can

be made. Possible future obligations or present obligations that may but will probably not require

outflow of resources or where the same cannot be reliably estimated, is disclosed as contingent

liabilities in the consolidated financial statements.

t. Earning per share

Basic earning per share is calculated by dividing the net profit or loss for the period attributable to

equity shareholders (after deducting preference dividends and attributable taxes) by the weighted

average number of equity shares outstanding during the period. The weighted average number of

equity shares outstanding during the period is adjusted for events including a bonus issue, bonus

element in a rights issue to existing shareholders, share split, and reverse share split (consolidation

of shares).

For the purpose of calculating diluted earning per share, the net profit or loss for the period

attributable to equity shareholders and the weighted average number of shares outstanding during

the period are adjusted for the effects of all dilutive potential equity shares.

The period during which, number of dilutive potential equity shares change frequently, weighted

average number of shares are computed based on a mean date in the quarter as impact is

immaterial on earning per share.


SIGNFICANT ACCOUNTING POLICIES OF INFOSYS:

Significant Accounting Policies of Infosys for FY 2011 12:

1. Basis of preparation of financial statements

These financial statements are prepared in accordance with Indian Generally Accepted

Accounting Principles (GAAP) under the historical cost convention on the accrual basis

except for certain financial instruments which are measured at fair values. GAAP comprises

mandatory accounting standards as prescribed by the Companies (Accounting Standards)

Rules, 2006, the provisions of Companies Act, 1956 and guidelines issued by the Securities

and Exchange Board of India (SEBI). Accounting policies have been consistently applied

except where a newly issued accounting standard is initially adopted or a revision to an

existing accounting standard requires a change in the accounting policy hitherto in use.

The financial statements are prepared in accordance with the principles and procedures

required for the preparation and presentation of consolidated financial statements as laid

down under the Accounting Standard (AS) 21 “Consolidated Financial Statements”. The

financial statements of Infosys – the parent company, Infosys BPO, Infosys China, Infosys

Australia, Infosys Mexico, Infosys Consulting India, Infosys Sweden, Infosys Brazil, Infosys

Public Services, Infosys Shangai and controlled trusts have been combined on a line -by-line

basis by adding together book values of like items of assets, liabilities, income and expenses

after eliminating intra-group balances and transactions and resulting unrealised gain/ loss.

The consolidated financial statements are prepared by applying uniform accounting policies

in use at the Group. Minority interests have been excluded. Minority interests represent that

part of the net profit or loss and net assets of subsidiaries that are not directly or indirectly,

owned or controlled by the Company.

2. Use of estimates

The preparation of financial statements in conformity with GAAP requires the Management

to make estimates and assumptions that affect the reported balances of assets and liabilities

and disclosures relating to contingent liabilities as at the date of the financial statements

and reported amounts of income and expenses during the period. Examples of such

estimates include computation of percentage of completion which requires the Group to

estimate the efforts expended to date as a proportion of the total efforts to be expended,

provisions for doubtful debts, future obligations under employee retirement benefit plans,

income taxes, post-sales customer support and the useful lives of fixed assets and intangible

assets.

Accounting estimates could change from period-to-period. Actual results could differ from

those estimates. Appropriate changes in estimates are made as the Management becomes

aware of changes in circumstances surrounding the estimates. Changes in estimates are

reflected in the consolidated financial statements in the period in which changes are made

and, if material, their effects are disclosed in the notes to the consolidated financial

statements.

The management periodically assesses using external and internal sources, whether there is

an indication that an asset may be impaired. An impairment loss is recognised wherever the

carrying value of an asset exceeds its recoverable amount. The recoverable amount is higher

of the asset’s net selling price and value in use, which means the present value of future

cash flows expected to arise from the continuing use of the asset and its eventual disposal.


An impairment loss for an asset, other than goodwill, is reversed if, and only if, the reversal

can be related objectively to an event occurring after the impairment loss was recognised.

The carrying amount of an asset other than goodwill is increased to its revised recoverable

amount, provided that this amount does not exceed the carrying amount that would have

been determined (net of any accumulated amortisation or depreciation ) had no impairment

loss been recognised for the asset in prior years.

3. Revenue recognition

Revenue is primarily derived from software development and related services and from the

licensing of software products. Arrangements with customers for software development and

related services are either on a fixed-price, fixed-timeframe or on a time-and-material basis.

Revenue on time-and-material contracts are recognised as the related services are

performed and revenue from the end of the last billing to the Balance Sheet date is

recognised based upon the percentage-of-completion method. When there is uncertainty as

to measurement or ultimate collectability revenue recognition is postponed until such

uncertainty is resolved. Cost and earnings in excess of billings are classified as unbilled

revenue while billings in excess of cost and earnings is classified as unearned revenue.

Provision for estimated losses, if any, on uncompleted contracts are recorded in the period

in which such losses become probable based on the current estimates.

Annual technical services revenue and revenue from fixed-price maintenance contracts are

recognised rateably over the period in which services are rendered. Revenue from the sale

of user licenses for software applications is recognised on transfer of the title in the user

license, except in case of multiple element contracts, which require significant

implementation services, where revenue for the entire arrangement is recognised over the

implementation period based upon the percentage-of-completion method. Revenue from

client training, support and other services arising due to the sale of software products is

recognised as the related services are performed.

The Group accounts for volume discounts and pricing incentives to customers as a reduction

of revenue based on the rateable allocation of the discount/ incentive. Also, when the level

of discount varies with increases in levels of revenue transactions, the Group recognises the

liability based on its estimate of the customer’s future purchases. If it is probable that the

criteria for discount will not be met, or if the amount thereof cannot be estimated reliably,

then discount is not recognised until the payment is probable and the amount can be

estimated reliably. The Group recognises changes in the estimated amount of obligations for

discounts using a cumulative catch-up approach. The discounts are passed on to the

customer either as direct payments or as a reduction of payments due from the customer.

The Group presents revenues net of value-added taxes in its consolidated statement of

profit and loss.

Profit on sale of investments is recorded on transfer of title from the Group and is

determined as the difference between the sale price and carrying value of the investment.

Lease rentals are recognised ratably on a straight-line basis over the lease term. Interest is

recognised using the time-proportion method, based on rates implicit in the transaction.

Dividend income is recognised when the Group’s right to receive dividend is established.


4. Provisions and contingent liabilities

A provision is recognised if, as a result of a past event, the Group has a present legal

obligation that can be estimated reliably, and it is probable that an outflow of economic

benefits will be required to settle the obligation. Provisions are determined by the best

estimate of the outflow of economic benefits required to settle the obligation at the

reporting date. Where no reliable estimate can be made, a disclosure is made as a

contingent liability. A disclosure for a contingent liability is also made when there is a

possible obligation or a present obligation that may, but probably will not, require an

outflow of resources. Where there is possible obligation or a present obligation in respect of

which the likelihood of outflow of resources is remote, no provision or disclosure is made.

5. Post-sales client support and warranties

The group provides its clients with a fixed-period warranty for corrections of errors and

telephone support on all its fixed-price, fixed-timeframe contracts. Costs associated with

such support services are accrued at the time when related revenues are recorded and

included in cost of sales. The group estimates such costs based on historical experience and

the estimates are reviewed annually for any material changes in assumptions.

6. Onerous contracts

Provisions for onerous contracts are recognised when the expected benefits to be derived by

the Group from a contract are lower than the unavoidable costs of meeting the future

obligations under the contract. The provision is measured at lower of the expected cost of

terminating the contract and the expected net cost of fulfilling the contract.

7. Fixed assets, including goodwill, intangible assets and capital work-in-progress

Fixed assets are stated at cost, less accumulated depreciation and impairment, if any. Direct

costs are capitalised until fixed assets are ready for use. Capital work-in-progress comprises

the cost of fixed assets that are not yet ready for their intended use at the re porting date.

