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Accounting Policies of Kennametal India Ltd. Company
Jun 30, 2024
1 Background and basis of preparation
1.1 Background
Kennametal India Limited ("the Company") incorporated under the Companies Act, 1956 (CIN: L27109KA1964PLC001546), is in the business of manufacturing and trading of hard metal products and manufacturing of capital intensive machines along with fixtures and spares. The Company has its manufacturing facility in Bengaluru and sells its products and services through sales and support offices. The Company is a public limited company incorporated and domiciled in India and has its registered office at 8/9th Mile, Tumkur Road, Bengaluru 560 073. The Company''s shares are listed on the Bombay Stock Exchange Limited (BSE).
The financial statements are approved for issue by the Board of Directors of the Company on August 9, 2024.
1.2 Basis of preparation:
(i) Compliance with Ind AS :
The financial statements comply in all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the Act) read with Companies (Indian Accounting Standards) Rules, 2015 as amended and other relevant provisions of the Act.
(ii) Historical cost convention
The financial statements have been prepared on a historical cost basis, except for the following:
a) Certain financial assets and liabilities measured at fair value;
b) Defined benefit plans - plan assets measured at fair value; and
c) Share based payments - measured at fair value.
(iii) Operating cycle
All assets and liabilities have been classified as current or noncurrent as per the Company''s operating cycle and other criteria set out in Schedule III to the Companies Act, 2013. Based on the nature of products and services and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current/ noncurrent classification of assets and liabilities.
(iv) New and amended standards adopted by the Company
The Ministry of Corporate Affairs had vide notification dated March 31, 2023 notified the Companies (Indian Accounting Standards) Amendment Rules, 2023 (''the Rules''), which amended certain accounting standards (see below), and are effective April 1, 2023.
(i) Disclosure of accounting policies - amendments to Ind AS 1 - Presentation of Financial Statements
(ii) Definition of accounting estimates - amendment to Ind AS 8 - Accounting policies, changes in accounting estimates and errors
(iii) Deferred tax related to assets and liabilities arising from a single transaction - amendments to Ind AS 12 - Income taxes
The other amendments to Ind AS notified by these rules are primarily in the nature of clarifications.
These amendments did not have any material impact on the amounts recognized in prior periods and not expected to significantly affect the current or future periods.
(v) Rounding of amounts
All amounts disclosed in the financial statements and notes have been rounded off to the nearest millions of Indian rupees O except share and per share data as per the requirement of Schedule III, unless otherwise stated. The sign "0" in these financial statements indicate that the amounts involved are below the rounding off norms and the sign "-" indicates that the amount is ''Nil''.
2 Significant estimates, judgements and assumptions
The key accounting estimates and judgements used in the preparation of the financial statement relates to:
Direct and Indirect Taxes - Provisions and contingent liabilities
(Refer Note 29)
The Company has disputed claims under direct and indirect tax laws. Management discloses amounts claimed by the tax authorities as either contingent liabilities or recognises them as provisions unless the cash outflow estimated to settle the claim is expected to be remote, based on subject matter under dispute, management''s experience with disputes of a similar nature and advice from tax experts. Recognition and disclosure of such disputed claims may vary subsequently.
3A Property, plant and equipment Accounting policy
Freehold land is carried at historical cost. All other items of property, plant and equipment are stated at historical cost less depreciation.
Depreciation method, estimated useful life and residual value
Depreciation is provided on a pro-rata basis on the straight-line method over the estimated useful life of the assets. The useful life has been determined based on technical evaluation done by the management''s expert which are different from useful life specified by Schedule II to the Companies Act, 2013, in order to reflect the actual usage of the assets. The assets'' residual value and useful life are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset''s carrying amount is written down immediately to its recoverable amount if the asset''s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are
determined by comparing proceeds with carrying amount. These are included in profit or loss within other income / other expenses.
6 Financial Assets 6 (a) Trade receivables Accounting policy
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business and reflect the Company''s unconditional right to consideration (that is, payment is due only on the passage of time). Trade receivables are recognised initially at the transaction price as they do not contain significant financing components. The Company holds the trade receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method, less loss allowance.
For trade receivables, the Company applies the simplified approach required by Ind AS 109 "Financial Instrumentsâ, which requires expected lifetime losses to be recognized from initial recognition of the receivables.
10 Inventories
Accounting policy
Inventories are stated at the lower of cost and the net realisable value after providing for obsolescence and other losses, where considered necessary. Costs are assigned to individual items of raw materials, stores and spares, work in progress and stock-in-trade on the basis of weighted average method whereas manufactured goods are ascertained on first-in-first-out method. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Inventories are net of provision on account of obsolescence, slow moving inventory and lower of net realisable value amounted to '' 122 (June 30, 2023: '' 125) recognised as an expense and included in "Changes in inventories of finished goods, work in progress and stock in tradeâ in the Statement of Profit and Loss.
The Company has one class of equity shares having a par value of '' 10 per share. Each shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors is subject to approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, if any, in proportion to their shareholding.
(f) During five years immediately preceding June 30, 2024, there are no shares allotted as fully paid up pursuant to contracts without payment being received in cash or shares allotted as fully paid up by way of bonus shares or shares bought back.
(g) There are no shares of the Company reserved for issue under any option, contracts, commitments for the sale of share or disinvestment.
Nature and purpose of reserve:
Securities premium
Securities premium is used to record the premium on issue of shares. This reserve is utilised in accordance with provisions of the Act.
Share based compensation reserve
This reserve relates to share based compensation received by the employees of the Company from Kennametal Inc., USA, the ultimate holding company, net of recharge received. The reserve is created to recognise grant date fair value of awards issued to the employees (refer note 30).
General reserve
The general reserve is created by way of transfer of profits from retained earnings for appropriation purposes. This reserve is utilised in accordance with the provisions of the Act.
Retained earnings
Retained earnings are the profits that the Company has earned till date, less any transfers to general reserve and dividends or other distributions paid to shareholders.
(a) Product support
Provision is made for estimated warranty claims in respect of products sold which are still under warranty at the end of the reporting period. These claims are expected to be settled in the next financial year (12 months) for Hard Metal products segment and 15 months for Machining Solutions segment. However in exceptional cases, the Company provides a general warranty upto 36 months (June 30, 2023: 24 months). Management estimates the provision based on historical warranty claim information and any recent trends that may suggest future claims could differ from historical amounts.
(b) Disputed taxes and duties:
Provision for disputed taxes and duties is towards service tax and excise duty that are expected to materialise.
Accounting policy
The Company provides for gratuity, a defined benefit plan (''the Gratuity Plan'') covering eligible employees. The Gratuity Plan provides a lumpsum payment to vested employees a retirement, death, incapacitation or termination of employment, of an amount based on the respective employee''s salary and the tenure of employment with the Company.
Liabilities with regard to the Gratuity Plan are determined by a valuation, performed by an independent actuary at each Balance Sheet date using the projected unit credit method. The Company contributes all ascertained liabilities to the Kennametal India Limited Employees Gratuity Fund Trust (the Trust). The Trustees administer the contributions made to the Trust which are invested in a scheme with an insurance company as permitted by law.
The Company recognises the net obligation of a defined benefit plan in its Balance Sheet as an asset or liability. Gains and losses through remeasurements of the net defined liability / (asset) are recognised in other comprehensive income and are not reclassified to profit or loss in subsequent periods. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognised in other comprehensive income. The effect of any plan amendments are recognised in the Statement of Profit and Loss.
Every employee is entitled to a benefit equivalent to fifteen days salary last drawn for each completed year of service in line with the Payment of Gratuity Act, 1972. The same is payable at time of separation from the Company or retirement, whichever is earlier. The benefits vest after 5 years of continuous service. The Board of Trustees is responsible for the administration of the Plan assets and the investment strategy.
The estimates of future increase in salary, considered in the actuarial valuation, have been taken on account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.
The discount rate is based on the prevailing market yield of India Government securities as at the Balance sheet date for the estimated term of the obligation.
Expected contributions to benefit plans for the year ending June 2025 is '' 20 (June 2024: '' 50).
vii) Sensitivity analysis
Gratuity is a lumpsum plan and the cost of providing these benefits is typically less sensitive to small changes in demographic assumptions. The actuarial assumptions to which the benefit obligations results are particularly sensitive to are discount rate, salary escalation rate, attrition rate and mortality rate. The following table summarises impact on the reported defined benefit obligation arising on account of an increase or decrease in the reported assumptions.
ix) Risk exposure
Valuations are performed on certain basic set of pre-determined assumptions and other regulatory framework which may vary overtime. Thus, the Company is exposed to various risks in providing the above benefit which are as follows:
Interest rate risk
The plan exposes the Company to the risk of fall in interest rates. A fall in interest rates will result in an increase in the ultimate cost of providing the above benefit and will thus result in an increase in the value of the liability as shown in financial statements.
Salary escalation risk
The present value of the defined benefit plan is calculated with the assumption of salary increase rate of employees in future. Deviation in the increase in salary used to determine the present value of obligation will have a bearing on the plan''s liability.
Demographic risk
The Company has used certain mortality and attrition assumptions in valuation of the liability. The Company is exposed to the risk of actual experience turning out to be worse compared to the assumption.
Liquidity risk
The Company does not perceive any liquidity risk as the Company has investments in Government Securities and Corporate Bonds offers the best returns over the long term, within an acceptable level of risk.
(e) Compensated absences
The leave obligation cover the Company''s liability for sick and earned leave. The amount of the provision of '' 133 (June 30, 2023: ''133) is presented as current, since the Company does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the Company does not expect all the employees to avail leave accrued to their credit or require payment within next 12 months.
Also, refer note 41.9 for other accounting policies.
(f) Defined benefits plan (Provident Fund - Trust set by employer)
Accounting policy
Eligible employees of the Company receive benefits from a provident fund, which is a defined benefit plan. Both, the eligible 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 to Kennametal India Limited Employee''s Provident Fund Trust (''the PF Trust''). The PF Trust invests in specific designated instruments as permitted by law. The rate at which the annual interest is payable to the beneficiaries by the PF Trust is stipulated by the Government. The Company has an obligation to make good the shortfall, if any, between the return from investments of the PF Trust and the notified interest rate by the Government.
The contribution by the employer and the employee together with the interest accumulated thereon are payable to the employees at the time of their separation from the Company or retirement, whichever is earlier. The benefits vests immediately on rendering of the services by the employee. The Company currently does not have any unfunded plans. The Board of Trustees of the PF Trust are responsible for the administration of the plan assets and the investment strategy.
The Provident fund expense, other than contribution, is not recognised in Statement of Profit and Loss if the fair value of plan assets exceeds the present value of obligation. Accordingly, the excess of plan assets over present value of obligation has not been recorded in financial statements.
Provident fund expense, excluding contribution towards national pension scheme, recognised in the books for the year ended June 30, 2024 amounts to '' 62 (June 30, 2023: '' 62).
17 Revenue from operations Accounting policy
The Company derives its revenues primarily from contracts with customers for sale of goods and services. Revenue from sale of goods is net of returns, rebates and applicable Goods and Services Tax (GST).
Revenue is recognised when the obligations under the terms of contract with customers are satisfied. Revenue is recognised at a point in time depending on when the underlying products or services are transferred to the customer. Revenue is recognised when control of the products has been transferred to the customer.
When a contract includes multiple performance obligations, the transaction price is allocated to each performance obligation in an amount that depicts the consideration, to which the Company expects to be entitled in exchange of transferring the promised goods and services.
The transaction price reflects the amount of consideration to which the Company expects to be entitled in exchange for transferring products and services to the customer. If the consideration includes variable amount, the Company estimates the amounts to which it expects to be entitled. Generally, variable consideration includes volume discounts, rebates and sales returns that reduce the transaction price. When the Company determines the transaction price it includes the variable consideration only to the extent it is highly probable that a significant reversal will not occur in the future.
The Company sells its products to the distributors with a right of return within 12 months. When such customers have a right to return the product the Company recognises a refund liability included in other current liabilities for the products expected to be returned and an asset (via right to recover returned goods).
The Company recognises the expected annual turnover/volume discounts payable to distributors in relation to sales of goods made until the end of the reporting period. The customers are divided into different grades at the inception of the year and accordingly targets are also set. The annual turnover/ volume discount and year end payable thereon is netted-off to revenue and trade receivable respectively.
The Company provides general product warranty to the customers for a period of 12 months in case of hard metal and 15 months in case of machine solutions upon the sale of products. However, in exceptional cases, the Company provides a general warranty of up to 36 months. The Company''s obligation to repair or replace faulty products under the standard warranty terms is recognized as a provision under "product support".
The Company has elected the following practical expedients in accordance with Ind AS 115 "Revenue from contracts with customers":
¦ The Company does not account for significant financing components if the period between revenue recognition and when the customer pays for the product or service will be one year or less.
¦ The Company does not disclose the remaining performance obligation that has an original expected duration of one year or less.
¦ The Company has elected, as a practical expedient, to expense as incurred the cost to obtain a contract equal to or less than one year in duration.
(i) Sale of manufactured and traded Products:
Product revenue consists of sale of hard metal and machining solutions. Revenue from sale of hard metal and machining solutions is recognised when control over the product is transferred in accordance with contractual terms of sale and there are no unfulfilled performance obligations that could affect the customer''s acceptance of the products, which is typically upon dispatch or the customer has accepted the product and the Company has a present right to payment, in accordance to the terms of contract.
(ii) Sale of services:
Sale of services includes maintenance (regrinding), installation and commission and other professional support services.
Revenue related to fixed price maintenance (regrinding) services where the Company is standing ready to provide services is recognised on completion. Revenue related to installation and commission services is treated as a separate performance obligation and recognised as and when the services are performed and accepted by customer in accordance with contractual terms. Revenue related to undelivered performance obligations is deferred and recognised when or as the control is transferred to the customer.
(iii) Contract Liabilities:
Contract liabilities (deferred revenue) primarily consists of installation and commission on sale of machine solutions. Deferred revenue is recognised when the Company has the right to invoice and the revenue recognition criteria are not met. Revenue in case of these items is recognised when the revenue recognition criteria is met.
(iv) Disaggregation of revenue:
The Company''s revenue is presented on a disaggregated basis based on the information regularly reviewed by the Chief Operating Decision Maker (CODM) for evaluating the financial performance of operating segments, and other information that is used to evaluate the financial performance or make resource allocations. This information includes revenue from products and services and revenue from reportable segments.
Also, refer Notes 41.17 and 41.18 for other accounting policies
29. Contingent liabilities Accounting policy
Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
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29. Contingent liabilities (Contâd) |
Year ended June 30, 2024 |
Year ended June 30, 2023 |
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Income tax matters [refer note (a) below] |
197 |
321 |
a) Primarily relates to transfer pricing adjustments/ disallowances relating to research and development expenditure and additions made on account of manufacturing margins by the Income Tax Department ("ITD") for the tax assessment years 2012-13, 2014-15, 2017-18, 2018-19 and 202122, which is disputed by the Company and the said matters are lying under appeal with the Income Tax Appellate Tribunal, Bengaluru/ the Commissioner of Income Tax (Appeals) LTU, Bengaluru/ the Dispute Resolution Panel, Bengaluru.
Further, for other tax assessment years, no payments have been made, but refund claims have been withheld by ITD, which covers the tax amounts being litigated and as such there may be no additional cash outflow as per management''s assessment. The Company is contesting the demands and management believes that its position, supported by external tax advice, will likely be upheld in the appellate process. Further, considering the facts and the nature of the disallowances, management believes that the final outcome of the disputes should likely be in favour of the Company and so it may not have a material adverse effect on the financial position and results of operations.
b) While making the assessment at the year end, the possibility of bearing interest liability on such disputed taxes need to be considered. In the case of the Company''s existing tax disputes, there has been no experience of the tax authorities charging interest and hence interest amounts have not been computed for adding it to the amount of contingent liabilities disclosed above.
c) The Supreme Court of India passed a judgement in February 2019 in relation to inclusion of certain allowances within the scope of âbasic wagesâ for the purposes of determining contribution to provident fund under the Employees'' Provident Funds and Miscellaneous Provisions Act, 1952. The management, based on legal advice, is of the view that the applicability of the judgement to the Company, with respect to the period and the nature of allowances to be covered due to interpretation challenges, and resultant impact on the past provident fund liability, cannot be reasonably ascertained.
d) It is not practicable for the Company to estimate the timings of the cash outflows if any in respect of the above pending resolution of the respective proceedings.
e) The Company does not expect any reimbursements in respect of the above contingent liabilities.
30. Shared based payments Accounting policy
Stock-based compensation awards are provided to selected employees under the terms of the long-term incentive plan of Kennametal Inc. USA, the ultimate holding company. Awards available under the plans include restricted stock units ("RSUs") which are granted to certain senior management employees of the Company. Stock-based compensation represents the cost related to group stock-based awards granted to employees.
RSUs entitle the holder to shares of common stock as the award vest, typically over 2 years or 3 years depending upon the scheme and year of grant which are immediately exercised on the vesting date. All the RSUs granted under the plan are equity settled. RSUs are time vesting stock units and therefore the fair value of the units is determined and fixed on the grant date based on market value of Kennametal Inc''s share price, adjusted for the exclusion of dividend equivalents. The Company measures stock-based compensation cost at the grant date, based on the estimated fair value of the award and recognises the cost (net of estimated forfeitures) over the employee requisite service period. The service period is no longer contingent on the employee providing additional service (substantive vesting period).
The total expense in respect of the above share based payment scheme is recognised over the vesting period with a corresponding adjustment to equity compensation reserve as a capital contribution from Kennametal Inc. The inter company recharge payable to the ultimate holding company, if any, is offset against the equity compensation reserve. A liability is recognised when the award is released to or exercised by the Company''s employees and billed by Kennametal Inc.
32. Lease Accounting
This note provides information on leases where the Company is a lessee. The rental contracts are typically for office premises and lease of plant and machinery. These contracts are entered into for periods ranging from three years to six years, but may have extension and termination options.
(i) Amounts recognised in balance sheet
The balance sheet shows the following amounts relating to leases:
33. Fair value measurements
The fair value of trade receivables, trade payables and other current financial assets and liabilities is considered to be equal to the carrying amounts of these items due to their short-term nature. The carrying amounts of trade receivables, cash and cash equivalents, bank deposits with more than 12 months maturity, trade payables, items falling under other financial assets and financial liabilities are considered to be the same as their fair values.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
34. Financial risk management
The Company''s activities expose it to market risk, liquidity risk and credit risk. The Company''s risk management is carried out by the Management under the policies approved of the Board of Directors that help in identification, measurement, mitigation and reporting all risks associated with the activities of the Company. These risks are identified on a continuous basis and assessed for the impact on the financial performance. Information on risks and the response strategy is escalated in a timely manner to facilitate timely decision making. Risk response strategy is formulated for key risks by Management.
A Credit Risk
Credit risk arises from cash and cash equivalents, security deposits carried at amortised cost and deposits with banks and financial institutions, as well as credit exposures to customers including outstanding receivables.
Credit risk refers to the risk of default on its obligation by the counter party resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to '' 1781 as of June 30 2024 (June 30 2023: ''1420).
Credit risk on cash and cash equivalents is limited as the Company generally invest in deposits with banks with high credit ratings as signed by international and domestic credit rating agencies.
Trade receivables are typically unsecured and are derived from revenue earned from customers primarily located in India, Germany, US and China. Credit risk has been managed by the Company through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of
customers to which the Company grants credit terms in the normal course of business. The provision for expected credit loss takes into account available external and internal credit risk factors including the credit ratings of the various customers and the Company''s historical experience for customers. The Company applies the simplified approach to provide for expected credit losses prescribed by Ind AS 109 "Financial instrumentsâ, which permits the use of lifetime expected loss provision for all the trade receivables. The Company measures the expected credit loss of trade receivables based on historical trend, industry and credit ratings.
Financial assets that are past due but not impaired
There is no other class of financial assets that is past due but not impaired except for receivables of ''6 and ''7 as at 30 June 2024 and 30 June 2023 respectively. The Company''s credit period generally ranges from 60-180 days from invoicing date. The aging analysis of the receivables has been considered from the date the invoice falls due.
No expected credit loss provision has been created for loans, i.e., security deposits on leased premises and advances given to employees, as the Company considers the life time credit risk of these financial assets to be very low.
B. Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due. Due to the dynamic nature of the underlying businesses, Company''s treasury maintains flexibility in funding by maintaining availability of required funds.
Management monitors rolling forecasts of the Company''s liquidity position and cash and cash equivalents on the basis of expected cash flows.
Maturities of financial Liabilities
The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.
C. Market Risk
(i) Foreign currency risk
The Company is exposed to foreign currency exchange risk arising from foreign currency transactions. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the companies functional currency (Rupees).
The risk is measured through a forecast of highly probable foreign currency on cash flows. To mitigate the risk of changes in exchange rates on foreign currency exposures, the Company has natural hedge between export receivable and import payables.
35. Capital Management Risk management
The Company''s objectives when managing capital is to:
i) safeguard their ability to continue as going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders; and
ii) maintain an optimal capital structure to reduce the cost of capital.
The Management regularly monitors rolling forecasts of liquidity position and cash on the basis of expected cash flows. In addition, the Company projects cash flows in major currencies and considers the level of liquid assets necessary to meet them.
37. Transfer Pricing
As per transfer pricing legislation under Sections 92-92F of the Income Tax Act, 1961, the Company is required to use certain specific methods in computing arm''s length price of international transactions with associated enterprises and maintain adequate documentation in this respect. As the law requires maintenance of such information and documentation to be contemporaneous in nature, the Company updates the transfer pricing study documentation every year to ensure that the transactions with associated enterprises undertaken are at an "arms length basisâ. The Company has carried out a detailed transfer pricing study for the period April 1,2022 to March 31,2023, which did not envisage any additional tax liability. Similar to prior years, the Company is in the process of updating the transfer pricing documentation for the period April 1, 2023 to March 31,2024 and the subsequent period up to June 30, 2024. Accordingly, these financial statements do not include the effect of the transfer pricing implications, if any. However, based on the analysis of transactions and margins, the Company does not envisage any additional tax liability for the year ended June 30, 2024.