Intangible assets are recorded at the consideration paid for acquisition of such assets and

are carried at cost less accumulated amortisation and impairment. Goodwill comprises the

excess of purchase consideration over the fair value of the net assets of the acquired

enterprise. Goodwill arising on consolidation or acquisition is not amortised but is tested for

impairment.

8. Depreciation and amortisation

Depreciation on fixed assets is provided on the straight-line method over the useful lives of

assets estimated by the Management. Depreciation for assets purchased/ sold during a

period is proportionately charged. Individual low cost assets (acquired for Rs. 5,000/- or less)

are depreciated over a period of one year from the date of acquisition. Intangible assets are

amortised over their respective individual estimated useful lives on a straight-line basis,

commencing from the date the asset is available to the Group for its use. Leasehold

improvements are written off over the lower of the remaining primary period of lease or the

life of the asset.

The management estimates the useful lives for the other fixed assets as follows:

Buildings 15 years


Plant and machinery 5 years

Office equipment 5 years

Computer equipment 2-5 years

Furniture and fixtures 5 years

Vehicles 5 years

Depreciation methods, useful lives and residual values are reviewed at each reporting date.

9. Retirement benefits to employees

Gratuity

In accordance with the Payment of Gratuity Act, 1972, Infosys provides for gratuity, a

defined benefit retirement plan (‘the Gratuity Plan’) covering eligible employees of the

Company and Infosys BPO. The Gratuity Plan provides a lump-sum payment to vested

employees at retirement, death, incapacitation or termination of employment, of an amount

based on the respective employee’s salary and the tenure of employment with the Group.

Liabilities with regard to the Gratuity Plan are determined by the actuarial valuation at each

Balance Sheet date using the projected unit credit method. The Company fully contributes

all ascertained liabilities to the Infosys Limited Employees’ Gratuity Fund Trust (‘the Trust’).

In case of Infosys BPO, contributions are made to the Infosys BPO’s Employees’ Gratuity

Fund Trust. Trustees administer contributions made to the Trust and contributions are

invested in a scheme with Life Insurance Corporation as permitted by the law. The Group

recognises the net obligation of the Gratuity Plan in the consolidated Balance Sheet as an

asset or liability, respectively in accordance with Accounting Standard (AS) 15 “Employee

Benefits”. The Groups overall expected long-term rate-of-return on assets has been

determined based on consideration of available market information, current provisions of

Indian law specifying the instruments in which investments can be made, and historical

returns. The discount rate is based on the Government securities yield. Actuarial gains and

losses arising from experience adjustments and changes in actuarial assumptions are

recognised in the Consolidated Statement of Profit and Loss in the period in which they

arise.

Superannuation

Certain employees of Infosys are also participants in a defined contribution plan. The

company has no further obligations to the Plan beyond its monthly contributions. Certai n

employees of Infosys BPO are also eligible for superannuation benefit. Infosys BPO has no

further obligations to the superannuation plan beyond its monthly contribution which are

periodically contributed to a trust fund, the corpus of which is invested with the Life

Insurance Corporation of India.

Certain employees of Infosys Australia are also eligible for the superannuation benefit.

Infosys Australia has no further obligations to the superannuation plan beyond its monthly

contribution.

Provident fund

Eligible employees receive benefits from a provident fund, which is a defined benefit plan.

Both the employee and the Company make monthly contributions to the provident fund

plan equal to a specified percentage of the covered employee’s salary. The company

contributes a part of the contributions to the Infosys Limited Employees; Provident Fund

Trust. The trust invests in specific designated instruments as permitted by Indian law. The


remaining portion is contributed to the government administered pension fund. The rate at

which the annual interest is payable to the beneficiaries by the trust is being administered

by the government. The Company has an obligation to make good the shortfall, if any,

between the return from the investments of the trust and the notified interest rate.

In respect of Infosys BPO, eligible employees receive benefits from a provident fund, which

is a defined contribution plan. Both the employee and Infosys BPO make monthly

contributions to this provident fund plan equal to a specified percentage of the covered

employee’s salary. Amounts collected under the provident fund plan are deposited in a

government administered provident fund. Infosys BPO has no further obligations under the

provident fund plan beyond its monthly contributions.

Compensated absences

The employees of the Group are entitled to compensated absences which are both

accumulating and non-accumulating in nature. The expected cost of accumulating

compensated absences is determined by actuarial valuation based on the additional amount

expected to be paid as a result of the unused entitlement that has accumulated at the

Balance Sheet date. Expense on non-accumulating compensated absences is recognised in

the period in which the absences occur.

10. Research and development

Research costs are expensed as incurred. Software product development costs are expensed

as incurred unless technical and commercial feasibility of the project is demonstrated, future

economic benefits are probable, the Company has an intention and ability to complete and

use or sell the software and the costs can be measured reliably.

11. Foreign currency transactions

Foreign currency denominated monetary assets and liabilities are translated into the

relevant functional currency at exchange rates in effect at the Balance Sheet date. The gains

or losses resulting from such translations aare included in the Statement of Profit and Loss.

Non-monetary assets and non-monetary liabilities denominated in a foreign currency and

measured at fair value are translated at the exchange rate prevalent at the date when the

fair value was determined. Non-monetary assets and non-monetary liabilities denominated

in a foreign currency and measured at historical cost are translated at the exchange rate

prevalent at the date of transaction.

Revenue, expense and cash-flow items denominated in foreign currencies are translated into

the relevant functional currencies using the exchange rate in effect on the date of the

transaction. Transaction gains or losses realised upon settlement of foreign currency

transactions are included in determining net profit for the period in which the transaction is

settled.

The functional currency of Infosys, Infosys BPO and Infosys Consulting India is the Indian

rupee. The functional currencies for Infosys Australia, Infosys China, Infosys Mexico, Infosys

Swedn, Infosys Brasil, Infosys Public Services and Infosys Shanghai are their respective local

currencies. The translation of financial statements of the foreign subsidiaries from the local

currency to the functional currency of the Company is performed for Balance Sheet accounts

using the exchange rate in effect at the Balance Sheet date and for revenue, expense and

cash-flow items using a monthly average exchange rate for the respective periods and the


resulting difference is presented as a foreign currency translation reserve included in

‘Reserves and Surplus’. When a subsidiary is disposed off, in part or in full, the relevant

amount is transferred to Profit or loss.

12. Forward and options contracts in foreign currencies

The group uses foreign exchange forward and options contracts to hedge its exposure to

movements in foreign exchange rates. The use of these foreign exchange forward and

options contracts reduce the risk or cost to the Group and the Group does not use those for

trading or speculation purposes.

Effective April 1, 2008, the Group adopted AS 30, ‘Financial Instruments: Recognition and

Measurement’, to the extent that the adoption did not conflict with existing accounting

standards and other authoritative pronouncements of the Company Law and other

regulatory requirements.

Forward and options contracts are fair valued at each reporting date. The resultant gain or

loss from these transactions are recognised in the consolidated statement of prof it and loss.

The group records the gain or loss on effective hedges, if any, in the foreign currency

fluctuation reserve until the transactions are complete. On completion, the gain or loss is

transferred to the Consolidated statement of profit and loss of that period. To designate a

forward or options contract as an effective hedge, the management objectively evaluates

and evidences with appropriate supporting documents at the inception of each contract

whether the contract is effective in achieving offsetting cash flows attributable to the

hedged risk. In the absence of a designation as effective hedge, a gain or loss is recognised in

the consolidated statement of profit and loss. Currently hedges undertaken by the group are

all ineffective in nature and the resultant gain or loss consequent to fair valuation is

recognised in the consolidated statement of profit and loss at each reporting date.