38. Segment Information Accounting policy
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM).
The Board of Directors (the Board) of the Company assesses the financial performance and position of the Company and makes strategic decisions. The Board has been identified as being the CODM.
A. Description of segments and principal activities
The Company is in the business of manufacturing and trading of hard metal products and manufacturing of machine tools (also known as machining solutions), which are sold in domestic and export markets. The Board examines the Company''s performance and has identified two reportable segments in the business:
(i) Machining solutions: Machining solutions segment manufactures and sells customised capital intensive machines. Company specialises in providing an end to end solution, i.e., from design to manufacture and after sales service. The sales comprise of machines, fixtures, sale of spares and after sales service.
(ii) Hard metal products: Hard metal products segment deals in metal and metal cutting tools. The sales of this segment comprise of manufactured and traded goods.
D. Notes
(i) The segment-wise revenue, results, assets and liabilities relate to the respective amounts directly identifiable to each of the segments.
(ii) The segment revenue is measured in the same way as in the Statement of Profit and Loss.
(iii) No customer individually account for more than 10% of the revenue in the year ended June 30, 2024 and June 30, 2023.
(iv) The expenses that are not directly attributable and that cannot be allocated to an operating segment on a reasonable basis are shown as unallocated expenses.
(v) Segment assets include all operating assets used by the segment and consists primarily of property, plant and equipment and current assets. Segment liabilities comprise of liabilities which can be directly allocated against respective segments. Assets and liabilities that have not been allocated between segments are shown as part of unallocated assets and liabilities respectively.
(i) Details of benami property held
The Company does not hold any benami property. No proceedings have been initiated on or are pending against the Company for holding benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and Rules made thereunder.
(ii) Borrowing secured against current assets
The Company has no borrowings from banks and financial institutions on the basis of security of current assets.
(iii) Wilful defaulter
The Company has not been declared wilful defaulter by any bank or financial institution or government or any government authority.
(iv) Relationship with struck off companies
The Company did not have any material transactions with companies struck off under Section 248 of the Companies Act, 2013 or Section 560 of Companies Act, 1956 during the financial year.
(v) Registration of charges or satisfaction with Registrar of Companies
There are no charges or satisfaction which are yet to be registered with the Registrar of Companies beyond the statutory period.
(vi) Compliance with number of layers of companies
The Company does not have any subsidiaries and hence compliance with Section 2(87) of the Companies Act, 2013, read with the Companies (Restriction on number of Layers) Rules, 2017 (''layering rules'') is not applicable to the Company.
(vii) Utilisation of borrowed funds and share premium
(A) The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding that the Intermediary shall:
a. directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the group (Ultimate Beneficiaries) or
b. provide any guarantee, security or the like to or on behalf of the ultimate beneficiaries
(B) The Company has not received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the Company shall:
a. directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or
b. provide any guarantee, security or the like on behalf of the ultimate beneficiaries.
(viii) Undisclosed income
There is no income surrendered or disclosed as income during the current or prior year in the tax assessments under the Income Tax Act, 1961, that has not been recorded in the books of accounts of the Company.
(xi) Details of crypto currency or virtual currency
The Company has not traded or invested in crypto currency or virtual currency during the current or previous year.
(xii) Valuation of property, plant and equipment, right-of-use assets, intangible asset and investment property
The Company has not revalued its property, plant and equipment (including right-of-use assets) or intangible assets or both during the current or prior year.
40A Audit trail
The Company uses an Enterprise Resource Planning (ERP) software that provides audit trail as a standard functionality and logs changes to financial data. The audit trail feature has been operational throughout the year for all relevant routine transactions recorded in the ERP To operate the ERP at the application level and the database level, a set of users have privileged access. The changes made directly at the database level do not have an effective audit trail (i.e., the system captures only modified values and not pre-modified values). Further, changes made (for e.g., debugging or fixing errors) through privileged access at the application level are not logged by default in the ERP.
The material accounting policies adopted in the preparation of financial statements have been disclosed in the pertinent notes in these financial statements. Other accounting policies are described below.
41.1 Property, plant and equipment Tangible assets
The Company''s accounting policy for land is explained in note 3A. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset''s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to Statement of Profit and Loss during the reporting period in which they are incurred.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date is classified as capital advances under other non-current assets.
Assets in the course of construction are capitalised under CWIP. At the point when the construction of the asset is completed and it is ready to be operated as per management''s intended use, the cost of construction is transferred to the appropriate category of property, plant and equipment and depreciation commences. Any revenue (net of cost) generated from production during the trial period is capitalised.
41.2 Intangible assets
Intangible assets are stated at acquisition cost, net of accumulated amortisation and accumulated impairment losses, if any.
Operating software is capitalised along with the related property, plant and equipment and amortised over the useful life of the asset. Application software is capitalised, if it has an enduring benefit, and is amortised over its useful life or term of the contract whichever is lower.
Research expenditure and development expenditure that do not meet the criteria to be recognised as asset (only if probable that future economic benefits that are attributable to the assets will flow to the Company and the costs can be measured reliably) are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.
41.3 Investment property
Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Company, is classified as investment property. Investment property is measured initially at its cost, including related transaction costs and where
applicable borrowing costs. Subsequent expenditure is capitalised to the asset''s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised.
41.4 Impairment of assets
Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset''s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset''s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
41.5 Government grants
The export incentives from the Government such as Remission of Duties or Taxes on Export Products (RoDTEP) and duty drawback are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions. The fair value is measured as a percentage of export sales as per the scheme.
Government grants relating to income are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate and presented net of cost of material consumed for RoDTEP and duty drawback.
Government grants related to property plant and equipments are presented in Balance Sheet by deducting the grant in calculating the carrying amount of the assets
41.6 Inventories
Cost of raw materials and traded goods comprises of cost of purchases. Cost of work-in-progress and finished goods comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Cost of inventories also include all other costs incurred in bringing the inventories to their present location and condition.
41.7 Leases As a lessee
When the Company is the lessee, all leases with a term of more than 12 months are recognised as right-of-use ("ROU") assets and associated lease liabilities in the balance sheet. The lease liabilities are measured at the lease inception date at the present value of the lease
payments not yet paid determined using the Company''s incremental borrowing rate, being the rate that the Company would have to pay to borrow the funds necessary to obtain an asset of similar value to the ROU asset in a similar economic environment with similar terms, security and conditions. ROU assets represent the Company''s right to control the underlying assets under lease, and the lease liability is the obligation to make the lease payments related to the underlying assets under lease. The interest rate implicit in the lease is generally not determinable in transactions where the Company is the lessee. The ROU asset equals the lease liability adjusted for any initial direct costs, prepaid and accrued rent and lease incentives. Fixed and insubstance fixed payments are included in the recognition of ROU assets and lease liabilities. However, variable lease payments, other than those based on a rate or index, are recognised in the Statement of Profit and Loss in the period in which the obligation for those payments is incurred. Real estate lease contains predefined escalations which are mainly due to inflation and does not have variable portion. The lease agreements do not impose any covenants on the Company.
Contracts may contain both lease and non-lease components. The Company allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of real estate for which the Company is a lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component.
ROU assets are generally amortised on a straight-line basis over the lease term with the interest expense on the lease liability recorded using the incremental borrowing rate. The amortisation and interest expense are recorded separately in the Statement of Profit and Loss. Lease costs for short-term leases (i.e., term less than 12 months) are recognised in the Statement of Profit and Loss.
Payments associated with all leases of low-value assets are recognised on a straight-line-basis as an expense in profit or loss. Low-value assets comprise computer equipment and small items of office furniture.
41.8 Other income
Interest income from financial assets at fair value through profit or loss (FVPL) is disclosed as interest income within other income. Interest income on financial assets at amortised cost and financial assets at fair value through other comprehensive income (FVOCI) is calculated using the effective interest method is recognised in the Statement of Profit and Loss as part of other income.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss allowance).
Dividends are received from financial assets at FVPL. Dividends are recognised as other income in profit or loss when the right to receive payment is established. This applies even if they are paid out of preacquisition profits, unless the dividend clearly represents a recovery of part of the cost of the investment in which case it is considered as a return of capital.
41.9 Employee benefits
Other long-term employee benefit obligations Compensated absences
The liabilities for compensated absences are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. These obligations are therefore measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. The benefits are discounted using the appropriate market yields at the end of the reporting period that have terms approximating to the terms of the related obligation. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss.
Long-term service awards
Certain employees of the Company are entitled to other long-term benefits in the nature of long term service awards as per the policy of the Company. Liability for such benefits is provided for on the basis of valuation performed by an independent actuary using the projected unit credit method at the balance sheet date.
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees'' services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet.
41.10 Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates. (''the functional currency''). The financial statements are presented in Indian rupee '', which is the Company''s functional and presentation currency.
(ii) Transaction and balances
Foreign currency transactions are translated into the functional currency using the exchange rates that approximate the actual rates at the date of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in Statement of Profit or Loss.
All other foreign exchange gains and losses are presented in the Statement of Profit and Loss on a net basis within Other income or Other expenses.
41.11 Income tax
The income tax expense or credit for the period is the tax payable on the current period''s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses, if any.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the entity operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The Company measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting profit nor taxable profit (tax loss). Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for all deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
41.12 Provisions
Provisions for legal claims, service warranties, volume discounts and returns are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition
All the financial assets and financial liabilities are initially recognised at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. However, trade receivables that do not contain a significant financing component are measured at transaction price.
Subsequent measurement
(a) Financial assets
Jun 30, 2023
1 Background 1.1 Kennametal India Limited ("the Company") incorporated under the Companies Act, 1956, is in the business of manufacturing and trading of hard metal products and manufacturing of capital intensive machines along with fixtures and spares. The Company has its manufacturing facility in Bengaluru and sells its product and services through sales and support offices. The Company is a public limited Company incorporated and domiciled in India and has its registered office at 8/9th Mile, Tumkur Road, Bengaluru 560 073. The Company is listed on the Bombay Stock Exchange Limited (BSE). The financial statements were approved for issue by the Companyâs Board of Directors on August 11,2023. 2 Summary of significant accounting policies2.1 Basis of preparation:(i) Compliance with Ind AS : The financial statements comply in all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the Act) read with Companies (Indian Accounting Standards) Rules, 2015 as amended and other relevant provisions of the Act. (ii) Historical cost convention The financial statements have been prepared on a historical cost basis, except for the following: a) Certain financial assets and liabilities measured at fair value; b) Defined benefit plans - plan assets measured at fair value; and c) Share based payments - measured at fair value. All assets and liabilities have been classified as current or noncurrent as per the Companyâs operating cycle and other criteria set out in Schedule III to the Companies Act, 2013. Based on the nature of products and services and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current/ noncurrent classification of assets and liabilities. (iv) New and amended standards adopted by the Company The Ministry of Corporate Affairs had vide notification dated March 23, 2022 notified the Companies (Indian Accounting Standards) Amendment Rules, 2022, which amended certain accounting standards, and are effective April 1, 2022. These amendments did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods. The Ministry of Corporate Affairs has vide notification dated March 31, 2023 notified the Companies (Indian Accounting Standards) Amendment Rules, 2023 (the ''Rulesâ), which amend certain accounting standards, and are effective April 1, 2023. The Rules predominantly amend Ind AS 12, - Income Taxes, Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors and Ind AS 1, - Presentation of Financial Statements. The other amendments to Ind AS notified by these rules are primarily in the nature of clarifications. These amendments did not have a material impact on the Company in the current or future reporting periods and on foreseeable future transactions. All amounts disclosed in the financial statements and notes have been rounded off to the nearest millions of Indian rupees ('') except share and per share data as per the requirement of Schedule III, unless otherwise stated. The sign "0" in these financial statements indicate that the amounts involved are below the rounding off norms and the sign "-" indicates that the amount is ''Nil''. 2.2 Significant estimates, judgements and assumptions The key accounting estimates and judgements used in the preparation of the financial statement relates to: Direct and Indirect Taxes - Provisions and contingent liabilities ( Refer Note 28) The Company has disputed claims under direct and indirect tax laws. Management discloses amounts claimed by the tax authorities as either contingent liabilities or recognizes them as provisions, based on subject matter under dispute, management''s experience with disputes of a similar nature and advice from tax experts. Recognition and disclosure of such disputed claims may vary subsequently. The Company derives its revenues primarily from contracts with customers for sale of goods and services. Revenue from sale of goods is net of returns, rebates and applicable Goods and Services Tax (GST). The Company accounts for the contract with customers when (i) the contract is approved by the parties (ii) the parties are committed to perform their obligations (iii) the right of parties, including payment terms, are identified (iv) the contract has commercial substance and (v) consideration is probable of collection. The Transaction price reflects the amount of consideration to which the Company expects to be entitled in exchange for transferring products and services to the customer. If the consideration includes variable amount, the Company estimates the amounts to which it expects to be entitled. Generally, variable consideration includes volume discounts, rebates and sales returns that reduce the transaction price. When the Company determines the transaction price it includes the variable consideration only to the extent it is highly probable that a significant reversal will not occur in the future. The Company sells its products to the distributors with a right of return within 12 months. When such customers have a right to return the product the Company recognises a refund liability included in other current liabilities for the products expected to be returned and an asset (via right to recover returned goods). The Company recognise the expected annual turnover/volume discounts payable to distributors in relation to sales of goods made until the end of the reporting period. The customers are divided in different grades at the inception of the year and accordingly targets are also set. The annual turnover/ volume discount and yearend payable thereon is netted-off to revenue and trade receivable respectively. The Company provides general product warranty to the customers for a period of 12 months in case of hard metal and 15 months in case of machine solution upon the sale of products. However in exceptional cases it provides a general warranty upto 24 months. The Companyâs obligation to repair or replace faulty products under the standard warranty terms is recognized as a provision under product support. When a contract includes multiple performance obligations, the transaction price is allocated to each performance obligation in an amount that depicts the consideration, to which the Company expects to be entitled in exchange of transferring promised goods and services. Revenue is recognised when the obligations under the terms of contract with customers are satisfied. Revenue is recognised at a point in time depending on when the underlying products or services are transferred to the customer. Revenue is recognised when control of the products has been transferred to the customer. The Company has elected the following practical expedients in accordance with Ind AS 115: - The Company does not account for significant financing components if the period between revenue recognition and when the customer pays for the product or service will be one year or less. - The Company does not disclose the performance obligation that has an original expected duration of one year or less. - The Company has elected, as a practical expedient, to expense as incurred cost to obtain a contract equal to or less than one year in duration. (i) Sale of manufactured and traded Products: Product revenue consists of sale of hard metal and machining solution. Revenue from sale of hard metal and machining solution is recognized when control over product is transferred in accordance with contractual terms of sale and there are no unfulfilled performance obligations that could affect the customerâs acceptance of the products that is typically upon dispatch or the customer has accepted the product and the Company has a present right to payment, in accordance to the terms of contract. Sale of services includes maintenance (regrinding), installation and commission and other professional support services. Revenue related to fixed price maintenance (regrinding) services where the Company is standing ready to provide services is recognised on completion. Revenue related to Installation and commission services is treated as separate performance obligation and recognized as and when the services are performed and accepted by customer in accordance with contractual terms. Revenue related to undelivered performance obligations is deferred and recognised when or as the control is transferred to the customer. Contract Assets are recognised when the Company has the rights to consideration in exchange for goods and services that the Company has transferred to a customer and when such right is conditional upon something other than passage of time. Contract liabilities (deferred revenue) primarily consists of installation and commission on sale of machine solution. Deferred Revenue are recognised when the Company has the right to invoice and the revenue recognition criteria are not met. Revenue in case of these items is recognised when the revenue recognition criteria is met generally resulting in the relatable recognition over the contract term. (v) Disaggregation of revenue: The Company''s revenue is presented on a disaggregated basis based on the information regularly reviewed by the Chief Operating Decision Maker (CODM) for evaluating the financial performance of operating segments, and other information that is used to evaluate the financial performance or make resource allocations. This information includes revenue from products and services and revenue from reportable segments. Commission on order based sales is recognised as and when the performance obligation is satisfied and the right to receive the consideration is established. The Export incentives from the Government such as Remission of Duties or Taxes on Export Products (RoDTEP), duty drawback, and Merchandise Exports from India Scheme (MEIS) Scheme are recognised at their fair value where there is a reasonable assurance that the grant will be received and the group will comply with all attached conditions. The fair value is measured as a percentage of export sales as per the scheme. Government grants relating to income are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate and presented within other income for MEIS, net of cost of material consumed for RoDTEP and dutydrawback. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets and presented within other income. Interest income from financial assets at fair value through profit or loss is disclosed as interest income within other income. Interest income on financial assets at amortised cost and financial assets at Fair value Particulars Estimated range of useful life (in years) Buildings 3 - 40 Data processing equipment 2 - 5 Plant and machinery 3 - 15 Furniture and fixtures 5 - 10 Office equipment 2 - 5 Machinery spares of irregular usage are depreciated over the estimated useful life of the respective plant and machinery. through other comprehensive income (FVOCI) is calculated using the effective interest method is recognised in the statement of profit and loss as part of other income. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss allowance). Dividends are received from financial assets at fair value through profit or loss and at FVOCI. Dividends are recognised as other income in profit or loss when the right to receive payment is established. This applies even if they are paid out of pre-acquisition profits, unless the dividend clearly represents a recovery of part of the cost of the investment. Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business and reflect the Companyâs unconditional right to consideration (that is, payment is due only on the passage of time). Trade receivables are recognised initially at the transaction price as they do not contain significant financing components. The Company holds the trade receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method, less loss allowance. 2.7 Property, plant and equipment Freehold land is carried at historical cost. All other items of property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset''s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to Statement of Profit and Loss during the reporting period in which they are incurred. Transition to IND AS: On transition to Ind AS, the Company has elected to continue with the carrying value of all of its property, plant and equipment measured as per the previous GAAP and use that carrying value as the deemed cost of the property, plant and equipment. Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date is classified as capital advances under other non-current assets. Assets in the course of construction are capitalised under Capital work in progress (CWIP). At the point when the construction of the asset is completed and it is ready to be operated as per managementâs intended use, the cost of construction is transferred to the appropriate category of property, plant and equipment and depreciation commences. Any revenue (net of cost) generated from production during the trial period is capitalized. Depreciation method, estimated useful life and residual value Depreciation is provided on a pro-rata basis on the straight-line method over the estimated useful life of the assets. The useful life has been determined based on technical evaluation done by the management''s expert which are different from useful life specified by Schedule II to the Companies Act, 2013, in order to refect the actual usage of the assets. The assets'' residual value and useful life are reviewed, and adjusted if appropriate, at the end of each reporting period. An assetâs carrying amount is written down immediately to its recoverable amount if the assetâs carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss within other income/expenses. Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Company, is classified as investment property. Investment property is measured initially at its cost, including related transaction costs and where applicable borrowing costs. Subsequent expenditure is capitalised to the assetâs carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised. Intangible Assets are stated at acquisition cost, net of accumulated amortisation and accumulated impairment losses, if any. Operating Software is capitalised along with the related property, plant and equipment and amortised over the useful life of the asset. Application software is capitalised, if it has an enduring benefit, and is amortised over its useful life or term of the contract whichever is lower. Research expenditure and development expenditure that do not meet the criteria to be recognized as asset (only if probable that future economic benefits that are attributable to the assets will flow to the Company and the costs can be measured reliably) are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assetâs carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assetâs fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Company, is classified as investment property. Investment property is measured initially at its cost, including related transaction cost Inventories are stated at the lower of cost and the net realisable value after providing for obsolescence and other losses, where considered necessary. Cost of raw materials and stock-in-trade comprises cost of purchases. Cost of work-in-progress and finished goods comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Cost of inventories also include all other costs incurred in bringing the inventories to their present location and condition. Costs are assigned to individual items of raw materials, stores and spares, work in progress and stock-in-trade on the basis of weighted average whereas manufactured goods are ascertained on first-in-first-out method. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. When the Company is the lessee, all leases with a term of more than 12 months are recognised as Right-of-Use (""ROU"") assets and associated lease liabilities in the balance sheet. The lease liabilities are measured at the lease inception date at the present value of the lease payments not yet paid determined using the Company''s incremental borrowing rate, being the rate that the Company would have to pay to borrow the funds necessary to obtain an asset of similar value to the ROU asset in a similar economic environment with similar terms, security and conditions. ROU assets represent the Company''s right to control the underlying assets under lease, and the lease liability is the obligation to make the lease payments related to the underlying assets under lease. The interest rate implicit in the lease is generally not determinable in transactions where the Company is the lessee. The ROU asset equals the lease liability adjusted for any initial direct costs, prepaid and accrued rent and lease incentives. Fixed and in-substance fixed payments are included in the recognition of ROU assets and lease liabilities. However, variable lease payments, other than those based on a rate or index, are recognised in the Statement of Profit and Loss in the period in which the obligation for those payments is incurred. Real estate lease contains predefined escalations which are mainly due to inflation and does not have variable portion. The lease agreements do not impose any covenants on the Company. ROU assets are generally amortised on a straight-line basis over the lease term with the interest expense on the lease liability recorded using the incremental borrowing rate. The amortisation and interest expense are recorded separately in the Statement of Profit and Loss. Lease costs for short-term leases (i.e., term less than 12 months) are recognised in the Statement of Profit and Loss. 2.13 Employee benefits Defined benefit plan Provident Fund Eligible employees of the Company receive benefits from a provident fund, which is a defined benefit plan. Both, the eligible 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 to Kennametal India Limited Employee''s Provident Fund Trust. The Trust invests in specific designated instruments as permitted by Indian law. The rate at which the annual interest is payable to the beneficiaries by the Trust is stipulated by the Government. The Company has an obligation to make good the shortfall, if any, between the return from investments of the Trust and the notified interest rate. The Company provides for gratuity, a defined benefit plan (''the Gratuity Plan'') covering eligible employees. The Gratuity Plan provides a lump-sum payment to vested employees a retirement, death, incapacitation or termination of employment, of an amount based on the respective employee''s salary and the tenure of employment with the Company. Liabilities with regard to the Gratuity Plan are determined by a valuation, performed by an independent actuary at each Balance Sheet date using the projected unit credit method. The Company fully contributes all ascertained liabilities to the Kennametal India Limited Employees Gratuity Fund Trust (the Trust). The Trustees administer the contributions made to the Trust which are invested in a scheme with HDFC Life Insurance Company Limited as permitted by Indian law. The Company recognises the net obligation of a defined benefit plan in its Balance Sheet as an asset or liability. Gains and losses through re-measurements of the net defined liability / (asset) are recognised in other comprehensive income and are not reclassified to profit or loss in subsequent periods. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognised in other comprehensive income. The effect of any plan amendments are recognised in net profit in the Statement of Profit and Loss. Other long-term employee benefit obligations Compensated absences The liabilities for compensated absences are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. These obligations are therefore measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. The benefits are discounted using the appropriate market yields at the end of the reporting period that have terms approximating to the terms of the related obligation. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss. Certain employees of the Company are entitled to other long-term benefits in the nature of long term service awards as per the policy of the Company. Liability for such benefits is provided for on the basis of valuation performed by an independent actuary using the projected unit credit method at the balance sheet date. Liabilities for wages and salaries, including non-monetary benefits that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employeesâ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet. 2.14 Foreign currency translation(i) Functional and presentation currency Items included in the financial Statements of the Company are measured using the currency of the primary economic environment in which the entity operates. (''the functional currency''). The financial Statements are presented in Indian rupee '', which is the Company''s functional and presentation currency. Foreign currency transactions are translated into the functional currency using the exchange rates that approximate the actual rates at the date of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in Statement of Profit or Loss. All other foreign exchange gains and losses are presented in the Standalone Statement of Profit and Loss on a net basis within Other income or Other expenses. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). The Board of Directors or the Board of the Company assesses the financial performance and position of the Company and makes strategic decisions. The Board has been identified as being the CODM. The income tax expense or credit for the period is the tax payable on the current period''s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses, if any. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the company operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The Company measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting profit nor taxable profit (tax loss). Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for all deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Stock-based compensation awards are provided to selected employees under the terms of the long-term incentive plan of Kennametal Inc. USA, the ultimate holding company. Awards available under the plans include restricted stock units ("RSUs") which are granted to certain senior management employees of the Company. Stock-based compensation represents the cost related to group stock-based awards granted to employees. RSUs entitle the holder to shares of common stock as the award vest, typically over 2 years or 3 years depending upon the scheme and year of grant. RSUs are time vesting stock units and therefore the fair value of the units is determined and fixed on the grant date based on market value of Kennametal Inc''s share price, adjusted for the exclusion of dividend equivalents. The Company measures stock-based compensation cost at the grant date, based on the estimated fair value of the award and recognizes the cost (net of estimated forfeitures) over the employee requisite service period. The total expense in respect of the above share based payment scheme is recognised over the vesting period with a corresponding adjustment to equity compensation reserve as a capital contribution from Kennametal Inc. The inter company cross charge received from the ultimate holding company, if any, is offset against the equity compensation reserve. A liability is recognised when the award is released to or exercised by the Company''s employees and billed by Kennametal Inc. 2.18 Provisions and contingent liabilities Provisions for legal claims, service warranties, volume discounts and returns are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management''s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that refects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets Initial recognition All the financial assets and financial liabilities are initially recognised at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. However, trade receivables that do not contain a significant financing component are measured at transaction price. Subsequent measurement(a) Financial assets(i) Financial assets carried at amortised cost A financial asset is subsequently measured at amortised cost if it is held within a business model whose objective is to hold the asset in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. (ii) Financial assets at fair value through other comprehensive income (FVTOCI) A financial asset is subsequently measured at FVTOCI if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. (iii) Financial assets at fair value through profit or loss (FVTPL) Financial assets which are not classified in any of the above categories are subsequently measured at FVTPL . A gain or loss on a debt investment that is subsequently measured at FVTPL and is not part of a hedging relationship is recognised in the Statement of Profit and Loss and presented net in the period in which it arises. Interest income from these financial assets is included in other income. The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition under Ind AS 109 ''Financial Instruments''. A financial liability (or a part of a financial liability) is derecognised from the Company''s balance sheet when the obligation specified in the contract is discharged or cancelled or expires. Financial liabilities are subsequently carried at amortized cost using the effective interest rate method. For trade and other payables maturing within one year from the Balance Sheet date, the carrying amounts approximate fair value due to short maturity of these instruments. Offsetting financial instruments Financial assets and liabilities are offset and the net amounts is reported in the balance sheet where there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty. 2.20 Impairment of financial assets The Company assesses on a forward looking basis the expected credit losses associated with its assets carried at amortised cost and FVOCI debt instruments. The impairment methodology applied depends on whether there has been a significant increase in credit risk. Note 34 details how the Company determines whether there has been a significant increase in credit risk. For trade receivables, the Company applies the simplified approach required by Ind AS 109, which requires expected lifetime losses to be recognised from initial recognition of the receivables. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: - in the principal market for the asset or liability, or - in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Company. Fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities; Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the Financial Statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurements as a whole) at the end of each reporting period. For the purpose of fair value disclosures, the Company has determined the classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liabilities and the level of the fair value hierarchy as explained above. 2.22 Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period. Basic earnings per share is calculated by dividing the net profit for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, the net profit for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of dilutive potential equity shares, if any. 2.25 Business combinations - common control transactions ⢠The assets and liabilities of the combining entities are refected at their carrying amounts. ⢠No adjustments are made to refect fair values, or recognise any new assets or liabilities. Adjustments are only made to harmonise accounting policies. ⢠The financial information in the financial statements in respect of prior periods is restated as if the business combination had occurred from the beginning of the preceding period in the financial statements, irrespective of the actual date of the combination. However, where the business combination had occurred after that date, the prior period information is restated only from that date. ⢠The balance of the retained earnings appearing in the financial statements of the transferor is aggregated with the corresponding balance appearing in the financial statements of the transferee or is adjusted against general reserve. ⢠The identity of the reserves are preserved and the reserves of the transferor become the reserves of the transferee. ⢠The difference, if any, between the amounts recorded as share capital issued plus any additional consideration in the form of cash or other assets and the amount of share capital of the transferor is transferred to capital reserve and is presented separately from other capital reserves
Jun 30, 2022
1 Background
1.1 Kennametal India Limited ("the Company") incorporated under the Companies Act, 1956, is in the business of manufacturing and trading of hard metal products and manufacturing of capital intensive machines along with fixtures and spares. The Company has its manufacturing facility in Bengaluru and sells its product and services through sales and support offices. The Company is a public limited Company incorporated and domiciled in India and has its registered office at 8/9th Mile, Tumkur Road, Bengaluru 560 073. The Company is listed on the Bombay Stock Exchange Limited (BSE). The standalone financial statements were approved for issue by Companyâs board of directors on August 12, 2022.
1.2 Further to the scheme of amalgamation (refer note 39) and approval of the Board of Directors in its meeting dated December 4, 2020, the operations of the wholly owned subsidiary, WIDIA India Tooling Private Limited (''WITPLâ) have been transferred to the Company. Consequently, the employees, creditors and property, plant and equipment have also been transferred to the Company. The amalgamation will enable the entities to integrate its business operations and provide impetus to the operations of the Company. The consolidation of the activities by way of an amalgamation will provide seamless access to the assets (including intangible assets, licenses and intellectual properties) of WITPL, which will lead to synergies of operations, reduction in overheads including administrative, managerial and other expenditure, operational rationalization, organizational efficiency and optimal utilization of resources. The combined entity will have a bigger portfolio of services targeted at a wider array of customers, which will strengthen its competitive position in providing products and services to the customers.
2 Significant accounting policies2.1 Basis of preparation:
(i) Compliance with Ind AS :
The financial statements comply in all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the Act) read with Companies (Indian Accounting Standards) Rules, 2015 as amended and other relevant provisions of the Act. The financial statements have been prepared on accrual and going concern basis.
(ii) Historical cost convention
The financial statements have been prepared on a historical cost basis, except for the following:
a) Certain financial assets and liabilities are measured at fair value;
b) Assets held for sale- measured at fair value less cost to sales;
c) Defined benefit plans- plan assets measured at fair value; and
d) Share based payments- measured at fair value.
All assets and liabilities have been classified as current or non-current as per the Companyâs operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013. Based on the nature of services and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current/ non-current classification of assets and liabilities.
(iii) Current / non-current classification
The Company presents assets and liabilities in the balance sheet based on current / non-current classification.
An asset is treated as current when it is:
- expected to be realised or intended to be sold or consumed in normal operating cycle;
- held primarily for the purpose of trading;
- expected to be realised within twelve months after the reporting period, or
- cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
- It is expected to be settled in normal operating cycle;
- It is held primarily for the purpose of trading;
- It is due to be settled within twelve months after the reporting period, or
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
All other liabilities are classified as non-current.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has evaluated and considered its operating cycle as 12 months.
Deferred tax assets/ liabilities are classified as non-current assets/ liabilities.
2.2 Significant estimates, judgements and assumptions
The application of accounting standards and policies requires the Company to make estimates and assumptions about future events that directly affect its reported financial condition and operating performance. The accounting estimates and assumptions discussed are those that the Company considers to be most critical to its financial statements. An accounting estimate is considered critical if both (a) the nature of estimates or assumptions is material due to the level of subjectivity and judgement involved, and (b) the impact within a reasonable range of outcomes of the estimates and assumptions is material to the Company''s financial condition or operating performance.
The areas involving critical estimates are:
(i) Recognition of deferred tax assets
The extent to which deferred tax assets can be recognised is based on an assessment of the probability that future taxable income will be available against which the deductible temporary differences and tax loss carry forward can be utilised. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions.
(ii) Evaluation of indicators for impairment of assets
"The evaluation of applicability of indicators of impairment of assets requires assessment of several external and internal
factors which could result in deterioration of recoverable amount of the assets. In assessing impairment, management estimates the recoverable amount of each asset or cash generating units based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate."
(iii) Recoverability of advances / receivables
At each Balance Sheet date, based on historical default rates observed over expected life, the management assesses the expected credit loss on outstanding receivables including Remission of Duties and Taxes(RODtep) and MEIS and other advances.
(iv) Useful lives of depreciable / amortisable assets
Management reviews its estimate of the useful lives of depreciable / amortisable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical and economic obsolescence that may change the utility of certain items of property, plant and equipment.
(v) Estimate of product support and commissioning cost
At each balance sheet date basis the management judgement and historical trend, the Company assesses the requirement of provisions for product support and Machine commissioning cost. However, the actual future outcome may be different from the judgement.
"The Company provides a standard warranty of 12 months from the date of commissioning / sales or 15 months from the date of delivery, whichever is earlier. However in exceptional cases it provides a general warranty upto 24 months."
(vi) Estimation of defined benefit obligation
Measurement of obligation towards defined benefit plans such as gratuity and provident fund are based on the actuarial valuation using the projected unit credit method. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. Significant assumptions include determination of discount rate, future salary increases, etc. Due to complexities involved in the valuation and its long term nature, defined benefit obligation is sensitive to changes in these assumptions (refer note 16).
(vii) Material return provision
At each balance sheet date basis the management judgement, the Company assesses the requirement of material return provision. However, the actual future outcome may be different from the judgement.
(viii) Customer loyalty programme
The Company recognises the provision for customer loyalty programme based on the ratio of sales targets met by the customers.
(ix) Litigations
The Company records provision and contingent liabilities for pending litigations by considering the probability and the amount of loss involved in each case.
The Company derives revenues primarily from sale of manufactured goods, traded goods and related services.
As per Ind AS 115, revenue is recognised to depict the transfer of promised goods or services to a customer in an amount that refects the fair value of the consideration received or receivable which the entity expects to be entitled in exchange for those goods or services. Ind AS 115 establishes a five-step model that will apply to revenue earned from a contract with a customer, regardless of the type of revenue transaction or the industry.
Revenue is recognized on satisfaction of performance obligation upon transfer of control of promised products or services to customers in an amount that refects the consideration which the Company expects to receive in exchange for those products or services. Revenue is measured at the fair value of the consideration received or receivable, net of returns, discounts and volume rebates.
Revenue in excess of invoicing are classified as contract asset while invoicing in excess of revenues are classified as contract liabilities.
The Company operates a loyalty programme for the customers and dealers for the sale of goods. The customers are divided in different grades at the inception of the year and accordingly targets are also set. The provision of loyalty programme is netted-off to revenue.
The Company recognises provision for sales return, basis the judgement of the management. However, the actual future outcome may be different from the judgement. Therefore, a refund liability, included in other current liabilities, are recognized for the products expected to be returned.
The Company does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, it does not adjust any of the transaction prices for the time value of money.
Other operating revenue
Income from export incentives such as duty drawback and Merchandise Export Incentive Scheme are recognised on accrual basis when no significant uncertainties as to the amount of consideration that would be derived and as to its ultimate collections exists.
Commission on order based sales is recognised as and when the performance Obligation is completed and the right to receive the consideration is established.
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset''s net carrying amount on initial recognition.
Dividends are recognised in profit or loss only when the right to receive payment is established, it is probable that the economic benefits associated with the dividend will flow to the Company, and the amount of dividend can be measured reliably.
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Company
holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost less loss allowance.
2.6 Property, plant and equipment
Freehold land is carried at historical cost. All other items of property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset''s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to Statement of Profit or Loss during the reporting period in which they are incurred.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date is classified as capital advances under other non-current assets and the cost of assets not put to use before such date are disclosed under ''Capital work-in-progressâ. Subsequent expenditures relating to property, plant and equipment is capitalised only when it is probable that future economic benefits associated with these will flow to the Company and the cost of the item can be measured reliably.
Depreciation method, useful lives and residual value
Depreciation is provided on a pro-rata basis on the straight-line method over the estimated useful life of the assets which are different from useful life indicated in Schedule II of Companies Act, 2013, in order to refect the actual usage of the assets. The estimates of the useful life of the assets, based on technical evaluation, have not undergone a change on account of transition to the Companies Act, 2013. The assets'' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
|
Particulars |
Estimated range of useful life (in years) |
|
Buildings (including temporary structures) |
20 - 40 |
|
Plant and machinery: |
|
|
Data processing equipment |
3 - 5 |
|
Others |
5 - 15 |
|
Vehicles |
5 |
|
Office equipment |
5 |
|
Furniture and fixtures |
10 |
Machinery spares of irregular usage are depreciated over the estimated useful life of the respective plant and machinery.
Schedule II requires the Company to identify and depreciate significant components with different useful lives separately. The Company has evaluated the applicability of component accounting as prescribed under Ind AS 16, Property, plant and equipment, and Schedule II of the Companies Act, 2013, The management has evaluated the requirement of Schedule II and has not identified any significant component having different useful lives.
Intangible assets are recognised only if is probable that future economic benefits that are attributable to the assets will flow to the
Company and the costs can be measured reliably. Intangible assets are stated at acquisition cost, net of accumulated amortisation and accumulated impairment losses, if any. Intangible assets are amortised over their estimated useful life.
(i) Research and development
"Research expenditure and development expenditure that do not meet the criteria defined above are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period."
(ii) Amortisation methods and periods
Application software is expensed off on purchase, except in case of major application software having unit value exceeding '' 1 million or forming part of an overall project, which is amortised over its estimated useful life or project life not exceeding three years.
The amortisation period used for intangible assets are reviewed at each financial year end.
At each reporting date, the Company assesses whether there is any indication that an asset may be impaired, based on internal or external factors. If any such indication exists, the Company estimates the recoverable amount of the asset or the cash generating unit. If such recoverable amount of the asset or cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the Standalone Statement of Profit and Loss. If, at the reporting date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is refected at the recoverable amount. Impairment losses previously recognised are accordingly reversed in the Standalone Statement of Profit and Loss.
Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Raw materials and stores, work in progress, stock-in-trade and finished goods are stated at the lower of cost and net realisable value. Cost of raw materials and stock-in-trade comprises cost of purchases. Cost of work-in-progress and finished goods comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Cost of inventories also include all other costs incurred in bringing the inventories to their present location and condition. Costs are assigned to individual items of raw materials, stores and spares, work in progress and stock-in-trade on the basis of weighted average whereas manufactured goods are ascertained on first-in-first-out method. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Company, is classified as investment property. Investment property is measured initially at its cost, including related transaction costs. Subsequent
expenditure is capitalised to the asset''s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised.
Investments in subsidiary is recognised at cost as per Ind AS 27, except where investments accounted for at cost shall be accounted for in accordance with Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations, when they are classified as held for sale.
"The Companyâs lease asset classes primarily consist of leases for buildings. The Company assesses whether a contract contains a lease, at inception of a contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:
(i) the contact involves the use of an identified asset (ii) the Company has substantially all of the economic benefits from use of the asset through the period of the lease and (iii) the Company has the right to direct the use of the asset.
At the date of commencement of the lease, the Company recognizes a right-of-use asset (âROUâ) and a corresponding lease liability for all lease arrangements in which it is a lessee, except for leases with a term of twelve months or less (short-term leases) and low value leases. For these short-term and low value leases, the Company recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease.
Certain lease arrangements include the options to extend or terminate the lease before the end of the lease term. ROU assets and lease liabilities includes these options when it is reasonably certain that they will be exercised.
The right-of-use assets are initially recognized at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or prior to the commencement date of the lease plus any initial direct costs less any lease incentives. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Right-of-use assets are depreciated from the commencement date on a straight-line basis over the shorter of the lease term and useful life of the underlying asset. Right of use assets are evaluated for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the Cash Generating Unit (CGU) to which the asset belongs
The lease liability is initially measured at amortized cost at the present value of the future lease payments. The lease payments are discounted using the interest rate implicit in the lease or, if not readily determinable, using the incremental borrowing rates in the country of domicile of these leases. Lease liabilities are remeasured with a corresponding adjustment to the related right of use asset if the Company changes its assessment if whether it will exercise an extension or a termination option.
Lease liability and ROU asset have been separately presented in the Balance Sheet and lease payments have been classified as financing cash flows"
Expenses and liabilities in respect of employee benefits are recorded in accordance with Ind AS 19, Employee Benefits.
Defined benefit plan
Eligible employees of the Company receive benefits from a provident fund, which is a defined benefit plan. Both the eligible 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 to Kennametal India Limited Employee''s Provident Fund Trust. The trust invests in specific designated instruments as permitted by Indian law. 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 investments of the Trust and the notified interest rate.
Gratuity
The Company provides for gratuity, a defined benefit plan (''the Gratuity Plan'') covering eligible employees. The Gratuity Plan provides a lump-sum payment to vested employees a retirement, death, incapacitation or termination of employment, of an amount based on the respective employee''s salary and the tenure of employment with the Company.
Liabilities with regard to the Gratuity Plan are determined by actuarial valuation, performed by an independent actuary at each Balance Sheet date using the projected unit credit method. The Company fully contributes all ascertained liabilities to the Kennametal India Limited Employees Gratuity Fund Trust (the Trust). Trustees administer contributes made to the Trust and contributions are invested in a scheme with Life Insurance Corporation of India and HDFC Life Insurance Company Limited as permitted by Indian law.
The Company recognises the net obligation of a defined benefit plan in its Balance Sheet as an asset or liability. Gains and losses through re-measurements of the net defined liability / (asset) are recognised in other comprehensive income and are not reclassified to profit or loss in subsequent periods. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognised in other comprehensive income. The effect of any plan amendments are recognised in net profit in the Standalone Statement of Profit and Loss.
Other long-term employee benefit obligations Compensated absences
The Company provides benefit of compensated absences under which unavailed leave are allowed to be accumulated to be availed in future. The compensated absences comprises of vesting benefit. The cost of short term compensated absences are provided for based on estimates. Long term compensated absence costs are provided for based on actuarial valuation using the project unit credit method. The Company presents the entire leave as a current liability in the balance sheet, since it does not have an unconditional right to defer its settlement for 12 months after the reporting date.
The present value of the defined benefit obligation denominated in INR is determined by discounting the estimated future cash outflows
by reference to market yields at the end of the reporting period on government bonds that have terms approximating to the terms of the related obligation.
Service cost on the Companyâs defined benefit plan is included in employee benefits expense. Employee contributions, all of which are independent of the number of years of service, are treated as a reduction of service cost. Net interest expense on the net defined benefit liability is included in finance costs.
Further, as required under Ind AS compliant Schedule III, the Company transfers those amounts recognized in other comprehensive income to retained earnings in the statement of changes in equity and in the balance sheet.
Long-term service awards
Certain employees of the Company are entitled to other long-term benefits in the nature of long term service awards as per the policy of the Company. Liability for such benefits is provided on the basis of an independent actuarial valuation using the projected unit credit method at the balance sheet date.
Short-term employee benefits
Short-term employee benefits comprise of employee costs such as salaries, bonus etc. is recognized on the basis of the amount paid or payable for the period during which services are rendered by the employee.
2.14 Foreign currency translation
(i) Functional and presentation currency
Items included in the Standalone Financial Statements of the Company are measured using the currency of the primary economic environment in which the entity operates. (''the functional currency''). The Standalone Financial Statements are presented in Indian rupee '', which is the Company''s functional and presentation currency.
(ii) Transaction and balances
Foreign currency transactions are translated into the functional currency using the exchange rates that approximate the actual rates at the date of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in Statement of Profit or Loss.
All other foreign exchange gains and losses are presented in the Standalone Statement of Profit and Loss on a net basis within other income/other expenses.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM).
The managing director of the Company assesses the financial performance and position of the Company and makes strategic decisions. The managing director has been identified as being the CODM. Refer note 37 for segment information presented. The measurement of each segmentâs revenues, expenses and assets is consistent with the accounting policies that are used in preparation of the Company''s financial statements.