13. Income taxes

Income taxes are accrued in the same period that the related revenue and expenses arise. A

provision is made for income tax annually, based on the tax liability computed, after

considering tax allowances and exemptions. Provisions are recorded when it is estimated

that a liability due to disallowances or other matters is probable. Minimum Alternate Tax

(MAT) paid in accordance with the tax laws, which gives rise to future economic benefits in

the form of tax credit against future income tax liability, is recognised as an asset in the

consolidated balance sheet if there is convincing evidence that the group will pay normal tax

after the tax holiday period and the resultant asset can be measured reliably. The group

offsets, on a year on year basis, the current tax assets and liabilities, where it has a legally

enforceable right and where it intends to settle such assets and liabilities on a net basis.

The differences that result between the profit considered for income taxes and the profit as

per the financial statements are identified, and thereafter, a deferred tax asset or deferred

tax liability is recorded for timing differences, namely the differences that originate in one

accounting period and reverse in another, based on the tax effect of the aggregate amount

of timing difference. The tax effect is calculated on the accumulated timing differences at

the end of an accounting period based on enacted or substantively enacted regulations.

Deferred tax assets in a situation where unabsorbed depreciation and carry forward assets

in a situation where unabsorbed depreciation and carry forward business loss exists, are


recognised only if there is virtual certainty supported by convincing evidence that sufficient

future taxable income will be available against which such deferred tax asset can be realised.

Deferred tax assets, other than in situation of unabsorbed depreciation and carry forward

business loss, are recognised only if there is reasonable certainty that they will be realised.

Deferred tax assets are reviewed for the appropriateness of their respective carrying values

at each reporting date. Deferred tax assets and deferred tax liabilities have been offset

wherever the Group has a legally enforceable right to set off current tax assets against

current tax liabilities and where the deferred tax assets and deferred tax liabilities relate to

income taxes levied by the same taxation authority. Tax benefits of deductions earned on

exercise of employee share options in excess of compensation charged to the consolidated

statement of profit and loss are credited to the share premium account.

14. Earnings per share

Basic earnings per share is computed by dividing the net profit after tax by the weighted

average number of equity shares outstanding during the period. Diluted earnings per share

is computed by dividing the net profit after tax by the weighted average number of equity

shares considered for deriving basic earnings per share and also the weighted average

number of equity shares that could have been issued upon conversion of all dilutive

potential equity shares. The diluted potential equity shares are adjusted for the proceeds

receivable had the shares been actually issued at fair value which is the average market

value of the outstanding shares. Dilutive potential equity shares are deemed converted as of

the beginning of the period, unless issued at a later date. Dilutive potential equity shares are

determined independently for each period presented.

The number of shares and potentially dilutive equity shares are adjusted retrospectively for

all periods presented for any share splits and bonus shares issues incl uding for changes

effected prior to the approval of the consolidated financial statements by the Board of

Directors.

15. Investments

Trade investments are the investments made to enhance the group’s business interests.

Investments are either classified as current or long-term based on the management’s

intention at the time of purchase. Current investments are carried at the lower of cost and

fair value of each investment individually. Cost for overseas investments comprises the

Indian rupee value of the consideration paid for the investment translated at the exchange

rate prevalent at the date of investment. Long-term investments are carried at cost less

provisions recorded to recognise any decline, other than temporary, in the carrying value of

each investment.

16. Cash and cash equivalents

Cash and cash equivalents comprise cash and cash on deposit with banks and corporations.

The group considers all highly liquid investments with a remaining maturity at the date of

purchase of three months or less and that are readily convertible to know amounts of cash

to be cash equivalents.


17. Cash flow statement

Cash flows are reported using the indirect method, whereby profit before tax is adjusted for

the effects of transactions of a non-cash nature, any deferrals or accruals of past or future

operating cash receipts or payments and item of income or expenses associated with

investing or financing cash flows. The cash flows from operating, investing and financing

activities of the Group are segregated.

18. Leases

Lease under which the Group assumes substantially all the risks and rewards of ownership

are classified as finance leases. Such assets acquired are capitalised at fair value of the asset

or present value of the minimum lease payments at the inception of the lease, whichever is

lower. Lease payments under operating leases are recognised as an expense on a straight-

line basis in the consolidated statement of profit and loss over the lease term.

19. Government grants

The group recognises government grants only when there is reasonable assurance that the

conditions attached to them shall be complied with, and the grants will be received.

Government grants related to depreciable assets are treated as deferred income and are

recognised in the consolidated statement of profit and loss on a ssystematic and rational

basis over the useful life of the asset. Government grants related to revenue are recognised

on a systematic basis in the consolidated statement of profit and loss over the periods

necessary to match them with the related costs which they are intended to compensate.


SIGNIFICANT ACCOUNTING POLICIES OF TATA MOTORS:

Significant accounting policies of Tata Motors Standalone Company

(a) Basis of preparation

The financial statements are prepared under the historical cost convention on an accrual basis of

accounting in accordance with the generally accepted accounting principles, Accounting Standards

notified under Section 211 (3C) of the Companies Act, 1956 and the relevant provisions thereof.

(b) Use of estimates

The preparation of financial statements requires management to make judgments, estimates and

assumptions, that affect the application of accounting policies and the reported amounts of assets

and liabilities and disclosures of contingent liabilities at the date of these financial statements and

the reported amounts of revenues and expenses for the years presented. Actual results may differ

from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.

Revisions to accounting estimates are recognised in the period in which the estimate is revised and

future periods affected.

(c) Revenue recognition

The Company recognises revenue on the sale of products, net of discounts, when the products are

delivered to the dealer / customer or when delivered to the carrier for export sales, which is when

risks and rewards of ownership pass to the dealer / customer.

Sales include income from services, and exchange fluctuations relating to export receivables. Sales

include export and other recurring and non-recurring incentives from the Government at the

national and state levels. Sale of products is presented gross of excise duty where applicable, and

net of other indirect taxes.

Revenues are recognised when collectibility of the resulting receivables is reasonably assured.

Dividend from investments is recognized when the right to receive the payment is established and

when no significant uncertainty as to measurability or collectabili ty exists.

Interest income is recognized on the time basis determined by the amount outstanding and the rate

applicable and where no significant uncertainty as to measurability or collectability exists.

(d) Depreciation and amortisation

(i) Depreciation is provided on Straight Line Method (SLM), at the rates and in the manner

prescribed in Schedule XIV to the Companies Act, 1956 except in the case of :

. Leasehold land – amortised over the period of the lease

. Technical know-how – at 16.67% (SLM)

. Laptops – at 23.75% (SLM)

. Cars – at 23.75% (SLM)


. Assets acquired prior to April 1, 1975 – on Written Down Value basis at rates specified in Schedule

XIV to the Companies Act, 1956.

Software in excess of Rs.25,000 is amortised over a period of 60 months or on the basis of estimated

useful life whichever is lower.

Assets taken on lease are amortised over the period of lease.

(ii) Product development cost are amortised over a period of 36 months to 120 months or on the

basis of actual production to planned production volume over such period.

(iii) In respect of assets whose useful life has been revised, the unamortised depreciable amount has

been charged over the revised remaining useful life.

(iv) Depreciation is not recorded on capital work-in-progress until construction and installation are

complete and asset is ready for its intended use.

(e) Fixed assets

(i) Fixed assets are stated at cost of acquisition or construction less accumulated depreciation /

amortization.

(i i) The product development cost incurred on new vehicle platform, engines, transmission and new

products are recognised as fixed assets, when feasibility has been established, the Company has

committed technical, financial and other resources to complete the development and it i s probable

that asset will generate probable future benefits.

(iii) Cost includes purchase price, taxes and duties, labour cost and directly attributable costs for self

constructed assets and other direct costs incurred upto the date the asset is ready for its intended

use. Borrowing cost incurred for qualifying assets is capitalised up to the date the asset is ready for

intended use, based on borrowings incurred specifically for financing the asset or the weighted

average rate of all other borrowings, if no specific borrowings have been incurred for the asset. The

cost of acquisition is further adjusted for exchange differences relating to long term foreign currency

borrowings attributable to the acquisition of depreciable asset with effect from April 1, 2007.

(iv) Software not exceeding Rs.25,000 and product development costs relating to minor product

enhancements, facelifts and upgrades are charged off to the Profit and Loss Statement as and when

incurred.

(f ) Impairment

At each Balance Sheet date, the Company assesses whether there is any indication that the fixed

assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the

asset is estimated in order to determine the extent of the impairment, if any. Where it is not

possible to estimate the recoverable amount of individual asset, the Company estimates the

recoverable amount of the cash-generating unit to which the asset belongs.

As per the assessment conducted by the Company at March 31, 2012, there were no indications that

the fixed assets have suffered an impairment loss.


(g) Leases

(i) Finance lease

Assets acquired under finance leases are recognised at the lower of the fair value of the leased

assets at inception and the present value of minimum lease payments. Lease payments are

apportioned between the finance charge and the outstanding liability. The finance charge is

allocated to periods during the lease term at a constant periodic rate of interest on the remaining

balance of the liability. Assets given under finance leases are recognised as receivables at an amount

equal to the net investment in the lease and the finance income is based on a constant rate of return

on the outstanding net investment.

(ii) Operating l ease

Leases other than finance lease, are operating leases, and the leased assets are not recognised on

the Company’s Balance Sheet.

Payments under operating leases are recognised in the Profit and Loss Statement on a straight-line

basis over the term of the lease.

(h) Transactions in foreign currencies and accounting of derivatives

(i) Exchange differences


transaction. Foreign currency monetary assets and liabilities are translated at ye ar end exchange

rates.

(1) Exchange differences arising on settlement of transactions and translation of monetary items

other than those covered by (2) below are recognized as income or expense in the year in which

they arise. Exchange differences considered as borrowing cost are capitalized to the extent these

relate to the acquisition / construction of qualifying assets and the balance amount is recognized in

the Profit and Loss Statement.

(2) Exchange differences relating to long term foreign currency monetary assets / liabilities are

accounted for with effect from April 1, 2007 in the following manner:

-Differences relating to borrowings attributable to the acquisition of the depreciable capital asset

are added to / deducted from the cost of such capital assets.

-Other differences are accumulated in Foreign Currency Monetary Item Translation Difference

Account, to be amortized over the period, beginning April 1, 2007 or date of inception of such item,

as applicable, and ending on March 31, 2011 or the date of its maturity, whichever is earlier.

- Pursuant to notification issued by the Ministry of Corporate Affairs, on December 29, 2011, the

exchange differences on long term foreign currency monetary items (other than those relating to

acquisition of depreciable asset) are amortised over the period till the date of maturity or March 31,

2020, whichever is earlier.


(ii) Hedge accounting

The Company uses foreign currency forward contracts to hedge its risks associated with foreign

currency fluctuations relating to highly probable forecast transactions. With effect from April 1,

2008, the Company designates such forward contracts in a cash flow hedging relationship by

applying the hedge accounting principles set out in Accounting Standard 30 -Financial Instruments:

Recognition and Measurement.

These forward contracts are stated at fair value at each reporting date. Changes in the fair value of

these forward contracts that are designated and effective as hedges of future cash flows are

recognized directly in Hedging Reserve Account under Reserves and surplus, net of applicable

deferred income taxes and the ineffective portion is recognised immediately in the Profit and Loss

Statement.

Amounts accumulated in Hedging Reserve Account are reclassified to profit and loss i n the same

periods during which the forecasted transaction affects Profit and Loss Statement.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or

exercised, or no longer qualifies for hedge accounting. For forecasted transactions, any cumulative

gain or loss on the hedging instrument recognised in Hedging Reserve Account is retained there until

the forecasted transaction occurs.

If the forecasted transaction is no longer expected to occur, the net cumulative gai n or loss

recognised in Hedging Reserve Account is immediately transferred to the Profit and Loss Statement.

(iii) Premium or discount on forward contracts other than those covered in (ii) above is amortised

over the life of such contracts and is recognised as income or expense. Foreign currency options and

other derivatives are stated at fair value as at the year end with changes in fair value recognized in

the Profit and Loss Statement.

(i) Product warranty expenses

The estimated liability for product warranties is recorded when products are sold. These estimates

are established using historical information on the nature, frequency and average cost of warranty

claims and management estimates regarding possible future incidence based on corrective actions

on product failures. The timing of outflows will vary as and when warranty claim will arise being

typically upto three years.

(j) Income on vehicle loan

Interest income on loan contracts are accounted for by using the Internal Rate of Return method.

Consequently, a constant rate of return on the net outstanding amount is accrued over the period of

contract. The Company provides an allowance for hire purchase and loan receivables that are in

arrears for more than 11 months, to the extent of an amount equivalent to the outstanding principal

and amounts due but unpaid, considering probable inherent loss including estimated realisation

based on past performance trends. In respect of loan contracts that are in arrears for more than 6

months but not more than 11 months, allowance is provided to the extent of 10% of the outstanding

and amount due but unpaid.


(k) Inventories

Inventories are valued at the lower of cost and net realisable value. Cost of raw materials and

consumables are ascertained on a moving weighted average / monthly moving weighted average

basis. Cost, including variable and fixed overheads, are allocated to work-in-progress, stock-in-trade

and finished goods determined on full absorption cost basis. Net realisable value is estimated selling

price in the ordinary course of business less estimated cost of completion and selling expenses.

(l) Employee benefits

(i) Gratuity

The Company has an obligation towards gratuity, a defined benefit retirement plan covering eligible

employees. The plan provides for a lump sum payment to vested employees at retirement, death

while in employment or on termination of employment of an amount equivalent to 15 to 30 days

salary payable for each completed year of service. Vesting occurs upon completion of five ye ars of

service. The Company makes annual contributions to gratuity fund established as trust. The

Company accounts for the liability for gratuity benefits payable in future based on an independent

actuarial valuation.

(ii) Superannuation

The Company has two superannuation plans, a defined benefit plan and a defined contribution plan.

An eligible employee on April 1, 1996 could elect to be a member of either plan.

Employees who are members of the defined benefit superannuation plan are entitled to benefit s

depending on the years of service and salary drawn. The monthly pension benefits after retirement

range from 0.75% to 2% of the annual basic salary for each year of service. The Company accounts

for the liability for superannuation benefits payable in future under the plan based on an

independent actuarial valuation.

With effect from April 1, 2003, this plan was amended and benefits earned by covered employees

have been protected as at March 31, 2003. Employees covered by this plan are prospectively

entitled to benefits computed on a basis that ensures that the annual cost of providing the pension

benefits would not exceed 15% of salary.

The Company maintains a separate irrevocable trust for employees covered and entitled to benefits.

The Company contributes up to 15% of the eligible employees’ salary to the trust every year. The

Company recognizes such contributions as an expense when incurred. The Company has no further

obligation beyond this contribution.