The income tax expense or credit for the period is the tax payable on
the current period''s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses, if any.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the country where the Company operate and generate taxable income.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Standalone Financial Statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets (DTA) are recognised for all deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilize those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in Statement of Profit or Loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Minimum Alternative Tax ("MAT") credit is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal period income tax during the specified period. Such asset is reviewed at each Balance Sheet date and the carrying amount of the MAT credit asset is written down to the extent there is no longer a convincing evidence to the effect that the Company will pay normal income tax during the specified period.
Stock-based compensation awards are provided to selected employees under the terms of the long-term incentive plan of the Kennametal Inc. USA, the ultimate holding Company. Awards available under the plans include restricted stock units ("RSUs") which are granted to certain senior management employees of the Company. Stock-based compensation represents the cost related to group stock-based awards granted to employees.
RSUs entitle the holder to shares of common stock as the award vest, typically over 3 years or 4 years depending upon the scheme and year of grant. RSUs are time vesting stock units and therefore the fair value of the units is determined and fixed on the grant date based on market value of Kennametal Inc''s share price, adjusted for the exclusion of dividend equivalents. The Company measures stock-based compensation cost at the grant date, based on the estimated fair value of the award and recognizes the cost (net of estimated
forfeitures) over the employee requisite service period.
The total expense in respect of the above share based payment scheme is recognised over the vesting period with a corresponding adjustment to equity compensation reserve as a capital contribution from Kennametal Inc. The inter-Company charge is offset against the equity compensation reserve. A liability is recognised when the award is released to or exercised by the Company''s employees and billed by Kennametal Inc.
2.18 Provisions and contingent liabilities
Provisions for legal claims, service warranties, volume discounts and returns are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of management''s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that refects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.
Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets Initial recognition
The Company recognises financial assets and financial liabilities when it becomes a party to the contractual provisions of the instrument. All financial assets and liabilities are recognized at fair value on initial recognition, except for trade receivables which are initially measured at transaction price. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities, that are not at fair value through profit or loss, are added to the fair value on initial recognition. Regular way purchase and sale of financial assets are accounted for at trade date.
Subsequent measurement
(i) Financial assets carried at amortised cost
A financial asset is subsequently measured at amortised cost if it is held with in a business model whose objective is to hold the asset in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding. A gain or loss on a debt investment that is subsequently measured at amortised cost and is not part of a hedging relationship is recognised in Standalone Statement of profit or loss when the asset is derecognised or impaired. Interest income from these financial assets is included in finance income using the effective interest rate method.
(ii) Financial assets at fair value through other comprehensive income (FVTOCI)
A financial asset is subsequently measured at fair value through other comprehensive income if it is held with in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognised in profit and loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/ (losses). Interest income from these financial assets is included in other income using the effective interest rate method.
(iii) Financial assets at fair value through profit or loss (FVTPL)
Financial assets which are not classified in any of the above categories are subsequently fair valued through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognised in statement of profit or loss and presented net in the period in which it arises. Interest income from these financial assets is included in other income.
(iv) Equity investments
All equity investments in scope of Ind AS 109, Financial Instruments, are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS 103 Business Combinations, applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument-by- instrument basis. The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to Standalone Statement of Profit and Loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity.
Derecognition
The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition under Ind AS 109 ''Financial Instruments''. A financial liability (or a part of a financial liability) is derecognised from the Company''s balance sheet when the obligation specified in the contract is discharged or cancelled or expires.
2.19 Financial instruments (cont''d)Financial liabilities Initial recognition
All financial liabilities are recognised initially at fair value and transaction cost that is attributable to the acquisition of the financial liabilities is also adjusted. These instruments are classified as amortised cost.
Subsequent measurement
These liabilities includes deposits. Subsequent to initial recognition, these liabilities are measured at amortised cost using effective interest method.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109, Financial Instruments.
Gains or losses on liabilities held for trading are recognised in the profit or loss
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains/ loss are not subsequently transferred to Standalone Statement of Profit and Loss. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the Statement of Profit or Loss. The Company has not designated any financial liability as at fair value through profit and loss.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the Standalone Statement of Profit and Loss.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amounts is reported in the balance sheet where there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.
Derivatives and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative
is designated as a hedge instrument, and if so, the nature of the item being hedged and the type of hedge relationship designated.
When forward contracts are used to hedge forecast transactions, the Company generally designates only the changes in fair value of the forward contract related to the spot component as the hedging instrument. Gains or losses relating to the effective portion of the change in the spot component of the forward contracts are recognised in Standalone Statement of Profit and Loss.
2.20 Impairment of financial assets
In accordance with Ind AS 109 Financial Instruments, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss for financial assets.
The Company tracks credit risk and changes thereon for each customer. For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, life time ECL is used. If in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12-month ECL.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR. When estimating the cash flows, an entity is required to consider:
- All contractual terms of the financial instrument over the expected life of the financial instrument. However, in rare cases when the expected life of the financial instrument cannot be estimated reliably, then the entity is required to use the remaining contractual term of the financial instrument.
- Cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the Standalone Statement of Profit and Loss. This amount is refected under the head ''other expensesâ in the Standalone Statement of Profit and Loss.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines whether there has been a significant increase in the credit risk since initial recognition and if credit risk has increased significantly, impairment loss is provided.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability, or
- In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company.
Fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the Standalone Financial Statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the Standalone Financial Statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurements as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Company has determined the classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liabilities and the level of the fair value hierarchy as explained above.
2.22 Cash and cash equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
Final dividends on shares are recorded as a liability on the date of approval by the share holders and interim dividends are recorded as a liability on the date of declaration by the Company''s board of directors.
The Company declares and pays dividends in Indian rupees. The remittance of dividends outside India is governed by Indian Law on foreign exchange and is subjected to applicable distribution taxes.
Borrowings are initially recognised at net of transaction costs incurred and measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Standalone Statement of Profit and Loss over the period of the borrowings using the effective interest method.
Interest and other borrowing costs attributable to qualifying assets are capitalised. Other interest and borrowing costs are charged to Standalone Statement of Profit and Loss.
Basic earnings per share is calculated by dividing the net profit for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, the net profit for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of dilutive potential equity shares, if any.
2.27 Recent accounting pronouncementsStandards issued but not effective on Balance Sheet date:
"Ministry of Corporate Affairs (âMCAâ) notifies new standards or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. On March 23, 2022, MCA amended the Companies (Indian Accounting Standards) Amendment Rules, 2022, as below;"
Ind AS 109 - Financial Instruments
"The amendment clarifies that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability. In determining those fees paid net of fees received, a borrower includes only fees paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other''s behalf.
If an exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the exchange or modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability. "
Ind AS 16 - Property Plant and equipment
The amendment clarifies that excess of net sale proceeds of items produced over the cost of testing, if any, shall not be recognised in the profit or loss but deducted from the directly attributable costs considered as part of cost of an item of property, plant, and equipment. The Company has evaluated the amendment and there is no impact on its standalone financial statements.
Ind AS 37 - Provisions, Contingent Liabilities and Contingent Assets
The amendment specifies that the ''cost of fulfillingâ a contract comprises the ''costs that relate directly to the contractâ. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract). The Company has evaluated the amendment and there is no impact on its standalone financial statements.
Jun 30, 2018
1.1 Basis of preparation and purpose of financial statements:
(i) Compliance with Ind AS :
The financial statements comply in all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the Act) read with Companies (Indian Accounting Standards) Rules, 2015 as amended and other relevant provisions of the Act. The financial statements up to year ended 30 June 2016 was prepared in accordance with the accounting standards notified under Companies (Accounting Standard) Rules, 2006 (as amended) and other relevant provisions of the Act. These financial statements are the first financial statements of the Company under Ind AS. Refer note 39 for the explanation of transition from Indian GAAP to Ind AS.
The accounting policies are applied consistently to all the periods presented in the financial statements.
(ii) Historical cost convention
The financial statements have been prepared on a historical cost basis, except for the following:
a) Certain financial assets and liabilities are measured at fair value;
b) Assets held for sale - measured at fair value less cost to sales;
c) Defined benefit plans - plan assets measured at fair value; and
d) Share based payments - measured at fair value.
All assets and liabilities have been classified as current or non-current as per the Companyâs operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013. Based on the nature of services and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current/noncurrent classification of assets and liabilities.
(iii) Current / non-current classification
The Company presents assets and liabilities in the balance sheet based on current / non-current classification.
An asset is treated as current when it is:
- expected to be realised or intended to be sold or consumed in normal operating cycle;
- held primarily for the purpose of trading;
- Expected to be realised within twelve months after the reporting period, or
- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
- It is expected to be settled in normal operating cycle;
- It is held primarily for the purpose of trading;
- It is due to be settled within twelve months after the reporting period, or
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
All other liabilities are classified as non-current.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has evaluated and considered its operating cycle as 12 months.
Deferred tax assets/ liabilities are classified as non-current assets/ liabilities.
(iv) Rouding-off amounts
The financial statements are presented in â and all values are rounded to the nearest lakh (? 00,000), except when otherwise indicated.
1.2 Significant estimates, judgements and assumptions
The application of accounting standards and policies requires the Company to make estimates and assumptions about future events that directly affect its reported financial condition and operating performance. The accounting estimates and assumptions discussed are those that the Company considers to be most critical to its financial statements. An accounting estimate is considered critical if both (a) the nature of estimates or assumptions is material due to the level of subjectivity and judgement involved, and (b) the impact within a reasonable range of outcomes of the estimates and assumptions is material to the Companyâs financial condition or operating performance.
The areas involving critical estimates are:
(i) Recognition of deferred tax assets
The extent to which deferred tax assets can be recognised is based on an assessment of the probability that future taxable income will be available against which the deductible temporary differences and tax loss carry forward can be utilised. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions.
(ii) Evaluation of Indicators for impairment of assets
The evaluation of applicability of indicators of impairment of assets requires assessment of several external and internal factors which could result in deterioration of recoverable amount of the assets. In assessing impairment, management estimates the recoverable amount of each asset or cash generating units based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate.
(iii) Recoverability of advances / receivables
At each balance sheet date, based on historical default rates observed over expected life, the management assesses the expected credit loss on outstanding receivables and advances.
(iv) Useful lives of depreciable / amortisable assets
Management reviews its estimate of the useful lives of depreciable / amortisable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical and economic obsolescence that may change the utility of certain items of property, plant and equipment.
(v) Estimate of product support
At each balance sheet date basis the management judgment and historical trend, the Company assesses the requirement of provisions. However, the actual future outcome may be different from the judgment.
(vi) Estimation of defined benefit obligation
Measurement of obligation towards defined benefit plans such as gratuity is based on the actuarial valuation using the projected unit credit method. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. Significant assumptions include determination of discount rate, future salary increases etc. Due to complexities involved in the valuation & its long term nature, defined benefit obligation is sensitive to changes in these assumptions (refer note 17).
1.3 Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of rebates, service taxes, GST and amounts collected on behalf of third parties The Company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Companyâs activities as described below. The company bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
Revenue from sale of products is recognised when risk of loss and title have transferred to the customer, which in most cases coincides with shipment of the related products. Revenue from sale of machines and tools (Machining Solutions Group) is recognised upon customer acceptance and despatch.
Income from services is recognised as the services are rendered based on agreements/arrangements with customers. Interest income is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.
Interest income from financial asset is recognised using effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of the financial asset. When calculating the effective interest rate, the group estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses.
Dividends are recognised in profit or loss only when the right to receive payment is established, it is probable that the economic benefits associated with the dividend will flow to the group, and the amount of dividend can be measured reliably.
1.4 Property, plant and equipment
The Company has elected to continue with the carrying value of all of its property, plant and equipment recognised as at July 1, 2016 measured as per the previous GAAP and use that carrying value as the deemed cost of the property, plant and equipment.
Freehold land is carried at historical cost. All other items of property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the assetâs carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to Statement of Profit or Loss during the reporting period in which they are incurred.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date is classified as capital advances under other non-current assets and the cost of assets not put to use before such date are disclosed under âCapital work-in-progressâ. Subsequent expenditures relating to property, plant and equipment is capitalised only when it is probable that future economic benefits associated with these will flow to the company and the cost of the item can be measured reliably.
Depreciation method, useful lives and residual value Depreciation is provided on a pro-rata basis on the straight-line method over the estimated useful life of the assets which are different from useful life indicated in Schedule II of Companies Act, 2013, in order to reflect the actual usage of the assets. The estimates of the useful life of the assets, based on internal technical evaluation, have not undergone a change on account of transition to the Companies Act, 2013. The assetsâ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Machinery spares of irregular usage are amortised over the estimated useful life of the respective plant and machinery.
Schedule II requires the Company to identify and depreciate significant components with different useful lives separately. The Company has evaluated the applicability of component accounting as prescribed under Ind AS 16, Property, plant and equipment, and Schedule II of the Companies Act, 2013. The management has evaluated the requirement of Schedule II and has not identified any significant component having different useful lives.
1.5 Intangible assets
The Company has elected to continue with the carrying value of all of intangible assets recognised as at 1st July, 2016 measured as per the previous GAAP and use that carrying value as the deemed cost of intangible assets.
Intangible assets are recognised only if is probable that future economic benefits that are attributable to the assets will flow to the company and the costs can be measured reliably. Intangible assets are stated at acquisition cost, net of accumulated amortisation and accumulated impairment losses, if any. Intangible assets are amortised over their estimated useful life.
(i) Computer Software
Costs associated with maintaining software programs are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Company are recognised as intangible assets when the following criteria are met:
- it is technically feasible to complete the software so that it will be available for use
- management intends to complete the software and use or sell it
- there is an ability to use or sell the software
- it can be demonstrated how the software will generate probable future economic benefits
- adequate technical, financial and other resources to complete the development and to use or sell the software are available, and
- the expenditure attributable to the software during its development can be reliably measured.
Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is available for use. Directly attributable costs that are capitalised as part of the software include employee costs and an appropriate portion of relevant overheads.
(ii) Research and development
Research expenditure and development expenditure that do not meet the criteria in (a) above are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.
(iii) Amortisation methods and periods
Application software is expensed off on purchase, except in case of major application software having unit value exceeding rupees ten lakhs or forming part of an overall project, which is amortised over its estimated useful life or project life not exceeding three years.
The amortisation period used for intangible assets are reviewed at each financial year end.
1.6 Impairment of property, plant and equipment and intangible assets
At each reporting date, the Company assesses whether there is any indication that an asset may be impaired, based on internal or external factors. If any such indication exists, the Company estimates the recoverable amount of the asset or the cash generating unit. If such recoverable amount of the asset or cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the Statement of Profit and Loss. If, at the reporting 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. Impairment losses previously recognised are accordingly reversed in the Statement of Profit and Loss.
Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
1.7 Inventories
Raw materials and stores, work-in-progress, traded and finished goods are stated at the lower of cost and net realisable value. Cost of raw materials and traded goods comprises cost of purchases. Cost of work-in-progress and finished goods comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Cost of inventories also include all other costs incurred in bringing the inventories to their present location and condition. Costs are assigned to individual items of raw materials, stores and spares, work-in-progress and traded goods on the basis of weighted average whereas manufactured goods are ascertained on first-in first method. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
1.8 Investment properties
The company has elected to continue with the carrying value of all of investment properties recognised as at July 1st, 2016 measured as per the previous GAAP and use that carrying value as the deemed cost of investment properties.
Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the company, is classified as investment property. Investment property is measured initially at its cost, including related transaction costs. Subsequent expenditure is capitalised to the assetâs carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised.
1.9 Leases
i) As a lessee:
Property, plant and equipment acquired under lease where the Company has substantially all the risks and rewards of ownership are classified as finance leases. Such leases are capitalized at the inception of the lease at lower of the fair value of lease property or the present value of the minimum lease payments. Finance lease payment is apportioned between finance charge and reduction of the lease liability, so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in the Statement of Profit and Loss.
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the company as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to Statement of profit or loss on a straight-line basis over the period of the lease unless the payments are structured to increase in line with expected general inflation to compensate for the lessorâs expected inflationary cost increases.
The property, plant and equipment acquired under finance leases is depreciated over the assetâs useful life or over the shorter of the assetâs useful life and the lease term if there is no reasonable certainty that the company will obtain ownership at the end of the lease term.
An assetâs carrying amount is written down immediately to its recoverable amount if the assetâs carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in Statement of Profit or Loss.
ii) As a lessor:
Lease income from operating leases where the company is a lessor is recognised as income on a straight-line basis over the lease term unless the receipts are structured to increase in line with expected general inflation to compensate for the expected inflationary cost increases. The respective leased assets are included in the balance sheet based on their nature.
1.10 Employee benefits
Expenses and liabilities in respect of employee benefits are recorded in accordance with Ind AS 19, Employee Benefits.
Defined contribution plan Provident Fund
Eligible employees of the Company receive benefits from a provident fund, which is a defined contribution plan. Both the eligible employee and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employeeâs salary. The Company contributes to Kennametal India Limited Employeeâs Provident Fund Trust. The trust invests in specific designated instruments as permitted by Indian law. 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 investments of the Trust and the notified interest rate.
Defined benefit plan Gratuity
The Company provides for gratuity, a defined benefit plan (âthe Gratuity Planâ) covering eligible employees. 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 employeeâs salary and the tenure of employment with the Company.
Liabilities with regard to the Gratuity Plan are determined by actuarial valuation, performed by an independent actuary at each Balance Sheet date using the projected unit credit method. The Company fully contributes all ascertained liabilities to the Kennametal India Limited Employees Gratuity Fund Trust (the Trust). Trustees administer contributes made to the Trust and contributions are invested in a scheme with Life Insurance Corporation of India and HDFC Life Insurance Company Limited as permitted by Indian law.
The Company recognises the net obligation of a defined benefit plan in its Balance Sheet as an asset or liability. Gains and losses through re-measurements of the net defined liability / (asset) are recognised in other comprehensive income and are not reclassified to profit or loss in subsequent periods. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognised in other comprehensive income. The effect of any plan amendments are recognised in net profit in the Statement of Profit and Loss.
Other long-term employee benefit obligations Compensated absences
The Company provides benefit of compensated absences under which unavailed leave are allowed to be accumulated to be availed in future. The compensated absences comprises of vesting benefit. The cost of short term compensated absences are provided for based on estimates. Long term compensated absence costs are provided for based on actuarial valuation using the project unit credit method. The Company presents the entire leave as a current liability in the balance sheet, since it does not have an unconditional right to defer its settlement for 12 months after the reporting date.
The present value of the defined benefit obligation denominated in INR is determined by discounting the estimated future cash outflows by reference to market yields at the end of the reporting period on government bonds that have terms approximating to the terms of the related obligation.
Service cost on the Companyâs defined benefit plan is included in employee benefits expense. Employee contributions, all of which are independent of the number of years of service, are treated as a reduction of service cost. Net interest expense on the net defined benefit liability is included in finance costs.
Further, as required under Ind AS compliant Schedule III, the Company transfers those amounts recognized in other comprehensive income to retained earnings in the statement of changes in equity and in the balance sheet.
Long-term service awards
Certain employees of the Company are entitled to other long-term benefits in the nature of long-term service awards as per the policy of the Company. Liability for such benefits is provided on the basis of an independent actuarial valuation using the projected unit credit method at the balance sheet date.
Short-term employee benefits
Short-term employee benefits comprise of employee costs such as salaries, bonus etc. is recognized on the basis of the amount paid or payable for the period during which services are rendered by the employee.
1.11 Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates (âthe functional currencyâ). The financial statements are presented in Indian rupee â, which is the Companyâs functional and presentation currency.
(ii) Transaction and balances
Foreign currency transactions are translated into the functional currency using the exchange rates that approximate the actual rates at the date of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in Statement of Profit or Loss.
All other foreign exchange gains and losses are presented in the statement of profit and loss on a net basis within other income/ other expenses.
1.12 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM).
The managing director of the Company assesses the financial performance and position of the company and makes strategic decisions. The managing director has been identified as being the CODM. Refer note 35 for segment information presented.
1.13 Income tax
The income tax expense or credit for the period is the tax payable on the current periodâs taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses, if any.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the company operate and generate taxable income.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred Tax Assets (DTA) are recognised for all deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred Tax Assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in Statement of Profit or Loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Minimum Alternative Tax (âMATâ) credit is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal period income tax during the specified period. Such asset is reviewed at each Balance Sheet date and the carrying amount of the MAT credit asset is written down to the extent there is no longer a convincing evidence to the effect that the Company will pay normal income tax during the specified period.
1.14 Share based payments
Stock-based compensation awards are provided to selected employees under the terms of the long-term incentive plan of the Kennametal Inc. USA, the ultimate holding company. Awards available under the plans include restricted stock units (âRSUsâ) which are granted to the Managing Director and certain senior management employees of the company. Stock-based compensation represents the cost related to group stock-based awards granted to employees.
RSUs entitle the holder to shares of common stock as the award vest, typically over 3 years or 4 years depending upon the scheme and year of grant. RSUs are time vesting stock units and therefore the fair value of the units is determined and fixed on the grant date based on market value of Kennametal Incâs share price, adjusted for the exclusion of dividend equivalents. The company measures stock-based compensation cost at the grant date, based on the estimated fair value of the award and recognizes the cost (net of estimated forfeitures) over the employee requisite service period.
The total expense in respect of the above share based payment scheme is recognised over the vesting period with a corresponding adjustment to equity compensation reserve as a capital contribution from Kennametal Inc. The inter-company charge is offset against the equity compensation reserve. A liability is recognised when the award is released to or exercised by the Companyâs employees and billed by Kennametal Inc.
1.15 Provisions and contingent liabilities
Provisions for legal claims, service warranties, volume discounts and returns are recognised when the company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of managementâs best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.
Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
1.16 Non-current assets held for sale
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and contractual rights under insurance contracts, which are specifically exempt from this requirement.
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of de-recognition. Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.
Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.
1.17 Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets Initial recognition
The Company recognises financial assets and financial liabilities when it becomes a party to the contractual provisions of the instrument. All financial assets and liabilities are recognized at fair value on initial recognition, except for trade receivables which are initially measured at transaction price. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities, that are not at fair value through profit or loss, are added to the fair value on initial recognition. Regular way purchase and sale of financial assets are accounted for at trade date.
Subsequent measurement
(i) Financial assets carried at amortised cost
A financial asset is subsequently measured at amortised cost if it is held with in a business model whose objective is to hold the asset in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A gain or loss on a debt investment that is subsequently measured at amortised cost and is not part of a hedging relationship is recognised in Statement of profit or loss when the asset is derecognised or impaired. Interest income from these financial assets is included in finance income using the effective interest rate method.
(ii) Financial assets at fair value through other comprehensive income (FVTOCI)
A financial asset is subsequently measured at fair value through other comprehensive income if it is held with in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognised in profit and loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses). Interest income from these financial assets is included in other income using the effective interest rate method.
(iii) Financial assets at fair value through profit or loss (FVTPL)
Financial assets which are not classified in any of the above categories are subsequently fair valued through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognised in statement of profit or loss and presented net in the period in which it arises. Interest income from these financial assets is included in other income.
(iv) Equity investments
All equity investments in scope of Ind AS 109, Financial Instruments, are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS 103 Business Combinations, applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument-by-instrument basis. The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to Statement of Profit and Loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity.
Derecognition
The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition under Ind AS 109 âFinancial Instrumentsâ. A financial liability (or a part of a financial liability) is derecognised from the Companyâs balance sheet when the obligation specified in the contract is discharged or cancelled or expires.
Financial liabilities Initial recognition
All financial liabilities are recognised initially at fair value and transaction cost that is attributable to the acquisition of the financial liabilities is also adjusted. These instruments are classified as amortised cost.
Subsequent measurement
These liabilities includes deposits. Subsequent to initial recognition, these liabilities are measured at amortised cost using effective interest method.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109, Financial Instruments.
Gains or losses on liabilities held for trading are recognised in the profit or loss
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains/ loss are not subsequently transferred to Statement of Profit and Loss. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the Statement of Profit or Loss. The Company has not designated any financial liability as at fair value through profit and loss.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the Statement of Profit and Loss.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amounts is reported in the balance sheet where there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.
Derivatives and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedge instrument, and if so, the nature of the item being hedged and the type of hedge relationship designated.
When forward contracts are used to hedge forecast transactions, the group generally designates only the changes in fair value of the forward contract related to the spot component as the hedging instrument. Gains or losses relating to the effective portion of the change in the spot component of the forward contracts are recognised in Statement of Profit and Loss.
1.18 Impairment of financial assets
In accordance with Ind AS 109 Financial Instruments, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss for financial assets.
The Company tracks credit risk and changes thereon for each customer. For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, life time ECL is used. If in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12-month ECL.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR. When estimating the cash flows, an entity is required to consider:
- All contractual terms of the financial instrument over the expected life of the financial instrument. However, in rare cases when the expected life of the financial instrument cannot be estimated reliably, then the entity is required to use the remaining contractual term of the financial instrument.
- Cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the Statement of Profit and Loss. This amount is reflected under the head âother expensesâ in the Statement of Profit and Loss.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines whether there has been a significant increase in the credit risk since initial recognition and if credit risk has increased significantly, impairment loss is provided.
1.19 Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability, or
- In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company.
âThe fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurements as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Company has determined the classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liabilities and the level of the fair value hierarchy as explained above.
1.20 Cash and cash equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
1.21 Earnings per share
Basic earnings per share is calculated by dividing the net profit for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, the net profit for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of dilutive potential equity shares, if any.
1.22 Standards issued but not effective:
(a) Ind AS 115 Revenue from contracts with customers :
Ministry of Corporate Affairs (MCA) has notified Ind AS 115, Revenue from contracts with customers, which replaces Ind AS 18 Revenue and Ind AS 11 Construction contracts and related appendices. The new standard is mandatory for financial years commencing on or after April 1st, 2018. The standard permits either a full retrospective or a modified retrospective approach for the adoption.
According to the standard, revenue is recognised when a customer obtains control of a promised good or service and thus has the ability to direct the use and obtain the benefits from the good or service in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. A new five-step process must be applied before revenue can be recognised:
(i) Identify contracts with customers
(ii) Identify the separate performance obligation
(iii) Determine the transaction price of the contract
(iv) Allocate the transaction price to each of the separate performance obligations, and
(v) Recognise revenue as each performance obligation is satisfied.
The Company is presently assessing the requirements of Ind AS 115 in order to reasonably estimate the impact of this standard.
(b) Appendix B to Ind AS 21 Foreign currency transactions and advance consideration :
The MCA has notified Appendix B to Ind AS 21, Foreign currency transactions and advance consideration. The appendix clarifies how to determine the date of transaction for the exchange rate to be used on initial recognition of a related asset, expense or income where an entity pays or receives consideration in advance for foreign currency-denominated contracts. For a single payment or receipt, the date of the transaction should be the date on which the entity initially recognises the nonmonetary asset or liability arising from the advance consideration (the prepayment or deferred income/contract liability). If there are multiple the non-monetary asset or liability arising from the advance consideration (the prepayment or deferred income/ contract liability). If there are multiple payments or receipts for one item, date of transaction should be determined as above for each payment or receipt.
The Company intends to adopt the amendments prospectively to items in scope of the appendix that are initially recognised on or after the beginning of the reporting period in which the appendix is first applied (i.e. from 1 July 2018).
The Company is in the process of evaluating the requirements of this amendment in order to reasonably estimate the impact on application of Appendix B to Ind AS.
(c) Ind AS 40 Investment property - Transfers of investment property :
The amendments clarify that transfers to, or from, investment property can only be made if there has been a change in use that is supported by evidence. A change in use occurs when the property meets, or ceases to meet, the definition of investment property. A change in intention alone is not sufficient to support a transfer. The list of evidence for a change of use in the standard was re-characterised as a non-exhaustive list of examples and scope of these examples have been expanded to include assets under construction/development and not only transfer of completed properties.
The Company has decided to apply the amendment prospectively to changes in use that occur after the date of initial application (i.e. 1 July 2018).
The Company is in the process of evaluating the requirements of this amendment in order to reasonably estimate the impact on application of Ind AS 40.
Jun 30, 2017
1. GENERAL INFORMATION
Kennametal India Limited (âthe Companyâ) incorporated under The Companies Act, I956, is in the business of manufacturing and trading of hard metal products and manufacturing of machine tools. The Company has its registered office and manufacturing facility at Bangalore and sells its products and services through sales and support offices. The Company is a public limited company listed on the Bombay Stock Exchange (BSE).
2. STATEMENT ON SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
These financial statements have been prepared in accordance with the generally accepted accounting principles in India under the historical cost convention on an accrual basis. Pursuant to Section I33 of the Companies Act, 20I3 read with Rule 7(I) of the Companies (Accounts) Rules, 20I4, till the standards of accounting or any addendum thereto are prescribed by Central Government in consultation and recommendation of the National Financial Reporting Authority, the existing Accounting Standards notified under the Companies Act, I956 shall continue to apply. Consequently, these financial statements have been prepared to comply in all material aspects with the accounting standards notified under Section 2II(3C) [Companies (Accounting Standards) Rules, 2006, as amended] and other relevant provisions of the Companies Act, 20I3.
All assets and liabilities have been classified as current or non-current as per the Company''s operating cycle and other criteria set out in Schedule III to the Companies Act, 20I3. Based on the nature of products and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as twelve months for the purpose of current - noncurrent classification of assets and liabilities.
b) Fixed Assets
i) Tangible assets:
Tangible assets excluding land are stated at acquisition cost, net of accumulated depreciation and accumulated impairment loss, if any. Land is stated at acquisition cost, net of impairment loss, if any.
Own manufactured assets are capitalized at cost. Cost comprises of purchase price, including import duties and other non-refundable taxes or levies and directly attributable cost of bringing the asset to its working condition for its intended use.
Subsequent expenditure related to an item of fixed asset are added to book value only if they increase the future benefit from existing asset beyond its previously assessed standard of performance.
Losses arising from the retirement of, and gains or losses arising from disposal of fixed assets which are carried at cost are recognized in the Statement of Profit and Loss.
Depreciation is provided on a pro-rata basis on the straight-line method over the estimated useful life of the assets, which are different from useful life indicated in Schedule II to the Companies Act, 20I3, in order to reflect the actual usage of the assets.The estimates of useful life of the assets, based on a technical evaluation, have not undergone a change on account of transition to the Companies Act, 20I3.
Opinion
8. In our opinion, the Company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at June 30, 20I7, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note.
Leasehold improvements are depreciated over the useful life of the asset or primary lease period, whichever is lower. Machinery spares of irregular usage are amortized over the estimated useful life of the respective Plant and Machinery. Individual assets costing up to Z 5,000 is fully depreciated in the year of acquisition.
b. Leased assets
Assets taken on finance lease are depreciated over its estimated useful life or the lease term, whichever is lower,
ii) Intangible assets:
Intangible assets are recognized only if it is probable that future economic benefits that are attributable to the assets will flow to the enterprise and the cost of the asset can be measured reliably. Intangible assets are stated at acquisition cost, net of accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortized over their estimated useful life.
Operating software is capitalized along with related tangible asset. Application software is expensed off on purchase, except in case of major application software having unit value exceeding rupees ten lakhs or forming part of an overall project, which is amortized over its estimated useful life or project life not exceeding three years.
The amortization period used for intangible assets are reviewed at each financial year end.
c) Impairment of Assets
At each balance sheet date, the Company assesses whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount. If the carrying amount of the assets exceeds its recoverable amount, an impairment loss is recognized in the Statement of Profit and Loss to the extent the carrying amount exceeds recoverable amount.
d) Investments
Investments that are readily realizable and are intended to be held for not more than one year, from the date on which such investments are made, are classified as current investments. All other investments are classified as long term investments. Current investments are carried at cost or fair value, whichever is lower. Long term investments are carried at cost. However, provision of diminution is made to recognize a decline, other than temporary, in the value of investments, such reduction being determined and made for each investment individually.
e) Inventories
Inventories are stated at the lower of cost and estimated net realizable value, after providing for cost of obsolescence and other anticipated losses, whenever considered necessary. The cost of raw materials, stores and spares, work in progress and traded goods is determined on a weighted average basis, whereas manufactured goods are ascertained on a first in first out method.
Manufactured goods and work in progress include cost of conversion and other costs incurred in bringing the inventories to their present location and condition.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.
f) Foreign Currency Transactions:
Transactions in foreign currency are recognized at the rate of exchange ruling on the date of the transaction.
Liabilities/ assets in foreign currencies are recognized in the accounts as per the following principles:
Foreign currency liabilities contracted for acquiring fixed assets are restated at the rates ruling at the year end and all exchange differences arising as a result of such restatement are adjusted to the Statement of Profit and Loss. All monetary assets and liabilities denominated in foreign currency are restated at the rates ruling at the year end and all exchange gains/ losses arising there from are adjusted to the Statement of Profit and Loss.
As at the reporting date, non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction.
Premium or discount arising at the inception of a forward exchange contract entered into to hedge an existing asset/ liability is amortized as expense or income over the life of the contract. Exchange differences on forward contracts are recognized in the Statement of Profit and Loss in the reporting period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of such forward contracts is recognized as income or expense for the year.
Forward exchange contracts outstanding as at the year end on account of firm commitment/ highly probable forecast transactions are marked to market and losses/ gains are recognized in the Statement of Profit and Loss in accordance with the Guidance Note on âAccounting for Derivatives'' issued by the Institute of Chartered Accountants of India effective from April I, 20I6.
g) Research and Development
Capital expenditure on Research and Development is capitalized as tangible fixed assets and depreciated in accordance with the depreciation policy of the Company. Revenue expenditure incurred during research phase is expensed as incurred and development expenditure is capitalized as an internally generated intangible asset only if it meets the recognition criteria under Accounting Standard (AS) 26 âIntangible Assetsâ, which inter-alia includes demonstration of technical feasibility, generation of future economic benefits, etc. Revenue expenditure that cannot be distinguished between research phase and development phase is expensed as and when incurred.
h) Revenue Recognition
Revenue from sale of products is recognized when risk of loss and title have transferred to the customer, which in most cases coincides with shipment of the related products. Revenue from sale of machine tools is recognized upon customer acceptance and dispatch. Sales are recognized net of sales returns, trade discount, sales tax and service tax but gross of excise duty, wherever applicable.
Income from services is recognized as the services are rendered based on agreements/ arrangements with customers. Interest income is recognized on a time proportion basis taking into account the amount outstanding and the rate applicable.
Dividend income is accounted for in the year in which the right to receive the same is established.
I) Employee Benefits
i) Short term Employee Benefits:
All employee benefits falling due wholly within twelve months of rendering the services are classified as short term employee benefits, which includes benefits like salaries, wages, short term compensated absences and variable performance pay and are recognized in the period in which the employee renders related services.
ii) Gratuity:
The Company has an obligation towards gratuity, a defined benefit post-employment plan covering eligible employees in accordance with the Payment of Gratuity Act, I972. The Company has an Employees Gratuity Fund managed by Life Insurance Corporation of India and HDFC Life Insurance Company Limited. The Company accounts for the liability of gratuity benefit payable in future based on an independent actuarial valuation (using the projected unit credit method) at the Balance Sheet date.
iii) Provident Fund:
Contributions in respect of Provident Fund are made to a Trust administered by the Company. Interest rate payable to members of the Trust cannot be less than the statutory rate of interest declared by the Central Government under The Employees Provident Funds & Miscellaneous Provisions Act, I952. The Company''s liability is determined based on an independent actuarial valuation (using the projected unit credit method) at the end of the year and shortfall, if any, in the fund size maintained by the Trust set up by the Company is additionally provided for.
iv) Leave Encashment/ Compensated Absences:
The Company provides for the encashment of leave with pay subject to certain rules. The employees are entitled to accumulate leave, subject to certain limits, for future encashment/ a ailment. The liability is provided for based on the number of days of unutilized leave at each balance sheet date on the basis of an independent actuarial valuation (using the projected unit credit method) determined at the end of the year.
v) Actuarial gains or losses comprise experience adjustments and the effect of changes in the actuarial assumptions, which are recognized immediately in the Statement of Profit and Loss as income or expense.
vi) Termination benefits are recognized only when the Company is demonstrably committed either to terminate the employment of an employee or a group of employees before the normal retirement age. In the case of an offer made to encourage voluntary redundancy, a liability and an expense is recognized if it is probable that the offer will be accepted and the number of employees that will accept the offer can be reliably estimated.
j) Current and Deferred Tax
Taxes on income for the current year are determined on the basis of provisions of the Income Tax Act, I96I.
Tax expense for the year, comprising current year tax and deferred tax, are included in the determination of the net profit or loss for the year. Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the prevailing taxation laws.
Deferred tax is recognized for all the timing differences, subject to the consideration of prudence in respect of deferred tax assets. Deferred tax assets are recognized and carried forward only to the extent that there is a reasonable certainty or virtual certainty, as may be applicable, that sufficient future taxable income will be available against which such deferred tax assets can be realized. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. At each Balance Sheet date, the Company reassesses unrecognized deferred tax assets, if any.
k) Minimum Alternate Tax
In accordance with the provisions of Section II5JAA of the Income Tax Act, I96I, the Company is allowed to avail credit equal to the excess of Minimum Alternative Tax (âMAT'') over normal income tax for the assessment year for which MAT is paid. Currently, MAT credit so determined can be carried forward for setoff for fifteen succeeding assessment years for the year in which such credit becomes available. MAT credit can be set-off only in the year in which the Company is liable to pay tax as per the normal provisions of the Income Tax Act, I96I and such tax is in excess of MAT for that year. The MAT credit asset is written down to the extent there is no longer convincing evidence to the effect that the Company will pay normal income tax during the specified period.
l) Provisions and Contingent Liabilities
Provisions:
Provisions are recognized when the Company has a present obligation as a result of past obligating events, for which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made.
Provisions are measured at the best estimate of the expenditure required to settle the present obligation at the balance sheet date and are not discounted to present value.
When the Company expects a provision to be reimbursed, the reimbursement is recognized as a separate asset, only when such reimbursement is virtually certain.
Contingent Liabilities:
Contingent liability is disclosed when there is a possible obligation, arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
m) Leases
As a lessee:
Finance Leases:
Assets acquired under lease where the Company has substantially all the risks and rewards of ownership are classified as finance lease. Such leases are capitalized at the inception of the lease at lower of the fair value or the present value of the minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic rate of interest on the outstanding liability for each period.
Operating Leases:
Assets acquired on lease where a significant portion of the risk and reward of ownership are retained by the less or are classified as operating lease. Lease rentals are charged to the Statement of Profit and Loss on a straight line basis over the lease term.
As a less or:
The Company has leased certain tangible assets and such leases where the Company has substantially retained all the risks and rewards of ownership are classified as operating leases. Lease income on such operating leases are recognized in the Statement of Profit and Loss on a straight line basis over the lease term which is representative of the time pattern in which benefit derived from the use of the leased asset is diminished. Initial direct costs are recognized as an expense in the Statement of Profit and Loss in the period in which they are incurred.
n) Segment Reporting
Segment accounting policies are in conformity with the accounting policies of the Company. Further, the following specific accounting policies have been followed for segment reporting:
i) Segment revenue includes sales and other income directly identifiable with or allocable on a reasonable basis to the segment. Inter-segment transactions are not included in segment revenue and are accounted for at cost.
ii) Expenses that are directly identifiable with or allocable to segments on a reasonable basis are considered for determining segment results. The expenses, which relate to the Company as a whole and not allocable to segments, are included under* âUnallowable Corporate Expensesâ.
iii) Income that relates to the Company as a whole and not allocable to segments is included in âUnallowable Corporate Incomeâ.
iv) Segment assets and liabilities include those directly identifiable with respective segments. Unallocable corporate assets and liabilities represent the assets and liabilities that relate to the Company as a whole and not allocable to any segment.
o) Cash and Cash Equivalents
In the Cash Flow Statement, cash and cash equivalents include cash on hand, demand deposits with banks, and other short term highly liquid investments with original maturities of three months or less.
p) Earnings Per Share
Earnings (basic and diluted) per equity share is arrived at based on Profit/ (Loss) after taxation to the weighted average (basic and diluted) number of equity shares.
q) Exceptional items
Exceptional items are material items of income or expense that are disclosed separately due to the significance of their nature or amount, to provide further understanding of the financial performance of the Company.
(b) Rights, preferences and restrictions attached to shares
The Company has one class of equity shares having a par value of ZI0 per share. Each shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors is subject to approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, if any, in proportion to their shareholding.
Notes:
a) Mainly relates to transfer pricing adjustments/ disallowances relating to Research and Development expenditure made by the Income Tax Department for the tax assessment years 2007-08, 2008-09, 2009-I0, 20I0- II, 20II-I2, and 20I3-I4 which is disputed by the Company and the matter is lying under appeal with The Income Tax Appellate Tribunal, Bangalore/ The Commissioner of Income Tax (Appeals) LTU, Bangalore. The Company has paid âunder protestâ an aggregate of Z 3353 (20I6: Z 2779) to the Income Tax Department in this regard.
b) First loss default guarantee represents financial guarantee given to a banker for providing channel financing scheme to distributors.
c) There are certain non-quantifiable disputes pending before labour tribunal / court under labour laws, which are not expected to be material, based on management''s assessment.
d) Considering the very nature of the above contingent liabilities, the estimate/ timing of cash outflow, if any, is not readily ascertainable.
Note: The above excludes reimbursement of expenses from related parties Z 554 (20I6: Z 593)
* Amount is below the rounding off norm adopted by the Company.
Note: The information has been given in respect of such suppliers to the extent they could be identified as âMicroâ or âSmallâ enterprises on the basis of information available with the Company.
Jun 30, 2016
1. GENERAL INFORMATION
Kennametal India Limited (âthe Companyâ) incorporated under The Companies Act, 1956, is in the business of manufacturing and trading of hard metal products and machine tools. The Company has its registered office and manufacturing facility at Bangalore and sells its products and services through sales and support offices. The Company is a public limited company listed on the Bombay Stock Exchange (BSE).
2. STATEMENT ON SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
These financial statements have been prepared in accordance with the generally accepted accounting principles in India under the historical cost convention on an accrual basis. Pursuant to Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014, till the standards of accounting or any addendum thereto are prescribed by Central Government in consultation and recommendation of the National Financial Reporting Authority, the existing Accounting Standards notified under the Companies Act, 1956 shall continue to apply. Consequently, these financial statements have been prepared to comply in all material aspects with the accounting standards notified under Section 211(3C) [Companies (Accounting Standards) Rules, 2006, as amended] and other relevant provisions of the Companies Act, 2013.
The Ministry of Corporate Affairs (MCA) has notified the Companies (Accounting Standards) Amendment Rules, 2016 vide its notification dated March 30, 2016. The said notification read with Rule 3(2) of the Companies (Accounting Standards) Rules, 2006 is applicable to the accounting period commencing on or after the date of notification i.e., April 1, 2016.
All assets and liabilities have been classified as current or non-current as per the Company''s operating cycle and other criteria set out in Schedule III to the Companies Act, 2013. Based on the nature of products and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as twelve months for the purpose of current - noncurrent classification of assets and liabilities.
b) Fixed Assets
i) Tangible assets:
Tangible assets are stated at acquisition cost, net of accumulated depreciation and accumulated impairment loss, if any.
Own manufactured assets are capitalized at cost. Cost comprises of purchase price, including import duties and other non-refundable taxes or levies and directly attributable cost of bringing the asset to its working condition for its intended use.
Subsequent expenditure related to an item of fixed asset are added to book value only if they increase the future benefit from existing asset beyond its previously assessed standard of performance.
Losses arising from the retirement of, and gains or losses arising from disposal of fixed assets which are carried at cost or revalued amount are recognized in the Statement of Profit and Loss.
Depreciation is provided on a pro-rata basis on the straight-line method over the estimated useful life of the assets, which are different from useful life indicated in Schedule II to the Companies Act, 2013, in order to reflect the actual usage of the assets. The estimates of useful life of the assets, based on a technical evaluation, have not undergone a change on account of transition to the Companies Act, 2013.