(iii) Bhavishya Kalyan Yojana (BKY )

Bhavishya K alyan Yojana is an unfunded defined benefit plan. The benefits of the plan include

pension in certain case, payable upto the date of normal superannuation had the employee been in

service, to an eligible employee at the time of death or permanent disablement, while in service,

either as a result of an injury or as certified by the Company ’s Medical Board. The monthly payment

to dependents of the deceased / disabled employee under the plan equals 50% of the salary drawn


at the time of death or accident or a specified amount, whichever is higher. The Company accounts

for the liability for BKY benefits payable in future based on an independent actuarial valuation.

(iv) Post-retirement medicare scheme

Under this scheme, employees get medical benefits subject to certain limits of amount, periods after

retirement and types of benefits, depending on their grade and location at the time of retirement.

Employees separated from the Company as part of Early Separation Scheme, on medical grounds or

due to permanent disablement are also covered under the scheme. The liability for post-retirement

medical scheme is based on an independent actuarial valuation.

(v) Provident fund

The eligible employees of the Company are entitled to receive benefits under the provident fund, a

defined contribution plan, in which both employees and the Company make monthly contributions

at a specified percentage of the covered employees’ salary (currently 12% of employees’ salary). The

contributions as specified under the law are paid to the provident fund and pension fund set up as

irrevocable trust by the Company or to respective Regional Provident Fund Commissioner and the

Central Provident Fund under the State Pension scheme. The Company is generally liable for annual

contributions and any shortfall in the fund assets based on the Government specified minimum rates

of return or pension and recognises such contributions and shortfall, if any, as an expense in the year

incurred.

(vi) Compensated absences

The Company provides for the encashment of leave or leave with pay subject to certain rules. The

employees are entitled to accumulate leave subject to certain limits, for future encashment. The

liability is provided based on the number of days of unutilised leave at each balance sheet date on

the basis of an independent actuarial valuation.

(m) Investments

Long term investments are stated at cost less other than temporary diminution in value, if any.

Current investments are stated at lower of cost and fair value. Fair value of investments in mutual

funds are determined on a portfolio basis.

(n) Income taxes

Tax expense comprises current and deferred taxes.

Current tax is the amount of tax payable on the taxable income for the year as determined in

accordance with the provisions of the Income Tax Act, 1961. Current tax is net of credit for

entitlement for Minimum Alternative Tax (MAT ).

Deferred tax is recognised, on timing differences, being the difference between taxable income and

accounting income that originate in one period and are capable of reversal in one or more

subsequent periods.


Deferred tax assets in respect of unabsorbed depreciation and carry forward of losses are recognised

if there is virtual certainty that there will be sufficient future taxable income available to realise such

losses.

Deferred tax assets and liabilities are measured based on the tax rates that are expected to apply in

the period when asset is realised or the l iability is settled, based on tax rates and tax laws that have

been enacted or substantially enacted by the balance sheet date.

(o) Redemption premium on Foreign Currency Convertible Notes (FCCN) / Convertible Alternative

Reference Securities (CARS) / Non-Convertible Debentures (NCD)

Premium payable on redemption of FCCN / CARS / NCD as per the terms of issue, is provided fully in

the year of issue by adjusting against the Securities Premium Account (SPA) (net of tax). Any change

in the premium payable, consequent to conversion or exchange fluctuations is adjusted to the SPA.

(p) Borrowing costs

Fees towards structuring / arrangements and underwriting and other incidental costs incurred in

connection with borrowings are amortised over the period of the l oan.

(q) Liabilities and contingent liabilities

The Company records a liability for any claims where a potential loss is probable and capable of

being estimated and discloses such matters in its financial statements, if material. For potential

losses that are considered possible, but not probable, the Company provides disclosure in the

financial statements but does not record a liability in its accounts unless the loss becomes probable.

(r) Business segments

The Company is engaged mainly in the business of automobile products consisting of all types of

commercial and passenger vehicles including financing of the vehicles sold by the Company. These,

in the context of Accounting Standard 17 on Segment Reporting, as specified in the Companies

(Accounting Standards) Rules, 2006, are considered to constitute one single primary segment.

Further, there is no reportable secondary segment i.e. Geographical Segment.


Basis of consolidation and significant accounting policies of Group:

(I) Basis of consolidation:

The consolidated financial statements relate to Tata Motors Limited (the Company), its subsidiary

companies, joint ventures and associates. The Company and its subsidiaries constitute the Group.

(a) Basis of preparation

The financial statements are prepared under the historical cost convention on an accrual basis of

accounting in accordance with the generally accepted accounting principles, Accounting Standards

notified under Section 211 (3C) of the Companies Act, 1956 and the relevant provisions thereof.

(b) Use of estimates

The preparation of financial statements requires management to make judgments, estimates and

assumptions, that affect the application of accounting policies and the reported amounts of assets

and liabilities and disclosures of contingent liabilities at the date of these financial statements and

the reported amounts of revenues and expenses for the years presented. Actual results may differ

from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.

Revisions to accounting estimates are recognised in the period in which the estimate is revised and

future periods affected.

(c) Principles of consolidation:

The consolidated financial statements have been prepared on the following basis:

i. The financial statements of the subsidiary companies / joint ventures used in the consolidation are

drawn upto the same reporting date as of the Company i.e. year ended March 31, 2012.

ii. The financial statements of the Company and its subsidiary companies have been combined on a

line-by-line basis by adding together like items of assets, liabilities, income and expenses. The intra-

group balances and intra-group transactions and unrealised profits have been fully eliminated.

iii. The consolidated financial statements include the share of profit / loss of the associate companies

which has been accounted as per the 'Equity method', and accordingly, the share of profit / loss of

each of the associate companies (the loss being restricted to the cost of investment) has been added

to / deducted from the cost of investments.

An associate is an enterprise in which the investor has significant influence and which is neither a

Subsidiary nor a joint venture of the investor.

iv. The financial statements of the joint venture companies have been combined by using

proportionate consolidation method and accordingly, venturer's share of each of the assets,

liabilities, income and expenses of jointly controlled entity is reported as separate line items in the

Consolidated Financial Statements.

v. The excess of cost to the Company of its investments in the subsidiary companies / joint ventures

over its share of equity of the subsidiary companies / joint ventures, at the dates on which the

investments in the subsidiary companies / joint ventures are made, is recognised as 'Goodwill' being


an asset in the consolidated financial statements. Alternatively, where the share of equity in the

subsidiary companies / joint ventures as on the date of investment is in excess of cost of investment

of the Company, it is recognised as 'Capital Reserve' and shown under the head 'Reserves and

Surplus', in the consolidated financial statements.

vi. Minority interest in the net assets of consolidated subsidiaries consists of the amount of equity

attributable to the minority shareholders at the dates on which investments are made by the

Company in the subsidiary companies and further movements in their share in the equity,

subsequent to the dates of investments as stated above.