Leasehold improvements are depreciated over the useful life of the asset or primary lease period, whichever is lower. Machinery spares of irregular usage are amortized over the estimated useful life of the respective Plant and Machinery. Individual assets costing up to '' 5,000 is fully depreciated in the year of acquisition.
b. Leased assets
Assets taken on finance lease are depreciated over its estimated useful life or the lease term, whichever is lower.
ii) Intangible assets:
Intangible assets are recognized only if it is probable that future economic benefits that are attributable to the assets will flow to the enterprise and the cost of the asset can be measured reliably. Intangible assets are stated at acquisition cost, net of accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortized over their estimated useful life.
Operating software is capitalized along with related tangible asset. Application software is expensed off on purchase, except in case of major application software having unit value exceeding rupees ten lakhs or forming part of an overall project, which is amortized over its estimated useful life or project life not exceeding three years.
The amortization period used for intangible assets are reviewed at each financial year end.
c) Impairment of Assets
At each balance sheet date, the Company assesses whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount. If the carrying amount of the assets exceeds its recoverable amount, an impairment loss is recognized in the Statement of Profit and Loss to the extent the carrying amount exceeds recoverable amount.
d) Investments
Investments that are readily realizable and are intended to be held for not more than one year, from the date on which such investments are made, are classified as current investments. All other investments are classified as long term investments. Current investments are carried at cost or fair value, whichever is lower. Long term investments are carried at cost. However, provision of diminution is made to recognize a decline, other than temporary, in the value of investments, such reduction being determined and made for each investment individually.
e) Inventories
Inventories are stated at the lower of cost and estimated net realizable value, after providing for cost of obsolescence and other anticipated losses, whenever considered necessary. The cost of raw materials, stores and spares, work in progress and traded goods is determined on a weighted average basis, whereas manufactured goods are ascertained on a first in first out method.
Manufactured goods and work in progress include cost of conversion and other costs incurred in bringing the inventories to their present location and condition.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.
f) Foreign Currency Transactions:
Transactions in foreign currency are recognized at the rate of exchange ruling on the date of the transaction.
Liabilities/ Assets in foreign currencies are recognized in the accounts as per the following principles:
Foreign currency liabilities contracted for acquiring fixed assets are restated at the rates ruling at the year end and all exchange differences arising as a result of such restatement are adjusted to the Statement of Profit and Loss.
All monetary assets and liabilities denominated in foreign currency are restated at the rates ruling at the year end and all exchange gains/ losses arising there from are adjusted to the Statement of Profit and Loss.
As at the reporting date, non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction.
Premium or discount arising at the inception of a forward exchange contract entered into to hedge an existing asset/ liability is amortized as expense or income over the life of the contract. Exchange differences on forward contracts are recognized in the Statement of Profit and Loss in the reporting period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of such forward contracts is recognized as income or expense for the year.
Forward exchange contracts outstanding as at the year end on account of firm commitment/ highly probable forecast transactions are marked to market and the losses, if any, are recognized in the Statement of Profit and Loss and gains are ignored in accordance with the Announcement of Institute of Chartered Accountants of India on ''Accounting for Derivatives'' issued in March 2008.
g) Research and Development
Capital expenditure on Research and Development is capitalized as tangible fixed assets and depreciated in accordance with the depreciation policy of the Company. Revenue expenditure incurred during research phase is expensed as incurred and development expenditure is capitalized as an internally generated intangible asset only if it meets the recognition criteria under Accounting Standard (AS) 26 âIntangible Assetsâ, which inter-alia includes demonstration of technical feasibility, generation of future economic benefits, etc. Revenue expenditure that cannot be distinguished between research phase and development phase is expensed as and when incurred.
h) Revenue Recognition
Revenue from sale of products is recognized when risk of loss, title and insurable risk have transferred to the customer, which in most cases coincides with shipment of the related products. Revenue from sale of machine tools is recognized upon customer acceptance and dispatch. Sales are recognized net of sales returns, trade discount, sales tax and service tax but gross of excise duty, wherever applicable.
Income from services is recognized as the services are rendered based on agreements/ arrangements with customers. Interest income is recognized on a time proportion basis taking into account the amount outstanding and the rate applicable.
Dividend income is accounted for in the year in which the right to receive the same is established. i) Employee Benefits
i) Short term Employee Benefits:
All employee benefits falling due wholly within twelve months of rendering the services are classified as short term employee benefits, which includes benefits like salaries, wages, short term compensated absences and variable performance pay and are recognized in the period in which the employee renders related services.
ii) Gratuity:
The Company has an obligation towards gratuity, a defined benefit post-employment plan covering eligible employees in accordance with the Payment of Gratuity Act, 1972. The Company has an Employees Gratuity Fund managed by Life Insurance Corporation of India (LIC) and HDFC Life Insurance Company Limited (HDFC). The Company accounts for the liability of Gratuity benefit payable in future based on an independent actuarial valuation (using the projected unit credit method) at the Balance Sheet date.
iii) Provident Fund:
Contributions in respect of Provident Fund are made to a Trust administered by the Company. Interest rate payable to members of the Trust cannot be less than statutory rate of interest declared by the Central Government under The Employees Provident Funds & Miscellaneous Provisions Act, 1952. The Company''s liability is determined based on an independent actuarial valuation (using the projected unit credit method) at the end of the year and any short fall in the fund size maintained by the Trust set up by the Company is additionally provided for.
iv) Leave Encashment/ Compensated Absences:
The Company provides for the encashment of leave with pay subject to certain rules. The employees are entitled to accumulate leave subject to certain limits, for future encashment/ a ailment. The liability is provided based on the number of days of unutilized leave at each balance sheet date on the basis of an independent actuarial valuation (using the projected unit credit method) determined at the end of the year.
v) Actuarial gains or losses comprise experience adjustments and the effect of changes in the actuarial assumption, which are recognized immediately in the Statement of Profit and Loss as income or expense.
vi) Termination benefits are recognized only when the Company is demonstrably committed either to terminate the employment of an employee or a group of employees before the normal retirement age. In the case of an offer made to encourage voluntary redundancy, a liability and an expense is recognized if it is probable that the offer will be accepted and the number of employees that will accept the offer can be reliably estimated.
j) Current and Deferred Tax
Taxes on income for the current year are determined on the basis of provisions of the Income Tax Act, 1961.
Tax expense for the year, comprising current year tax and deferred tax, are included in the determination of the net profit or loss for the year. Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the prevailing taxation laws.
Deferred tax is recognized for all the timing differences, subject to the consideration of prudence in respect of deferred tax assets. Deferred tax assets are recognized and carried forward only to the extent that there is a reasonable certainty or virtual certainty, as may be applicable, that sufficient future taxable income will be available against which such deferred tax assets can be realized. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. At each Balance Sheet date, the Company reassesses unrecognized deferred tax assets, if any.
k) Provisions and Contingent Liabilities Provisions:
Provisions are recognized when the Company has a present obligation as a result of past obligating events, for which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made.
Provisions are measured at the best estimate of the expenditure required to settle the present obligation at the balance sheet date and are not discounted to present value.
When the Company expects a provision to be reimbursed, the reimbursement is recognized as a separate asset, only when such reimbursement is virtually certain.
Contingent Liabilities:
Contingent liability is disclosed when there is a possible obligation, arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
I) Leases
As a lessee:
Finance Leases:
Assets acquired under lease where the Company has substantially all the risks and rewards of ownership are classified as finance lease. Such leases are capitalized at the inception of the lease at lower of the fair value or the present value of the minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic rate of interest on the outstanding liability for each period.
Operating Leases:
Assets acquired on lease where a significant portion of the risk and rewards of ownership are retained by the lesser are classified as operating lease. Lease rentals are charged to the Statement of Profit and Loss on a straight line basis over the lease term.
As a lesser:
The Company has leased certain tangible assets and such leases where the Company has substantially retained all the risks and rewards of ownership are classified as operating leases. Lease income on such operating leases are recognized in the Statement of Profit and Loss on a straight line basis over the lease term which is representative of the time pattern in which benefit derived from the use of the leased asset is diminished. Initial direct costs are recognized as an expense in the Statement of Profit and Loss in the period in which they are incurred.
m) Segment Reporting
Segment accounting policies are in conformity with the accounting policies of the Company. Further, the following specific accounting policies have been followed for segment reporting:
i) Segment revenue includes sales and other income directly identifiable with or allocable on a reasonable basis to the segment. Inter-segment transactions are not included in segment revenue and are accounted for at cost.
ii) Expenses that are directly identifiable with or allocable to segments on a reasonable basis are considered for determining segment results. The expenses, which relate to the Company as a whole and not allocable to segments, are included under â âUn allocable Corporate Expensesâ.
iii) Income that relates to the Company as a whole and not allocable to segments is included in âUnallocable Corporate Incomeâ.
iv) Segment assets and liabilities include those directly identifiable with respective segments. Unallocable corporate assets and liabilities represent the assets and liabilities that relate to the Company as a whole and not allocable to any segment.
n) Cash and Cash Equivalents
In the Cash Flow Statement, cash and cash equivalents include cash on hand, demand deposits with banks, and other short term highly liquid investments with original maturities of three months or less.
o) Earnings Per Share
Earnings (basic and diluted) per equity share is arrived at based on Profit/ (Loss) after taxation to the weighted average (basic and diluted) number of equity shares.
Jun 30, 2015
A) Basis of preparation
These financial statements have been prepared in accordance with the
generally accepted accounting principles in India under the historical
cost convention on an accrual basis. Pursuant to Section 133 of the
Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules,
2014, till the standards of accounting or any addendum thereto are
prescribed by Central Government in consultation and recommendation of
the National Financial Reporting Authority, the existing Accounting
Standards notified under the Companies Act, 1956 shall continue to
apply. Consequently, these financial statements have been prepared to
comply in all material aspects with the accounting standards notified
under Section 2II(3C) [Companies (Accounting Standards) Rules, 2006, as
amended] and other relevant provisions of the Companies Act, 2013.
All assets and liabilities have been classified as current or
non-current as per the Company's operating cycle and other criteria set
out in Schedule III to the Companies Act, 2013, Based on the nature of
products and the time between the acquisition of assets for processing
and their realisation in cash and cash equivalents, the Company has
ascertained its operating cycle as twelve months for the purpose of
current - non current classification of assets and liabilities.
b) Fixed Assets
i) Tangible assets:
Tangible assets are stated at acquisition cost, net of accumulated
depreciation and accumulated impairment loss, if any.
Own manufactured assets are capitalised at cost. Cost comprises of
purchase price, including import duties and other non-refundabie taxes
or levies and directly attributable cost of bringing the asset to its
working condition for its intended use.
Subsequent expenditure related to an item of fixed asset are added to
book value only if they increase the future benefit from existing asset
beyond its previously assessed standard of performance.
Depreciation is provided on a pro-rata basis on the straight-line
method over the estimated useful life of the assets, which are
different from useful life indicated in Schedule II to the Companies
Act, 2013, in order to reflect the actual usage of the assets. The
estimates of useful life of the assets, based on a technical
evaluation, have not undergone a change on account of transition to the
Companies Act, 2013.
a. Own assets
Asset Estimate useful life (in years)
Buildings 25-33
Plant and Machinery :
Data Processing equipment 3-5
Others 5-10
Office Equipment 5
Furniture and Fixtures 5
Leasehold improvements are depreciated over the useful life of the
asset or primary lease period, whichever is lower. Machinery spares of
irregular usage are amortised over the estimated useful life of the
respective Plant and Machinery. Individual assets costing up to Rs
5,000 is fully depreciated in the year of acquisition.
b. Leased assets
Assets taken on finance lease are depreciated over its estimated useful
life or the lease term, whichever is lower.
ii) Intangible assets:
Intangible assets are recognised only if it is probable that future
economic benefits that are attributable to the assets will flow to the
enterprise and the cost of the asset can be measured reliably.
Intangible assets are stated at acquisition cost, net of accumulated
amortisation and accumulated impairment losses, if any. Intangible
assets are amortised over their estimated useful life.
Operating software is capitalised along with related tangible asset.
Application software is expensed off on purchase, except in case of
major application software having unit value exceeding rupees ten lakhs
or forming part of an overall project, which is amortised over its
estimated useful life or project life not exceeding three years.
The amortisation period used for intangible assets are reviewed at each
financial year end.
c) impairment of Assets
At each balance sheet date, the Company assesses whether there is any
indication that an asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount. If the carrying
amount of the assets exceeds its recoverable amount, an impairment loss
is recognised in the Statement of Profit and Loss to the extent the
carrying amount exceeds recoverable amount.
d) Investments
Investments that are readily realisable and are intended to be held for
not more than one year, from the date on which such investments are
made, are classified as current investments. All other investments are
classified as long term investments. Current investments are carried at
cost or fair value, whichever is lower. Long term investments are
carried at cost. However, provision of diminution is made to recognise
a decline, other than temporary, in the value of investments, such
reduction being determined and made for each investment individually.
e) Inventories
Inventories are stated at the lower of cost and estimated net
realisable value, after providing for cost of obsolescence and other
anticipated losses, whenever considered necessary. The cost of raw
materials, stores and spares, work in progress and traded goods are
ascertained on a weighted average basis, whereas manufactured goods are
ascertained on a first in first out method.
Manufactured goods and work in progress include cost of conversion and
other costs incurred in bringing the inventories to their present
location and condition.
Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and the
estimated costs necessary to make the sale.
f) Foreign Currency Transactions:
Transactions in foreign currency are recognised at the rate of exchange
ruling on the date of the transaction.
Liabilities/ Assets in foreign currencies are recognised in the
accounts as per the following principles:
Foreign currency liabilities contracted for acquiring fixed assets are
restated at the rates ruling at the year end and all exchange
differences arising as a result of such restatement are adjusted to the
Statement of Profit and Loss.
All monetary assets and liabilities denominated in foreign currency are
restated at the rates ruling at the year end and all exchange gains/
losses arising therefrom are adjusted to the Statement of Profit and
Loss.
As at the reporting date, non-monetary items which are carried in terms
of historical cost denominated in a foreign currency are reported using
the exchange rate at the date of the transaction.
Premium or discount arising at the inception of a forward exchange
contract entered into to hedge an existing asset/ liability is
amortised as expense or income over the life of the contract. Exchange
differences on forward contracts are recognised in the Statement of
Profit and Loss in the reporting period in which the exchange rates
change. Any profit or loss arising on cancellation or renewal of such
forward contracts is recognised as income or expense for the year.
Forward exchange contracts outstanding as at the year end on account of
firm commitment/ highly probable forecast transactions are marked to
market and the losses, if any, are recognised in the Statement of
Profit and Loss and gains are ignored in accordance with the
Announcement of Institute of Chartered Accountants of India on
'Accounting for Derivatives' issued in March 2008.
g) Research and Development
Expenditure incurred in research phase is expensed as incurred.
Development expenditure is capitalised as an internally generated
intangible asset only if it meets the recognition criteria under
Accounting Standard 26 on Intangible Assets, which inter-alia includes
demonstration of technical feasibility, generation of future economic
benefits etc. Expenditure that cannot be distinguished between research
phase and development phase is expensed as and when incurred.
h) Revenue Recognition
Revenue from sale of products is recognised when risk of loss, title
and insurable risk have transferred to the customer, which in most
cases coincides with shipment of the related products. Revenue from
sale of special purpose machines is recognised upon customer acceptance
and despatch. Sales are recognised net of sales returns, trade
discount, sales tax and service tax but gross of excise duty, wherever
applicable.
Income from services is recognised as the services are rendered based
on agreements/ arrangements with customers. Interest income is
recognised on a time proportion basis taking into account the amount
outstanding and the rate applicable.
Dividend income is accounted for in the year in which the right to
receive the same is established.
i) Employee Benefits
i) Short term Employee Benefits:
All employee benefits falling due wholly within twelve months of
rendering the services are classified as short term employee benefits,
which includes benefits like salaries, wages, short term compensated
absences and variable performance pay and are recognised in the period
in which the employee renders related services.
ii) Gratuity:
The Company has an obligation towards gratuity, a defined benefit
post-employment plan covering eligible employees. The Company has an
Employees Gratuity Fund managed by Life Insurance Corporation of India
(LIC) and HDFC Life Insurance Company Limited (HDFC). The Company
accounts for the liability of Gratuity benefit payable in future based
on an independent actuarial valuation (using the projected unit credit
method) at the Balance Sheet date.
iii) Provident Fund:
Contributions in respect of Provident Fund are made to a Trust
administered by the Company. Interest rate payable to members of the
Trust cannot be less than statutory rate of interest declared by the
Central Government under The Employees Provident Funds & Miscellaneous
Provisions Act, 1952. The Company's liability is determined based on an
independent actuarial valuation (using the projected unit credit
method) at the end of the year and any short fall in the fund size
maintained by the Trust set up by the Company is additionally provided
for.
iv) Leave Encashment/ Compensated Absences:
The Company provides for the encashment of leave with pay subject to
certain rules. The employees are entitled to accumulate leave subject
to certain limits, for future encashment/ availment. 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
(using the projected unit credit method) determined at the end of the
year.
v) Actuarial gains or losses comprise experience adjustments and the
effect of changes in the actuarial assumption, which are recognised
immediately in the Statement of Profit and Loss as income or expense.
vi) Termination benefits are recognised only when the Company is
demonstrably committed either to terminate the employment of an
employee or a group of employees before the normal retirement age. In
the case of an offer made to encourage voluntary redundancy, a
liability and an expense is recognised if it is probable that the offer
will be accepted and the number of employees that will accept the offer
can be reliably estimated.
j) Current and Deferred Tax
Taxes on income for the current year are determined on the basis of
provisions of the Income Tax Act, 1961.
Tax expense for the year, comprising current year tax and deferred tax,
are included in the determination of the net profit or loss for the
year. Current tax is measured at the amount expected to be paid to the
tax authorities in accordance with the prevailing taxation laws.
Deferred tax is recognised for all the timing differences, subject to
the consideration of prudence in respect of deferred tax assets.
Deferred tax assets are recognised and carried forward only to the
extent that there is a reasonable certainty or virtual certainty, as
may be applicable, that sufficient future taxable income will be
available against which such deferred tax assets can be realised.
Deferred tax assets and liabilities are measured using the tax rates
and tax laws that have been enacted or substantively enacted by the
balance sheet date. At each Balance Sheet date, the Company reassesses
unrecognised deferred tax assets, if any.
k) Provisions and Contingent Liabilities
Provisions:
Provisions are recognised when the Company has a present obligation as
a result of past obligating events, for which it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation, and a reliable estimate of the amount can be
made.
Provisions are measured at the best estimate of the expenditure
required to settle the present obligation at the balance sheet date and
are not discounted to present value.
When the Company expects a provision to be reimbursed, the
reimbursement is recognised as a separate asset, only when such
reimbursement is virtually certain.
Contingent Liabilities:
Contingent liability is disclosed when there is a possible obligation,
arising from past events, the existence of which will be confirmed only
by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the Company or a present
obligation that arises from past events where it is either not probable
that an outflow of resources will be required to settle or a reliable
estimate of the amount cannot be made.
i) Leases
Finance Leases:
Assets acquired under lease where the Company has substantially all the
risks and rewards of ownership are classified as finance lease. Such
leases are capitalised at the inception of the lease at lower of the
fair value or the present value of the minimum lease payments and a
liability is created for an equivalent amount. Each lease rental paid
is allocated between the liability and the interest cost, so as to
obtain a constant periodic rate of interest on the outstanding
liability for each period.
Operating Leases:
Assets acquired on lease where a significant portion of the risk and
rewards of ownership are retained by the lessor are classified as
operating lease. Lease rentals are charged to the Statement of Profit
and Loss on a straight line basis over the lease term.
m) Segment Reporting
Segment accounting policies are generally in line with the accounting
policies of the Company. Further, the following specific accounting
policies have been followed for segment reporting:
i) Segment revenue includes sales and other income directly
identifiable with or allocable on a reasonable basis to the segment.
inter-segment transactions are not included in segment revenue and are
accounted for at cost.
ii) Expenses that are directly identifiable with or allocable to
segments on a reasonable basis are considered for determining segment
results. The expenses, which relate to the Company as a whole and not
allocable to segments, are included under "Unallocable Corporate
Expenses".
iii) income that relates to the Company as a whole and not allocable to
segments is included in "Unallocable Corporate Income".
iv) Segment assets and liabilities include those directly identifiable
with respective segments. Unallocable corporate assets and liabilities
represent the assets and liabilities that relate to the Company as a
whole and not allocable to any segment.
n) Cash and Cash Equivalents
In the Cash Flow Statement, cash and cash equivalents include cash on
hand, demand deposits with banks, and other short term highly liquid
investments with original maturities of three months or less.
o) Earnings Per Share
Earnings (basic and diluted) per equity share is arrived at based on
Profit/ (Loss) after taxation to the weighted average (basic and
diluted) number of equity shares.
Jun 30, 2014
A) Basis of preparation
These financial statements have been prepared in accordance with the
generally accepted accounting principles in India under the historical
cost convention on accrual basis. Pursuant to circular 15/2013 dated
September 13, 2013 read with circular 08/2014 dated April 4, 2014 till
the Standards of Accounting or any addendum thereto are prescribed by
Central Government in consultation and recommendation of the National
Financial Reporting Authority, the existing Accounting Standards
notifed under the Companies Act, 1956 shall continue to apply.
Consequently, these financial statements have been prepared to comply in
all material aspects with the accounting standards notifed under
Section 211(3C) [Companies (Accounting Standards) Rules, 2006, as
amended] and other relevant provisions of the Companies Act, 1956.
All assets and liabilities have been classifed as current or
non-current as per the Company''s operating cycle and other criteria set
out in the Revised Schedule VI to the Companies Act, 1956. Based on the
nature of products and the time between the acquisition of assets for
processing and their realisation in cash and cash equivalents, the
Company has ascertained its operating cycle as twelve months for the
purpose of current  non current classifcation of assets and
liabilities.
b) Fixed Assets
i) Tangible assets:
Tangible assets are stated at acquisition cost, net of accumulated
depreciation and accumulated impairment loss, if any.