(d) The following subsidiary companies are considered in the consolidated financial statements:

% of holding either directly or through subsidiaries

Sr No. Name of subsidiary company

Country of Incorporation

As at March 31, 2012

As at March 31, 2011

1 Direct subsidiaries

2 Tata Daewoo Commercial Vehicle Co. Ltd

South Korea 100 100

3 TML Drivelines Ltd (formerly known as HV Axles Ltd)

India 100 85

4 HV Transmissions Ltd. (merged with TML Drivelines Ltd )

India - 85

5 TAL Manufacturing Solutions Ltd

India 100 100

6 Sheba Properties Ltd

India 100 100

7 Concorde Motors (India) Ltd

India 100 100

8 Tata Motors Insurance Broking & Advisory Services Ltd

India 100 100

9 Tata Motors European Technical Centre Plc

UK 100 100

10 Tata Technologies Ltd

India 72.41 83.38

11 Tata Motors Finance Ltd

India 100 100

12 Tata Marcopolo India 51 51


Motors Ltd 13 Tata Motors (

Thailand) Ltd Thailand 90.82 86.78

14 TML Holdings Pte Ltd, Singapore

Singapore 100 100

15 TML Distribution Company Ltd

India 100 100

16 Tata Motors (SA) (Proprietary) Ltd

South Africa 60 60

17 Tata Hispano Motors Carrocera S.A

Spain 100 100

18 Trilix S.r.l Italy 80 80 19 Tata Precision

Industries Pte Ltd Singapore 78.39 78.39

20 PT Tata Motors Indonesia (incorporated on December 29, 2011)

Indonesia 100 -

21 Tata Technologies ( Thailand) Ltd

Thailand 72.41 83.38

22 Tata Technologies Pte. Ltd, Singapore

Singapore 72.41 83.38

23 INCAT International PLC.

UK 72.41 83.38

24 Tata Technologies Europe Ltd

UK 72.41 83.38

25 INCAT GmbH. Germany 72.41 83.38 26 Tata Technologies

Inc USA 72.62 83.51

27 Tata Technologies de Mexico, S.A. de C.V.

Mexico 72.62 83.51

28 Tata Technologies (Canada) Inc.

Canada 72.62 83.51

29 Miljobil Greenland AS

Norway 71.69 71.69

30 JaguarLandRover Plc (formely known as JaguarLandRover Ltd)

UK 100 100

31 Jaguar Cars Overseas Holdings Ltd

UK 100 100

32 Jaguar Land Rover Austria GmbH

Austria 100 100

33 Jaguar Belgium NV

Belgium 100 100


34 Jaguar Cars Ltd UK 100 100 35 Jaguar Land Rover

Japan Ltd Japan 100 100

36 Jaguar Cars South Africa (pty) Ltd

South Africa 100 100

37 Jaguar Italia SpA (merged into Land Rover Italia w.e.f December 31, 2011)

Italy - 100

38 Jaguar Land Rover Exports Ltd (formerly known as Jaguar Cars Exports Ltd)

UK 100 100

39 The Daimler Motor Company Ltd

UK 100 100

40 The Jaguar Collection Ltd

UK 100 100

41 Daimler Transport Vehicles Ltd

UK 100 100

42 S.S. Cars Ltd UK 100 100 43 The Lanchester

Motor Company Ltd

UK 100 100

44 Jaguar Hispania SL

Spain 100 100

45 Jaguar Land Rover Deutschland (formerly known as Jaguar Deutschland GmbH)

Germany 100 100

46 Land Rover UK 100 100

47 Land Rover Group Ltd

UK 100 100

48 Jaguar Land Rover North America LLC

USA 100 100

49 Land Rover Belux SA/NV

Belgium 100 100

50 Land Rover Ireland Ltd

Ireland 100 100

51 Land Rover Nederland BV

Netherlands 100 100

52 Jaguar Land Rover Portugal - Veiculos e Pecas, LDA

Portugal 100 100

53 Jaguar Land Rover Australia 100 100


Australia Pty Ltd 54 Land Rover

Exports Ltd UK 100 100

55 Jaguar Land Rover Italia SpA (formerly known as Land Rover Italia SpA)

Italy 100 100

56 Land Rover Espana SL

Spain 100 100

57 Land Rover Deutschland GmbH (merged into Jaguar Deutschland w.e.f. November 28, 2011)

Germany - 100

58 Jaguar Land Rover Korea Co. Ltd

South Korea 100 100

59 Jaguar Land Rover Automotive Trading (Shanghai) Co. Ltd

China 100 100

60 Jaguar Land Rover Canada ULC

Canada 100 100

61 Jaguar Land Rover France, SAS

France 100 100

62 Jaguar Land Rover (South Africa) (pty) Ltd

South Africa 100 100

63 Jaguar Land Rover Brazil LLC

Brazil 100 100

64 Limited Liability Company "Jaguar Land Rover" (Russia)

Russia 100 100

65 Land Rover Parts Ltd

UK 100 100

66 Land Rover Parts US LLC (dissolved w.e.f. September 30, 2011)

USA - 100

67 Tata Hispano Motors Crrosseries Maghreb, Morroco

Spain 100 100

68 Tata Daewoo Commercial Vehicle Sales and Distribution Co.

South Korea 100 100


Ltd. 69 Tata Engineering

Ser vices (Pte) Limited

Singapore 78.39 78.39

70 Jaguar Land Rover (South Africa) Holdings Ltd. (Incorporated on September 9, 2011)

UK 100 -

e) The following joint venture companies are considered in the consolidated financial statements:

1 Fiat India Automobiles Limited

India 50 50

2 Tata HAL Technologies Ltd

India 36.20 41.69

(II) Significant accounting policies :

(a) Revenue recognition

(i) Sale of products

The Company recognises revenue on the sale of products, net of discounts when the products are

delivered to the dealer / customer or when delivered to the carrier for exports sales, which is when

risks and rewards of ownership pass to the dealer / customer. Sales include income from services

and exchange fluctuations relating to export receivables. Sales include export and other recurring

and non-recurring incentives from the Government at the national and state levels. Sale of products

is presented gross of excise duty where applicable, and net of other indirect taxes.

Revenues are recognised when collectibility of the resulting receivables is reasonably assured.

(ii) Revenue from sale of vehicles with guaranteed repurchase option /repurchase arrangement

Some of the subsidiary companies sell vehicles to daily rental car companies and other fleet

customers subject to guaranteed repurchase options and to Ford Motor Group management

employees, with repurchase arrangements. At the time of sale, the proceeds are recorded as

deferred revenue in other current liabilities and the cost of the vehicles are recorded as inventories.

The difference between the proceeds and the guaranteed repurchase amount is recognised in Sales

over the term of the arrangement, using a straight-line method. The difference between the cost of

the vehicle and the estimated auction value is netted off against revenue over the term of the lease.

(iii) Revenue from software consultancy on time and materials contracts is recognised based on

certification of time sheet and billed to clients as per the terms of specific contracts. On fixed price

contracts, revenue is recognised based on milestone achieved as specified in the contracts on the

proportionate completion method on the basis of the work completed. Foreseeable losses on such

contracts are recognized when probable. Revenue from rendering annual maintenance services is

recognised proportionately over the period in which services are rendered. Revenue from third party

software products and hardware sale is recognised upon delivery.


(iv) Dividend from investments is recognized when the right to receive the payment is established

and when no significant uncertainty as to measurability or collectability exits.

(v) Interest income is recognized on the time basis determined by the amount outstanding and the

rate applicable and where no significant uncertainty as to measurability or collectability exists.

(b) Depreciation and amortisation

(i) Depreciation is provided on Straight Line Method basis (SLM) over the estimated useful lives of

the assets. Estimated useful lives of assets are as follows:

Type of Asset Estimated useful life

Leasehold land amortised over the period of the lease

Buildings 20 to 40 years

Plant, machinery and equipment 9 to 30 years

Computers and other IT assets 3 to 6 years

Vehicles 3 to 10 years

Furniture, fixtures and office appliances 3 to 20 years

Technical know-how 2 to 10 years

Developed technologies 10 years

Computer software 1 to 8 years

Special tools are amortised on a straight line basis over the lives of the model concerned, which is 7

to 10 years.

Capital assets, the ownership of which does not vest with the Company, other than leased assets,

are depreciated over the estimated period of their utility or five years, whichever is less.

(ii) Product development cost are amortised over a period of 36 months to 120 months or on the

basis of actual production to planned production volume over such period.

(iii) In respect of assets whose useful life has been revised, the unamortised depreciable amount has

been charged over the revised remaining useful life.

(iv) Depreciation is not recorded on capital work-in-progress / intangible assets under development

until construction and installation are complete and asset is ready for its intended use.