Own manufactured assets are capitalised at cost. Cost comprises of
purchase price, including import duties and other non-refundable taxes
or levies and directly attributable cost of bringing the asset to its
working condition for its intended use.
Subsequent expenditure related to an item of fixed asset are added to
book value only if they increase the future benefit from existing asset
beyond its previously assessed standard of performance.
Depreciation is provided from the month of capitalisation on a straight
line method at the rates pre- scribed in Schedule XIV of the Companies
Act, 1956 except for the following assets where, based on management''s
technical evaluation, the rates are higher than Schedule XIV rates:
Leasehold improvements are depreciated over the useful life of the
asset or primary lease period, which- ever is lesser. Machinery spares
of irregular usage are amortised over the estimated useful life of the
respective Plant and Machinery. Individual assets costing up to Rs. 5000
is fully depreciated in the year of acquisition.
b. Leased assets
Assets taken on finance lease are depreciated over its estimated useful
life or the lease term, whichever is lower.
ii) Intangible assets:
Intangible assets are recognised only if it is probable that future
economic benefits that are attributable to the assets will fow to the
enterprise and the cost of the asset can be measured reliably.
Intangible assets are stated at acquisition cost, net of accumulated
amortisation and accumulated impairment loss- es, if any. Intangible
assets are amortised over their estimated useful life.
Operating software is capitalised along with related tangible asset.
Application software is expensed off on purchase, except in case of
major application software having unit value exceeding rupees ten lakhs
or forming part of an overall project, which is amortised over its
estimated useful life or project life not exceeding three years.
The amortisation period used for intangible assets are reviewed at each
financial year end.
c) Impairment of Assets
At each balance sheet date, the Company assesses whether there is any
indication that an asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount. If the carrying
amount of the assets exceeds its recoverable amount, an impairment loss
is recognised in the Statement of Profit and Loss to the extent the
carrying amount exceeds recoverable amount.
d) Investments
Investments that are readily realisable and are intended to be held for
not more than one year, from the date on which such investments are
made, are classifed as current investments. All other investments are
classifed as long term investments. Current investments are carried at
cost or fair value, whichever is lower. Long term investments are
carried at cost. However, provision of diminution is made to recognise
a decline, other than temporary, in the value of investments, such
reduction being determined and made for each investment individually.
e) Inventories
Inventories are stated at the lower of cost and estimated net
realisable value, after providing for cost of obsolescence and other
anticipated losses, whenever considered necessary. The cost of raw
materials, stores and spares, work in progress and traded goods are
ascertained on a weighted average basis, whereas manufactured goods are
ascertained on a first in first out method.
Manufactured goods and work in progress include cost of conversion and
other costs incurred in bringing the inventories to their present
location and condition.
Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and the
estimated costs necessary to make the sale.
f) Foreign Currency Transactions:
Transactions in foreign currency are recognised at the rate of exchange
ruling on the date of the transaction.
Liabilities / Assets in foreign currencies are recoginised in the
accounts as per the following principles:
Foreign currency liabilities contracted for acquiring fixed assets are
restated at the rates ruling at the year end and all exchange
differences arising as a result of such restatement are adjusted to the
Statement of Profit and Loss.
All monetary assets and liabilities denominated in foreign currency are
restated at the rates ruling at the year end and all exchange gains /
losses arising there from are adjusted to the Statement of Profit and
Loss.
Premium or discount arising at the inception of a forward exchange
contract entered into to hedge an existing asset/ liability is
amortised as expense or income over the life of the contract. Exchange
differences on forward contracts are recognised in the Statement of
Profit and Loss in the reporting period in which the exchange rates
change. Any Profit or loss arising on cancellation or renewal of such
forward contracts is recognised as income or expense for the year.
Forward exchange contracts outstanding as at the year end on account of
frm commitment / highly probable forecast transactions are marked to
market and the losses, if any, are recognised in the Statement of Profit
and Loss and gains are ignored in accordance with the Announcement of
Institute of Chartered Accountants of India on ''Accounting for
Derivatives'' issued in March 2008.
g) Research and Development
Capital expenditure on Research and Development is capitalised as
tangible fixed assets and depreciated in accordance with the
depreciation policy of the Company. Revenue expenditure incurred during
research phase is expensed as incurred and development expenditure is
capitalised as an internally generated intangible asset only if it
meets the recognition criteria under Accounting Standard (AS) 26
"Intangible Assets", which inter-alia includes demonstration of
technical feasibility, generation of future economic benefits, etc.
Revenue expenditure that cannot be distinguished between research phase
and development phase is expensed as and when incurred.
h) Revenue Recognition
Revenue from sale of products is recognised when risk of loss, title
and insurable risk have transferred to the customer, which in most
cases coincides with shipment of the related products. Revenue from
sale of special purpose machines is recognised upon customer acceptance
and despatch. Sales are recognised net of sales returns, trade
discount, sales tax and service tax but gross of excise duty wherever
applicable.
Income from services is recognised as the services are rendered based
on agreements / arrangements with customers. Other income are accounted
for on accrual basis. Interest income is recognised on a time
proportion basis taking into account the amount outstanding and the
rate applicable.
Dividend income is accounted for in the year in which the right to
receive the same is established.
i) Employee benefits
i) Short term Employee benefits:
All employee benefits falling due wholly within twelve months of
rendering the services are classifed as short term employee benefits,
which includes benefits like salaries, wages, short term compensated
absences and variable performance pay and are recognised in the period
in which the employee renders related services.
ii) Gratuity
The Company has an obligation towards gratuity, a Defined benefit
post-employment plan covering eligi- ble employees. The Company has an
Employees Gratuity Fund managed by Life Insurance Corporation of India
(LIC) and HDFC Life Insurance Company Limited (HDFC). The Company
accounts for the liability of Gratuity benefit payable in future based
on an independent actuarial valuation using the projected unit credit
method at the Balance Sheet date.
iii) Provident Fund
Contributions in respect of Provident Fund are made to a Trust
administered by the Company. Interest rate payable to members of the
Trust cannot be less than statutory rate of interest declared by the
Cen- tral Government under Employees Provident Funds & Miscellaneous
Provisions Act, 1952. The Compa- ny''s liability is actuarially
determined (using the projected unit credit method) at the end of the
year and any short fall in the fund size maintained by the Trust set up
by the Company is additionally provided for.
iv) Leave Encashment/ Compensated Absences
The Company provides for the encashment of leave with pay subject to
certain rules. The employees are entitled to accumulate leave subject
to certain limits, for future encashment/ availment. 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
determined (using the projected unit credit method) at the end of the
year.
v) Actuarial gains or losses comprise experience adjustments and the
effect of changes in the actuarial assumption, which are recognised
immediately in the Statement of Profit and Loss as income or expense.
vi) Termination benefits are recognised only when the company is
demonstrably committed either to terminate the employment of an
employee or a group of employees before the normal retirement age. In
the case of an offer made to encourage voluntary redundancy, a
liability and an expense is recognised if it is probable that the offer
will be accepted and the number of employees that will accept the offer
can be reliably estimated.
j) Current and Deferred Tax
Taxes on income for the current year are determined on the basis of
provisions of the Income Tax Act, 1961.
Tax expense for the period, comprising current tax and deferred tax,
are included in the determination of the net Profit or loss for the
period. Current tax is measured at the amount expected to be paid to
the tax authorities in accordance with the prevailing taxation laws.
Deferred tax is recognised for all the timing differences, subject to
the consideration of prudence in respect of deferred tax assets.
Deferred tax assets are recognised and carried forward only to the
extent that there is a reasonable certainty or virtual certainty, as
may be applicable, that suffcient future taxable income will be
available against which such deferred tax assets can be realised.
Deferred tax assets and liabilities are measured using the tax rates
and tax laws that have been enacted or substantively enacted by the
balance sheet date. At each Balance Sheet date, the Company reassesses
unrecognised deferred tax assets, if any.
k) Provisions and Contingent Liabilities
Provisions:
Provisions are recognised when the Company has a present obligation as
a result of past obligating events, for which it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation, and a reliable estimate of the amount can be
made.
Provisions are measured at the best estimate of the expenditure
required to settle the present obligation at the balance sheet date and
are not discounted to present value.
When the Company expects a provision to be reimbursed, the
reimbursement is recognised as a separate asset, only when such
reimbursement is virtually certain.
Contingent Liabilities:
Contingent liability is disclosed when there is a possible obligation,
arising from past events, the existence of which will be confrmed only
by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the Company or a present
obligation that arises from past events where it is either not probable
that an outflow of resources will be required to settle or a reliable
estimate of the amount cannot be made.
l) Leases
Finance Leases:
Assets acquired under lease where the Company has substantially all the
risks and rewards of ownership are classifed as finance lease. Such
leases are capitalised at the inception of the lease at lower of the
fair value
or the present value of the minimum lease payments and a liability is
created for an equivalent amount. Each lease rental paid is allocated
between the liability and the interest cost, so as to obtain a constant
periodic rate of interest on the outstanding liability for each period.
Operating Leases:
Assets acquired on lease where a signifcant portion of the risk and
rewards of ownership are retained by the lessor are classifed as
operating lease. Lease rentals are charged to the Statement of Profit
and Loss on a straight line basis over the lease term.
m) Segment Reporting
Segment accounting policies are generally in line with the accounting
policies of the Company. Further, the following Specific accounting
policies have been followed for segment reporting:
i) Segment revenue includes sales and other income directly identifable
with or allocable on a reasonable basis to the segment.
ii) Expenses that are directly identifable with or allocable to
segments on a reasonable basis are considered for determining segment
results. The expenses, which relate to the Company as a whole and not
alloca- ble to segments, are included under "Unallocable Corporate
Expenses".
iii) Income that relates to the Company as a whole and not allocable to
segments is included in "Unallocable Corporate Income".
iv) Segment assets and liabilities include those directly identifable
with respective segments. Unallocable corporate assets and liabilities
represent the assets and liabilities that relate to the Company as a
whole and not allocable to any segment.
Inter-segment transactions are not included in the segment revenue and
are accounted for at cost.
n) Cash and Cash Equivalents
In the Cash Flow Statement, cash and cash equivalents include cash on
hand, demand deposits with banks, and other short term highly liquid
investments with original maturities of three months or less.
o) Earnings Per Share
Earnings (basic and diluted) per equity share is arrived at based on
Profit/ (Loss) after taxation to the weighted average (basic and
diluted) number of equity shares.
(b) Rights, preferences and restrictions attached to shares
The Company has only one class of equity shares having a par value of
Rs.10 per share. Each shareholder is eligible for one vote per share
held. The dividend proposed by the Board of Directors is subject to
approval of the shareholders in the ensuing Annual General Meeting,
except in case of interim dividend. In the event of liquidation, the
equity shareholders are eligible to receive the remaining assets of the
Company after dis- tribution of all preferential amounts, if any, in
proportion to their shareholding.
Note:
(i) 1,520,450 (2013: 1,350,850) shares are held by Reliance Equity
Opportunity Fund comprising 6.92% (2013: 6.15%) of the shareholding
and 503,387 (2013: 495,841) shares are held by Reliance Tax Saver
(ELSS) Fund comprising 2.29% (2013: 2.25%) of the shareholding.
Jun 30, 2013
A) Basis of preparation:
These fnancial statements have been prepared in accordance with the
generally accepted accounting principles in India under the historical
cost convention on accrual basis. These fnancial statements have been
prepared to comply in all material aspects with the Accounting
Standards notifed under Section 211(3C) [Companies (Accounting
Standards) rules, 2006, as amended] and other relevant provisions of
the Companies Act,1956.
All assets and liabilities have been classifed as current or
non-current as per the Company''s normal operating cycle and other
criteria set out in the Revised Schedule VI to the Companies Act, 1956.
Based on the nature of products and the time between the acquisition of
assets for processing and their realisation in cash and cash
equivalents, the Company has ascertained its operating cycle as twelve
months for the purpose of current and non-current classifcation of
assets and liabilities.
b) Fixed Assets:
i) Tangible assets:
Tangible assets are stated at acquisition cost, net of accumulated
depreciation and accumulated impairment loss, if any.
Own manufactured assets are capitalised at cost. Cost comprises of
purchase price, including import duties and other non-refundable taxes
or levies and directly attributable cost of bringing the asset to its
working condition for its intended use.
Subsequent expenditure related to an item of fxed asset are added to
book value only if they increase the future beneft from existing asset
beyond its previously assessed standard of performance.
Depreciation is provided from the month of capitalisation on a straight
line method at the rates prescribed in Schedule XIV of the Companies
Act, 1956 except for the following assets where, based on management''s
technical evaluation, the rates are higher than Schedule XIV rates:
Leasehold improvements are depreciated over the primary lease period.
Machinery spares of irregular usage are amortised over the estimated
useful life of the respective Plant and Machinery. Individual assets
costing up to Rs 5,000 is fully depreciated in the year of acquisition.
b. Leased assets :
Assets taken on fnance lease are depreciated over its estimated useful
life or the lease term whichever is lower.
ii) Intangible assets:
Intangible assets are recognised only if it is probable that future
economic benefts that are attributable to the assets will fow to the
enterprise and the cost of the asset can be measured reliably.
Intangible assets are stated at acquisition cost, net of accumulated
amortisation and accumulated impairment losses, if any. Intangible
assets are amortised over their estimated useful life.
Operating software is capitalised along with related tangible asset.
Application software is expensed off on purchase except in case of
major application software, having unit value exceeding rupees ten
lakhs or forming part of an overall project, which is amortised over
its estimated useful life or project life not exceeding three years.
The amortisation period used for intangible assets are reviewed at each
fnancial year end.
c) Impairment of Assets:
At each balance sheet date, the Company assesses whether there is any
indication that an asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount. If the carrying
amount of the assets exceeds its recoverable amount, an impairment loss
is recognised in the Statement of Proft and Loss to the extent the
carrying amount exceeds recoverable amount.
d) Investments:
Investments that are readily realisable and are intended to be held for
not more than one year, from the date on which such investments are
made, are classifed as current investments. All other investments are
classifed as long term investments. Current investments are carried at
cost or fair value, whichever is lower. Long term investments are
carried at cost. However, provision of diminution is made to recognise
a decline, other than temporary, in the value of investments, such
reduction being determined and made for each investment individually.
e) Inventories:
Inventories are valued at the lower of cost and estimated net
realisable value, after providing for cost of obsolescence and other
anticipated losses, whenever considered necessary. The cost of raw
materials, stores and spares, work in progress and traded goods are
ascertained on a weighted average basis, whereas manufactured goods are
ascertained on a frst in frst out method.
Manufactured goods and work in progress include cost of conversion and
other costs incurred in bringing the inventories to their present
location and condition.
Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and the
estimated costs necessary to make the sale.
f) Foreign Currency Transactions:
Transactions in foreign currency are recognised at the rate of exchange
ruling on the date of the transaction.
Liabilities / Assets in foreign currencies are recognised in the
accounts as per the following principles:
Foreign currency liabilities contracted for acquiring fxed assets are
restated at the rates ruling at the year end and all exchange
differences arising as a result of such restatement are adjusted to the
Statement of Proft and Loss.
All monetary assets and liabilities denominated in foreign currency are
restated at the rates ruling at the year end and all exchange gains /
losses arising there from are adjusted to the Statement of Proft and
Loss.
Premium or discount arising at the inception of a forward exchange
contract entered into to hedge an existing asset/ liability is
amortised as expense or income over the life of the contract. Exchange
differences on forward contracts are recognised in the Statement of
Proft and Loss in the reporting period in which the exchange rates
change. Any proft or loss arising on cancellation or renewal of such
forward contracts is recognised as income or expense for the year.
Forward exchange contracts outstanding as at the year end on account of
frm commitment / highly probable forecast transactions are marked to
market and the losses, if any, are recognised in the Statement of Proft
and Loss and gains are ignored in accordance with the Announcement of
Institute of Chartered Accountants of India on ''Accounting for
Derivatives'' issued in March 2008.
g) Research and Development:
Revenue expenditure on research and development is charged under
respective heads of account. Capital expenditure on research and
development is capitalised as tangible fxed assets and depreciated in
accordance with the policy of the Company.
h) Revenue Recognition:
Revenue from sale of products is recognised when risk of loss, title
and insurable risk have transferred to the customer, which in most
cases coincides with shipment of the related products. Revenue from
sale of special purpose machines is recognised upon customer acceptance
and despatch. Sales are recognised net of sales returns, trade
discount, sales tax and service tax but gross of excise duty wherever
applicable.
Income from services is recognised as the services are rendered based
on agreements / arrangements with customers. Other income are accounted
for on accrual basis. Interest income is recognised on a time
proportion basis taking into account the amount outstanding and the
rate applicable.
Dividend income is accounted for in the year in which the right to
receive the same is established.
i) Employee Benefts:
i) Short term Employee Benefts:
All employee benefts falling due wholly within twelve months of
rendering the services are classifed as short term employee benefts,
which includes benefts like salaries, wages, short term compensated
absences and variable performance pay and are recognised in the period
in which the employee renders related services.
ii) Gratuity:
The Company has an obligation towards gratuity, a defned beneft
post-employment plan covering eligible employees. The Company has an
Employees Gratuity Fund managed by Life Insurance Corporation of India
(LIC). The Company accounts for the liability of Gratuity beneft
payable in future based on an independent actuarial valuation using the
projected unit credit method at the Balance Sheet date.
iii) Provident Fund:
Contributions in respect of Provident Fund are made to a Trust
administered by the Company. Interest rate payable to members of the
Trust shall not be less than statutory rate of interest declared by the
Central Government under Employees Provident Funds & Miscellaneous
Provisions Act, 1952. The Company''s liability is actuarially determined
(using the Projected Unit Credit method) at the end of the year and any
short fall in the fund size maintained by the Trust set up by the
Company is additionally provided for.
iv) Leave Encashment/ Compensated Absences:
The Company provides for the encashment of leave with pay subject to
certain rules. The employees are entitled to accumulate leave subject
to certain limits, for future encashment/ availment. 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
determined (using the Projected Unit Credit method) at the end of the
year.
v) Actuarial gains or losses comprise experience adjustments and the
effect of changes in the actuarial assumption, which are recognised
immediately in the Statement of Proft and Loss as income or expense.
j) Current and Deferred Tax:
Taxes on income for the current year are determined on the basis of
provisions of the Income Tax Act, 1961.
Tax expense for the period, comprising current tax and deferred tax,
are included in the determination of the net proft or loss for the
period. Current tax is measured at the amount expected to be paid to
the tax authorities in accordance with the prevailing taxation laws.
Deferred tax is recognised for all the timing differences, subject to
the consideration of prudence in respect of deferred tax assets.
Deferred tax assets are recognised and carried forward only to the
extent that there is a reasonable certainty or virtual certainty, as
may be applicable, that suffcient future taxable income will be
available against which such deferred tax assets can be realised.
Deferred tax assets and liabilities are measured using the tax rates
and tax laws that have been enacted or substantively enacted by the
balance sheet date. At each Balance Sheet date, the Company reassesses
unrecognised deferred tax assets, if any.
k) Provisions and Contingent Liabilities:
Provisions:
Provisions are recognised when the Company has a present obligation as
a result of past obligating events, for which it is probable that an
outfow of resources embodying economic benefts will be required to
settle the obligation, and a reliable estimate of the amount can be
made.
Provisions are measured at the best estimate of the expenditure
required to settle the present obligation at the balance sheet date and
are not discounted to present value.
When the Company expects a provision to be reimbursed, the
reimbursement is recognised as a separate asset, only when such
reimbursement is virtually certain.
Contingent Liabilities:
Contingent liability is disclosed when there is a possible obligation,
arising from past events, the existence of which will be confrmed only
by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the Company or a present
obligation that arises from past events where it is either not probable
than an outfow of resources will be required to settle or a reliable
estimate of amount cannot be made.
l) Leases:
Finance Leases:
Assets acquired under lease where the Company has substantially all the
risks and rewards of ownership are classifed as fnance lease. Such
leases are capitalised at the inception of the lease at lower of the
fair value or the present value of the minimum lease payments and a
liability is created for an equivalent amount. Each lease rental paid
is allocated between the liability and the interest cost, so as to
obtain a constant periodic rate of interest on the outstanding
liability for each period.
Operating Leases:
Assets acquired on lease where a signifcant portion of the risk and
rewards of ownership are retained by the lessor are classifed as
operating lease. Lease rentals are charged to the Statement of Proft
and Loss on a straight line basis over the lease term.
m) Segment Reporting:
Segment accounting policies are generally in line with the accounting
policies of the Company. Further, the following specifc accounting
policies have been followed for segment reporting:
i) Segment revenue includes sales and other income directly identifable
with or allocable on a reasonable basis to the segment.
ii) Expenses that are directly identifable with or allocable to
segments on a reasonable basis are considered for determining segment
results. The expenses, which relate to the Company as a whole and not
allocable to segments, are included under "Unallocable Corporate
Expenses".
iii) Income that relates to the Company as a whole and not allocable to
segments is included in "Unallocable Corporate Income".
iv) Segment assets and liabilities include those directly identifable
with respective segments. Unallocable corporate assets and liabilities
represent the assets and liabilities that relate to the Company as a
whole and not allocable to any segment.
Inter-segment transactions are not included in the segment revenue and
are accounted for at cost.
n) Cash and Cash Equivalents:
In the Cash Flow Statement, cash and cash equivalents includes cash on
hand, demand deposits with banks, and other short term highly liquid
investments with original maturities of three months or less.
o) Earnings Per Share:
Earnings (basic and diluted) per equity share is arrived at based on
Proft/ (Loss) after taxation to the weighted average (basic and
diluted) number of equity shares.
p) Use of Estimates:
The preparation of fnancial statements in conformity with Generally
Accepted Accounting Principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at
the date of fnancial statements and the reported amounts of revenues
and expenses during the period reported. Actual results could differ
from those estimates; a revision to accounting estimate is recognised
prospectively in the current and future periods.