(c) Fixed assets

(i) Fixed assets are stated at cost of acquisition or construction less accumulated depreciation /

amortisation.


(ii) The product development cost incurred on new vehicle platform, engines, transmission and new

products are recognised as fixed assets, when feasibility has been established, the Company has

committed technical, financial and other resources to complete the development and it is probable

that asset will generate probable future benefits.

(iii) Cost includes purchase price, taxes and duties, labour cost and directly attributable costs for self

constructed assets and other direct costs incurred upto the date the asset is ready for its intended

use. Borrowing cost incurred for qualifying assets is capitalised up to the date the asset is ready for

intended use, based on borrowings incurred specifically for financing the asset or the weighted

average rate of all other borrowings, if no specific borrowings have been incurred for the asset. The

cost of acquisition is further adjusted for exchange differences relating to long term foreign currency

borrowings attributable to the acquisition of depreciable asset with effect from April 1, 2007.

(iv) Software not exceeding Rs. 25,000 and product development costs relating to minor product

enhancements, facelifts and upgrades are charged off to the Profit and Loss Statement as and when

incurred.

(d) Impairment

At each Balance Sheet date, the Company assesses whether there is any indication that the fixed

assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the

asset is estimated in order to determine the extent of the impairment, if any. Where it is not

possible to estimate the recoverable amount of individual asset, the Company estimates the

recoverable amount of the cash-generating unit to which the asset belongs.

As per the assessment conducted by the Company at March 31, 2012, there were no indications that

the fixed assets have suffered an impairment loss.

(e) Leases

(i) Finance lease

Assets acquired under finance leases are recognised at the lower of the fair value of the leased

assets at inception and the present value of minimum lease payments. Lease payments are

apportioned between the finance charge and the outstanding liability. The finance charge is

allocated to periods during the lease term at a constant periodic rate of interest on the remaining

balance of the liability. Assets given under finance leases are recognised as receivables at an amount

equal to the net investment in the lease and the finance income is based on a constant rate of return

on the outstanding net investment.

(ii) Operating lease

Leases other than finance lease ,are operating leases and the leased assets are not recognised on the

Company’s Balance Sheet. Payments under operating leases are recognised in the Profit and Loss

Statement on a straight line basis over the lease term.


(f ) Transactions in foreign currencies and accounting of derivatives

(i) Exchange differences



rates.

(1) Exchange differences arising on settlement of transactions and translation of monetary items

other than those covered by (2) below are recognised as income or expense in the year in which

they arise. Exchange differences considered as borrowing cost are capitalised to the extent these

relate to the acquisition / construction of qualifying assets and the balance amount is recognised in

the Profit & Loss Statement.

(2) Exchange differences relating to long term foreign currency monetary assets / liabilities are

accounted for with effect from April 1, 2007 in the following manner:

-Differences relating to borrowings attributable to the acquisition of the depreciable capital asset

are added to / deducted from the cost of such capital assets.

-Other differences are accumulated in Foreign Currency Monetary Item Translation Difference

Account, to be amortised over the period, beginning April 1, 2007 or date of inception of such item,

as applicable, and ending on March 31, 2011 or the date of its maturity, whichever is earlier.

- Pursuant to notification issued by the Ministry of Corporate Affairs, on December 29, 2011, the

exchange differences on long term foreign currency monetary items (other than those relating to

acquisition of depreciable asset) are amortised over the period till the date of maturity or March 31,

2020, whichever is earlier.

(3 ) On consolidation, the assets, liabilities and goodwill or capital reserve arising on the acquisition,

of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet

date. Income and expenditure items are translated at the average exchange rates for the year/

month. Exchange differences arising in case of integral foreign operations are recognised in the

Profit and Loss Statement and exchange differences arising in case of non-integral foreign operations

are recognised in the Group’s Translation Reserve classified under Reserves and surplus.

(ii) Hedge accounting

The Company uses foreign currency forward contracts to hedge its risks associated with foreign

currency fluctuations relating to highly probable forecast transactions. With effect from April 1,

2008, the Company designates such forward contracts in a cash flow hedging relationship by

applying the hedge accounting principles set out in Accounting Standard 30- Financial Instruments:

Recognition and Measurement.

These forward contracts are stated at fair value at each reporting date. Changes in the fair value of

these forward contracts that are designated and effective as hedges of future cash flows are

recognised directly in Hedging Reserve Account under Reserves and surplus, net of applicable

deferred income taxes and the ineffective portion is recognised immediately in the Profit and Loss

Statement.


Amounts accumulated in Hedging Reserve Account are reclassified to profit and loss in the same

periods during which the forecasted transaction affects Profit and Loss Statement.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or

exercised, or no longer qualifies for hedge accounting. For forecasted transactions, any cumulative

gain or loss on the hedging instrument recognised in Hedging Reserve Account is retained there until

the forecasted transaction occurs.

If the forecasted transaction is no longer expected to occur, the net cumulative gain or loss

recognised in Hedging Reserve Account is immediately transferred to the Profit and Loss Statement

for the year.

(iii) Premium or discount on forward contracts other than those covered in (ii) above is amortised

over the life of such contracts and is recognised as income and expense. Foreign currency options

and other derivatives are stated at fair value as at the year end with change in fair value recognised

in the Profit and Loss Statement.

(g) Product warranty expenses

The estimated liability for product warranties is recorded when products are sold. These estimates

are established using historical information on the nature, frequency and average cost of warranty

claims and management estimates regarding possible future incidence based on corrective actions

on product failures. The timing of outflows will vary as and when warranty claim will arise - being

typically upto five years.

(h) Income on vehicle loan

Interest income from loan contracts in respect of vehicles and income f rom plant given on lease, are

accounted for by using the Internal Rate of Return method. Consequently, a constant rate of return

on the net outstanding amount is accrued over the period of contract. The Company and its

subsidiary provides an allowance for finance receivables that are in arrears for more than 11

months, to the extent of an amount equivalent to the outstanding principal and amounts due but

unpaid considering probable inherent loss including estimated realisation based on past

performance trends. In respect of loan contracts that are in arrears for more than 6 months but not

more than 11 months, allowance is provided to the extent of 10% of the outstanding and amount

due but unpaid.

(i) Sale of finance receivables

The Company and its subsidiary sells finance receivables to Special Purpose Entities (“SPE”) in

securitisation transactions. Recourse is in the form of the Company and its subsidiary’s investment in

subordinated securities issued by these special purpose entities, cash collateral and bank

guarantees. The loans are derecognised in the balance sheet when they are sold and consideration

has been received by the Company and its subsidiary. Sales and transfers that do not meet the

criteria for surrender of control are accounted for as secured borrowings.

Gains or losses from the sale of loans are recognised in the period the sale occurs based on the

relative fair value of the portion sold and the portion allocated to retained interests, except for


subsidiaries which are governed by prudential norms for income recognition issued by the Reserve

Bank of India for Non Banking Financial Companies (NBFC), where gains or losses on sale are

accounted for as per these norms.

In case of a subsidiary, the estimated liability for servicing expenses in respect of assigned

receivables is made based on the ratio between the cost incurred for servicing current receivables

and the collection made during the year.

(j) Inventories

Inventories are valued at the lower of cost and net realisable value. Cost of raw materials and

consumables are ascertained on a moving weighted average / monthly moving weighted average

basis, except for Jaguar and Land Rover which is on FIFO basis. Cost, including variable and fixed

overheads, are allocated to work-in-progress and finished goods determined on full absorption cost

basis. Net realisable value is estimated selling price in the ordinary course of business less estimated

cost of completion and selling expenses.

(k) Employee benefits

(i) Pension plans

One of the major subsidiary group, Jaguar Land Rover, operates several defined benefit pension

plan, which are contracted out of the second state pension scheme. The assets of the plan are held

in separate trustee administered funds. The plans provide for monthly pension after retirement as

per salary drawn and service period as set out in rules of each fund.

Contributions to the plans by the subsidiary group take into consideration the results of actuarial

valuations. The plans with a surplus position at the year end have been limited to the maximum

economic benefit available from unconditional rights to refund from the scheme or reduction in

future contributions. Where the subsidiary group is considered to have a contractual obligation to

fund the pension plan above the accounting value of the liabilities, an onerous obligation is

recognised.

The actuarial losses (net) and movement in restriction of pension assets (net) of Rs. 128.12 crores

(credit) (net of tax ) for the year ended March 31, 2012 and Rs.3,870.58 crores (debit) (net of tax) as

at March 31, 2012 of pension plans of Jaguar Cars Ltd and Land Rover,UK , have been accounted in

“Reserves and surplus” in the consolidated financial statements in accordance with IFRS principles

and permitted by AS21.

A separate defined contribution plan is available to employees of a major subsidiary group, Jaguar

Land Rover. Costs in respect of this plan are charged to the Profit and Loss Statement as incurred.

(ii) Gratuity

The Company and some of its subsidiaries in India have an obligation towards gratuity, a defined

benefit retirement plan covering eligible employees.

The plan provides for a lump sum payment to vested employees at retirement, death while in

employment or on termination of employment of an amount equivalent to 15 to 30 days salary


payable for each completed year of service. Vesting occurs upon completion of five years of service.

The Company and the said subsidiaries make annual contributions to gratuity funds established as

trusts. Some subsidiaries have obtained insurance policies with the Life Insurance Corporation of

India. The Company and some of its subsidiaries account for the liability for gratuity benefits payable

in future based on an independent actuarial valuation.

(iii) Superannuation

The Company and some of its subsidiaries have two superannuation plans, a defined benefit plan

and a defined contribution plan. An eligible employee on April 1, 1996 could elect to be a member of

either plan.

Employees who are members of the defined benefit superannuation plan are entitled to benefits

depending on the years of service and salary drawn.

The monthly pension benefits after retirement range from 0.75% to 2% of the annual basic salary for

each year of service. The Company and the said subsidiaries account for superannuation benefits

payable in future under the plan based on an independent actuarial valuation.

With effect from April 1, 2003, this plan was amended and benefits earned by covered employees

have been protected as at March 31, 2003. Employees covered by this plan are prospectively

entitled to benefits computed on a basis that ensures that the annual cost of providing the pension

benefits would not exceed 15% of salary.

The Company and some of its subsidiaries maintain separate irrevocable trusts for employees

covered and entitled to benefits. The Company and its subsidiaries contributes up to 15% of the

eligible employees’ salary to the trust every year. Such contributions are recognised as an expense

when incurred. The Company and the said subsidiaries have no further obligation beyond this

contribution.

(iv) Bhavishya Kalyan Yojana (BKY )

Bhavishya Kalyan Yojana is an unfunded defined benefit plan. The benefits of the plan include

pension in certain case, payable upto the date of normal superannuation had the employee been in

service, to an eligible employee at the time of death or permanent disablement, while in service,

either as a result of an injury or as certified by the Company’s medical board. The monthly payment

to dependents of the deceased / disabled employee under the plan equals 50% of the salary drawn

at the time of death or accident or a specified amount, whichever is higher. The Company accounts

for the liability for BKY benefits payable in future based on an independent actuarial valuation.

(v) Severance indemnity

Tata Daewoo Commercial Vehicle Company Ltd and Tata Daewoo Commercial Vehicle Service

Company Ltd, subsidiary companies incorporated in Korea has an obligation towards severance

indemnity, a defined benefit retirement plan, covering eligible employees. The plan provides for a

lump sum payment to all employees with more than one year of employment equivalent to 30 days’

salary payable for each completed year of service.

(vi) Post-retirement medicare scheme


Under this scheme, employees of the Company and some of its subsidiaries get medical benefits

subject to certain limits of amount, periods after retirement and types of benefits, depending on

their grade and location at the time of retirement. Employees separated from the Company as part

of Early Separation Scheme, on medical grounds or due to permanent disablement are also covered

under the scheme. The Company and the said subsidiaries account for the liability for post-

retirement medical scheme based on an independent actuarial valuation.

(vii) Provident fund and family pension

The eligible employees of the Company and some of its subsidiaries are entitled to receive benefits

in respect of provident fund, a defined contribution plan, in which both employees and the

company/subsidiaries make monthly/annual contributions at a specified percentage of the covered

employees’ salary (currently 12% of employees’ salary). The contributions, as specified under the

law, are made to the provident fund and pension fund set up as irrevocable trust by the Company

and its subsidiaries or to respective Regional Provident Fund Commissioner and the Central

Provident Fund under the State Pension scheme. The Company and some of its subsidiaries are

generally liable for monthly/annual contributions and any shortfall in the fund assets based on the

government specified minimum rates of return or pension and recognises such contributions and

shortfall, if any, as an expense in the year incurred.

(viii) Compensated absences

The Company and some of its subsidiaries provides for the encashment of leave or leave with pay

subject to certain rules. The employees are entitled to accumulate leave subject to certain limits, for

future encashment. The liability is provided based on the number of days of unutilized leave at each

balance sheet date on basis of an independent actuarial valuation.

(l) Investments

i. Long term investments are stated at cost less other than temporary diminution in value, if any.

ii. Investment in associate companies are accounted as per the 'Equity method', and accordingly, the

share of post acquisition reserves of each of the associate companies has been added to / deducted

from the cost of investments.

iii. Current investments are stated at lower of cost and fair value. Fair value of investments in mutual

funds are determined on portfolio basis.

(m) Income taxes

Tax expense comprises current and deferred taxes. Current taxes are determined based on

respective taxable income of each taxable entity and tax rules applicable for respective tax

jurisdictions. Current tax is net of credit for entitlement for Minimum Alternative Tax.

Deferred tax is recognised, on timing differences, being the difference between taxable income and

accounting income that originate in one period and are capable of reversal in one or more

subsequent periods. Deferred tax assets in respect of unabsorbed depreciation and carry forward of

losses are recognised if there is virtual certainty that there will be sufficient future taxable income


available to realise such losses. Such deferred tax assets and liabilities are computed separately for

each taxable entity and for each taxable jurisdiction.

Deferred tax assets and liabilities are measured based on the tax rates that are expected to apply i n

the period when asset is realised or the liability is settled, based on tax rates and tax laws that have

been enacted or substantially enacted by the balance sheet date.

The tax expense is not comparable with the profit before tax, since it is consolidated on a line -by-line

addition for each subsidiary company and no tax effect is recorded in respect of consolidation

adjustments. This accounting treatment is as per accounting standard AS-21.

(n) Redemption premium

Redemption premium on Foreign Currency Convertible Notes (FCCN) / Convertible Alternative

Reference Securities (CARS) / Non Convertible Debentures (NCD) Premium payable on redemption

of FCCN / CARS / NCD as per the terms of issue, is provided fully in the year of issue by adjusting

against the Securities Premium Account (SPA) (net of tax). Any change in the premium payable,

consequent to conversion or exchange fluctuations is adjusted to the SPA.

(o) Borrowing costs

Fees towards structuring / arrangements and underwriting and other incidental costs incurred in

connection with borrowings are amortised over the period of the loan.

(p) Liabilities and contingent liabilities

The Company records a liability for any claims where a potential loss is probable and capable of

being estimated and discloses such matters in its financial statements, if material. For potential

losses that are considered possible, but not probable, the Company provides disclosure in the

financial statements but does not record a liability in its accounts unless the loss becomes probable.