Jun 30, 2012
A) Basis of preparation
These financial statements have been prepared in accordance with the
generally accepted accounting principles in India under the historical
cost convention on accrual basis. These financial statements have been
prepared to comply in all material aspects with the Accounting
Standards notified under Section 211 (3C) [Companies (Accounting
Standards) rules, 2006, as amended] and other relevant provisions of
the Companies Act, 1956.
All assets and liabilities have been classified as current or
non-current as per the Company's normal operating cycle and other
criteria set out in the Revised Schedule VI to the Companies Act, 1956.
Based on the nature of products and the time between the acquisition of
assets for processing and their realisation in cash and cash
equivalents, the Company has ascertained its operating cycle as twelve
months for the purpose of current and non-current classification of
assets and liabilities.
b) Fixed Assets
i) Tangible assets:
Tangible Assets are stated at acquisition cost, net of accumulated
depreciation and accumulated impairment loss, if any.
Own manufactured assets are capitalised at cost. Cost comprises of
purchase price, including import duties and other non-refundable taxes
or levies and directly attributable cost of bringing the asset to its
working condition for its intended use.
Subsequent expenditure related to an item of fixed asset are added to
book value only if they increase the future benefitfrom existing asset
beyond its previously assessed standard of performance.
Depreciation is provided from the month of capitalisation on a straight
line method at the rates prescribed in Schedule XIV of the Companies
Act, 1956 except for the following assets where, based on
management's technical evaluation, the rates are higher than Schedule
XIV rates:
a. Own assets
Leasehold improvements are depreciated over the primary lease period.
Machinery spares of irregular usage are amortised over the estimated
useful life of the respective Plant and Machinery. Individual assets
costing up to Rs.5000 is fully depreciated in theyearof acquisition.
b. Leased assets
Assets taken on finance lease are depreciated over its estimated useful
life or the lease term wh ichever is I ower
ii) Intangible assets:
Intangible assets are recognised only if it is probable that future
economic benefits that are attributable to the assets will flow to the
enterprise and the cost of the asset can be measured reliably.
Intangible assets are stated at acquisition cost, net of accumulated
amortisation and accumulated impairment losses, if any. Intangible
assets are amortised over their estimated usefullife.
Operating software is capitalised along with related tangible asset.
Application software is expensed off on purchase except in case of
major application software, having unit value exceeding rupees ten
lakhs or forming part of an overall project, which is amortised over
its estimated usefu! life or project life not exceeding three years.
The amortization period and method used for intangible assets are
reviewed at each financial year end.
c) Impairment of Assets
At each balance sheet date, the Company assess whether there is any
indication that an asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount If the carrying
amount of the assets exceeds its recoverable amount, an impairment loss
is recognised in the Statement of Profit and Loss to the extent the
carrying amount exceeds recoverable amount.
d) Investments
Investments that are readily realisable and are intended to be held for
not more than one year, from the date on which such investments are
made, are classified as current investments. All other investments are
classified as long term investments. Current investments are carried at
cost orfair value, whichever is lower. Long term investments are
carried at cost. However, provision of diminution is made to recognise
a decline, other than temporary, in the value of investments, such
reduction being determined and made for each investment individually.
e) Inventories
Inventories are valued at the lower of cost and estimated net
realisable values, after providing for cost of obsolescence and other
anticipated losses, whenever considered necessary. The cost of raw
materials, stores and spares, work in progress and traded goods are
ascertained on a weighted average basis, whereas manufactured goods are
ascertained on a first in first out method.
Manufactured goods and work in progress include cost of conversion and
other costs incurred in bringing the inventories to their present
location and condition.
Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and the
estimated costs necessary to make the sale.
f) Foreign Currency Transactions:
Transactions in foreign currency are recognised at the rate of exchange
ruling on the dates of the transaction.
Liabilities /Assets in foreign currencies are reckoned in the accounts
as per the following principles:
Foreign currency liabilities contracted for acquiring fixed assets are
restated at the rates ruling at the year end and all exchange
differences arising as a result of such restatement are adjusted to the
Statement of Profit and Loss.
All monetary assets and liabilities denominated in foreign currency are
restated at the rates ruling at the year end and all exchange gains /
losses arising there from are adjusted to the Statement of Profit and
Loss.
Premium or discount arising at the inception of a forward exchange
contract is amortised as expenses or income over the life of the
contract. Exchange differences on forward contracts are recognised in
the Statement of Profit and Loss in the reporting period in which the
exchange rates change. Any profit or loss arising on cancellation or
renewal of such forward contracts is recognised as income or expense
for the year.
g) Research and Development
Revenue expenditure on research and development is charged under
respective heads of account Capital expenditure on research and
development is capitalised as tangible fixed assets and depreciated in
accordance with the policy of the Company,
h) Revenue Recognition
Revenue from sale of products is recognised when risk of loss, title
and insurable risk have transferred to the customer, which in most
cases coincides with shipment of the related products. Revenue from
sale of special purpose machines is recognised upon customer acceptance
and despatch. Sales are recognised net of sales returns, trade
discount, sales tax and service tax butgross of excise duty
whereverapplicable.
Income from services is recognised as the services are rendered based
on agreements/ arrangements with customers, Interestand otherincome are
accounted for on accrual basis.
Dividend income is accounted for in the year in which the right to
receive the same is established.
i) Employee Benefits
i) Shortterm Employee Benefits:
All employee benefits falling due wholly within twelve months of
rendering the services are classified as short term employee benefits,
which includes benefits like salaries, wages, short term compensated
absences and variable performance pay and are recognised in the period
in which the employee renders related services.
ii) Gratuity
The Company has an obligation towards gratuity, a defined benefit
post-employment plan covering eligible employees. The Company has an
Employees Gratuity Fund managed by Life Insurance Corporation of India
(LIC). The Company accounts for the liability of Gratuity benefit
payable in future based on an independent actuarial valuation using the
projected unit credit method at the Balance Sheet date.
iii) Provident Fund
Contributions in respect of Provident Fund are made to a Trust
administered by the Company. Interest rate payable to members of the
Trust shall not be less than statutory rate of interest declared by the
Central Government under Employees Provident Funds & Miscellaneous
Provisions Act, 1952. The Company's liability is actuarially
determined (using the Projected Unit Credit method) at the end of the
year and any short fall in the fund size maintained by the Trust set up
by the Company is additionally provided for.
iv)Leave Encashment/Compensated Absences
The Company provides for the encashment of leave with pay subject to
certain rules. The employees are entitled to accumulate leave subject
to certain limits, for future encashment/availment. 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
determined (using the Projected Unit Credit method) at the end of the
year.
v) Actuarial gains or losses comprise experience adjustments and the
effect of changes in the actuarial assumption, which are recognised
immediately in the Statement of Profit and Loss as income or expense.
j) Currentand DeferredTax
Taxes on income for the current year are determined on the basis of
provisions of the Income TaxAct, 1961.
Tax expense forthe period, comprising current taxand deferred tax, are
included in the determination of the net profit or loss for the period.
Current tax is measured at the amount expected to be paid to the tax
authorities in accordance with the prevailing taxation laws.
Deferred taxis recognised for all the timing differences, subject to
the consideration of prudence in respect of deferred tax assets.
Deferred tax assets are recognised and carried forward only to the
extent that there is a reasonable certainty orvirtual certainty, as may
be applicable, that sufficient future taxable income will be available
against which such deferred tax assets can be realised. Deferred tax
assets and liabilities are measured using the tax rates and tax laws
that have been enacted or substantively enacted by the balance sheet
date. At each Balance Sheet date, the Company reassesses unrecognised
deferred tax assets, if any.
k) Provisions and Contingent Liabilities
Provisions:
Provisions are recognised when the Company has a present obligation as
a result of past obligating events,
forwhichitisprobablethatanoutflowofresourcesembodyingeconomicbenefitswillbe
required to settle the obligation, and a reliable estimate of the
amount can be made.
Provisions are measured at the best estimate of the expenditure
required to settle the present obligation at the balance sheet date and
are notdiscounted to present value.
When the Company expects a provision to be reimbursed, the
reimbursement is recognised as a separate asset, only when such
reimbursement is virtually certain.
Contingent Liabilities:
Contingent liability is disclosed when there is a possible obligation,
arising from past events, the existence of which will be confirmed only
by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the Company or a present
obligation that arises from where it is either not probable than an
outflow of resources will be required to settle or a reliable estimate
of amount cannot be made.
l) Leases
Finance Leases:
Assets acquired under lease where the Company has substantially all the
risks and rewards of ownership are classified as finance lease. Such
leases are capitalised at the inception of the lease at lower of the
fair value or the present value of the minimum lease payments and a
liability is created foran equivalent amount. Each lease rental paid
is allocated between the liability and the interest cost, so as to
obtain a constant periodic rate of interest on the outstanding
liabilityforeach period.
Operating Leases;
Assets acquired on lease where a significant portion of the risk and
rewards of ownership are retained by the lessor are classified as
operating lease. Lease rentals are charged to the Statement of
Profitand Loss on accrual basis.
m) Segment Reporting
Segment accounting policies are generally in line with the accounting
policies of the Company. Further, the following specific accounting
policies have been followed for segment reporting:
i) Segment revenue includes sales and other income directly
identifiable with or allocable on a reasonable basis to the segment.
ii) Expenses that are directly identifiable with or allocable to
segments on a reasonable basis are considered for determining segment
results. The expenses, which relate to the Company as a whole and not
allocable to segments, are included under "Unallocable Corporate
Expenses".
iii) income, which relates to the Company, as a whole and not allocable
to segments is included in "Unallocable Corporate Income".
iv)Segment assets and liabilities include those directly identifiable
with respective segments. Unallocable corporate assets and liabilities
represent the assets and liabilities that relate to the Company as a
whole and not allocable to any seg ment.
Inter-segment transactions are not included in the segment revenue and
are accounted for at cost.
n) Cash and Cash Equivalents
In the cash flow statement, cash and cash equivalents includes cash in
hand, demand deposits with banks and other shortterm highly liquid
investments with original maturities ofthree months or less.
o) Earnings PerShare
Earnings (basic and diluted) per equity share is arrived at based on
Profit/ (Loss) after taxation to the weighted average (basic and
diluted) number of equity shares.
p) Use of Estimates
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at
the date of financial statements and the reported amounts of revenues
and expenses during the period reported. Actual results could differ
from those estimates; a revision to accounting estimate is recognized
prospectively in the current and future periods.
Jun 30, 2011
I. Basis of accounting and preparation of Financial Statements
The Company adopts the historical cost concept and accrual basis in
accordance with Generally Accepted Accounting Principles (GAAP) for the
preparation of its accounts and complies with the applicable Accounting
Standards notified under section 211 (3C) of the Companies Act, 1956
and the relevant provisions of the Companies Act, 1956.
Use of estimate
The preparation of financial statements, in conformity with Generally
Accepted Accounting Principles (GAAP), requires that the management
makes estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent liabilities as at the
date of financial statements and the reported amounts of revenue and
expenses during the reported period.
ii. Fixed Assets
Fixed assets are stated at their original cost of acquisition and
subsequent improvements thereto including taxes, duties, freight and
other incidental expenses related to acquisition and installation of
the assets concerned.
Own manufactured assets are capitalized at cost.
Operating software is capitalized along with fixed asset. Application
software is expensed off on acquisition except in case of major
application software, having unit value exceeding Rs. 1,000 thousand or
forming part of an overall project, which is amortized over its
estimated useful life or project life.
iii. Leases
Assets acquired under leases where the Company has substantially all
the risks and rewards of ownership are classified as finance leases.
Such leases are capitalized at the inception of the lease at lower of
the fair value or the present value of the minimum lease payments and a
liability is created for an equivalent amount. Each lease rental paid
is allocated between the liability and the interest cost, so as to
obtain a constant periodic rate of interest on the outstanding
liability for each period.
Assets acquired as leases where a significant portion of the risk and
rewards of ownership are retained by the lessor are classified as
operating leases. Lease rentals are charged to the Profit and Loss
Account on accrual basis.
iv. Depreciation
Depreciation is provided from the month of capitalization on a Straight
Line Method at the rates prescribed in Schedule XIV of the Companies
Act, 1956 except for the following where based on technical evaluation
of the management, the rates are higher than Schedule XIV rates.
Leasehold improvements are depreciated over the primary lease period.
Machinery spares of irregular usage are amortized over the estimated
useful lives of the respective Plant and Machinery.
b) Leased assets
Assets taken on finance lease are depreciated over its estimated useful
life or the lease term whichever is lower except in case of leased
assets, where there is a reasonable certainty that the ownership of the
assets will be obtained at the end of the lease term, which are
depreciated over the estimated useful life.
v. Investments
Long-term investments are stated at cost. A provision for diminution is
made to recognise a decline, other than temporary, in the value of long
term investments. Current Investments are stated at lower of cost and
fair value.
vi. Inventories
Inventories are valued at lower of cost and net realisable value except
in case of Stores and Spares which are valued at cost, after providing
for the old, damages, obsolescence and other anticipated losses,
wherever considered necessary.
The costs are, in general, ascertained as under:
Raw Materials and Components
Moving weighted average method, cost ascertained based on standard
cost.
Stores and Spares Moving weighted average method.
Work-in-Progress Material cost plus appropriate manufacturing
overheads.
Stock-in-trade:
Finished Goods On a first in first out basis, cost being ascertained
based on
standard cost. Traded Goods Moving weighted average method
vii. Foreign Currency Transactions
Transactions in foreign currency are recognised at the rate of exchange
ruling on the dates of the transaction.
Liabilities /Assets in foreign currencies are reckoned in the accounts
as per the following principles: Foreign currency liabilities
contracted for acquiring fixed assets are restated at the rates ruling
at the year end and all exchange differences arising as a result of
such restatement are adjusted to the profit and loss account.
All monetary assets and liabilities denominated in foreign currency are
restated at the rates ruling at the year end and all exchange gains /
losses arising there from are adjusted to the Profit and Loss Account,
except those covered by forward contracted rates where the premium or
discount arising at the inception of such forward exchange contract is
amortised as expenses or income over the life of the contract.
Exchange difference on forward contracts are recognised in the Profit
and Loss Account in the reporting period in which the exchange rates
change. Any profit or loss arising on cancellation or renewal of such
forward contracts is recognised as income or expense for the year.
viii. Research and Development
Revenue expenditure on research and development is charged under
respective heads of account. Capital expenditure on research and
development is capitalised as fixed assets and depreciated in
accordance with the depreciation policy of the Company.
ix. Revenue Recognition
Revenue from sale of products is recognized when risk of loss, title
and insurable risk have transferred to the customer, which in most
cases, coincides with shipment of the related products. Further the
revenue from sale of special purpose machine is recognized upon
customer acceptance and despatch. A sale is recognised net of sales
returns, trade discount, sales tax and service tax but includes excise
duty wherever applicable.
Income from services rendered is recognised based on agreements /
arrangements with customers. Interest and other income are accounted
for on accrual basis.
Dividend income is accounted for in the year in which the right to
receive the same is established.
x. Employee Benefits
Short term Employee Benefits:
All employee benefits falling due wholly within twelve months of
rendering the services are classified as
short term employee benefits, which include benefits like salaries,
wages, short term compensated absences and variable performance pay and
are recognized in the period in which the employee renders related
services.
Gratuity:
The Company has an obligation towards gratuity, a defined benefit
retirement plan covering eligible employees. The Company has an
Employees Gratuity Fund managed by Life Insurance Corporation of India
(LIC). The Company accounts for the liability of Gratuity Benefits
payable in future based on an independent actuarial valuation using the
projected unit credit method at the Balance Sheet date.
Leave Encashment/ Compensated Absences:
The Company provides for the encashment of leave with pay subject to
certain rules. The employees are entitled to accumulate leave subject
to certain limits, for future encashment/ availment. The liability is
provided based on the number of days of unutilized leave at each
balance sheet date on the basis of an independent actuarial valuation.
Provident Fund:
Contributions in respect of Provident Fund, which is a defined
contribution scheme, is recognised as an expense in the period in which
employee renders related services. Provident fund contributions are
made to a Trust administered by the Company. Interest rate payable to
the members of the Trust shall not be lower than the statutory rate of
interest declared by the Central Government under the Employees'
Provident Funds and Miscellaneous Provisions Act, 1952 and shortfall,
if any, shall be made good by the Company. Refer Note 15 (i).
xi. Provisions and Contingent Liabilities
Provisions are recognised when the Company has a present obligation as
a result of past obligating events, for which it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation, and a reliable estimate of the amount can be
made. Provisions are reviewed regularly and are adjusted where
necessary to reflect the current estimates of the obligation. When the
Company expects a provision to be reimbursed, the reimbursement is
recognized as a separate asset, only when such reimbursement is
virtually certain.
Contingent liability is disclosed when there is a present or possible
obligation, the settlement of which may not involve an outflow of
resources. No disclosure is made when the possibility of outflow of
resources is remote.
xii. Taxation
Current and Deferred Tax:
Tax on income for the current year is determined on the basis of the
Income Tax Act, 1961.
Deferred tax is recognised on timing differences between the accounting
income and the taxable income for the year and quantified using the tax
rates and laws enacted or substantively enacted as on the Balance Sheet
date.
Deferred tax assets are recognised and carried forward to the extent
that there is a reasonable certainty that sufficient future taxable
income will be available against which such deferred tax asset can be
realised.
xiii. Segment Accounting
Segment Accounting Policies
Segment accounting policies are generally in line with the accounting
policies of the Company. However the following specific accounting
policies have been followed for segment reporting:
a) Segment revenue includes sales and other income directly
identifiable with / allocable to the segment.
b) Expenses that are directly identifiable with / allocable to segments
are considered for determining segment results. The expenses, which
relate to the Company as a whole and not allocable to segments, are
included under "Unallocable Corporate Expenses".
c) Income, which relates to the Company, as a whole and not allocable
to segments is included in "Unallocable Corporate Income".
d) Segment assets and liabilities include those directly identifiable
with respective segments. Unallocable corporate assets and liabilities
represent the assets and liabilities that relate to the Company as a
whole and not allocable to any segment.
Inter-Segment Transfer Pricing
Inter-segment transactions are not included in the segment revenue and
are accounted at cost.
xiv. Earnings Per Share
Earnings (basic and diluted) per equity share is arrived at based on
Profit/ (Loss) after taxation to the basic / weighted average number of
equity shares.
xv. Impairment of Assets
At each balance sheet date, the Company assess whether there is any
indication that an asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount. If the carrying
amount of the assets exceeds its recoverable amount, an impairment loss
is recognised in the profit and loss account to the extent the carrying
amount exceeds recoverable amount.
xvi. Product Support
The estimated liability for product support is recorded when products
are sold. These estimates are established using historical information
on the nature, frequency and average cost of product support claims and
management estimates regarding possible future incidence based on
corrective actions on product failures.
Jun 30, 2010
I. Basis of accounting and preparation of Financial Statements
The Company adopts the historical cost concept and accrual basis in
accordance with Generally Accepted Accounting Principles (GAAP) for the
preparation of its accounts and complies with the applicable Accounting
Standards notified under section 211(3C) of the Companies Act, 1956 and
the relevant provisions of the Companies Act 1956.
Use of estimate
The preparation of financial statements, in conformity with Generally
Accepted Accounting Principles (GAAP), requires that the management
makes estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent liabilities as at the
date of financial statements and the reported amounts of revenue and
expenses during the reported period.
ii. Fixed Assets
Fixed assets are stated at their original cost of acquisition and
subsequent improvements thereto including taxes, duties, freight and
other incidental expenses related to acquisition and installation of
the assets concerned.
Own manufactured assets are capitalized at cost.
Operating software is capitalized along with fixed asset. Application
software is expensed off on acquisition except in case of major
application software, having unit value exceeding Rs.1,000 thousand or
forming part of an overall project, which is amortized over its
estimated useful life or project life.
iii. Leases
Assets acquired under Leases where the Company has substantially all
the risks and rewards of ownership are classified as finance leases.
Such leases are capitalized at the inception of the lease at lower of
the fair value or the present value of the minimum lease payments and a
liability is created for an equivalent amount. Each lease rental paid
is allocated between the liability and the interest cost, so as to
obtain a constant periodic rate of interest on the outstanding
liability for each period.
Assets acquired as leases where a significant portion of the risk and
rewards of ownership are retained by the lessor are classified as
operating leases. Lease rentals are charged to the Profit and Loss
Account on accrual basis.
iv. Depreciation
Depreciation is provided from the month of capitalization on a Straight
Line Method at the rates prescribed in Schedule XIV of the Companies
Act, 1956 except for the following where based on technical evaluation
of the management, the rates are higher than Schedule XIV rates.
Leasehold improvements are depreciated over the primary lease period.
Machinery spares of irregular usage are amortized over the estimated
useful lives of the respective Plant and Machinery.
b) Leased assets
Assets taken on finance lease are depreciated over its estimated useful
life or the lease term whichever is lower except in case of leased
assets, where there is a reasonable certainty that the ownership of the
assets will be obtained at the end of the lease term, which are
depreciated over the estimated useful life.
v. Investments
Long-term investments are stated at cost. A provision for diminution is
made to recognise a decline, other than temporary, in the value of long
term investments. Current Investments are stated at lower of cost and
fair value.
vi. Inventories
Inventories are valued at lower of cost and net realisable value except
in case of Stores and Spares which are valued at cost, after providing
for the old, damages, obsolescence and other anticipated losses,
wherever considered necessary.
The costs are, in general, ascertained as under:
Raw Materials and Components : Moving weighted average method,
cost ascertained
based on standard cost.
Stores and Spares : Moving weighted average method.
Work-in-Progress : Material cost plus appropriate
manufacturing overheads
Stock in trade:
Finished Goods : On a first in first out basis,
cost being ascertained based
on standard cost.
Traded Goods : Moving weighted average method
vii. Foreign Currency Transactions
Transactions in foreign currency are recognised at the rate of exchange
ruling on the dates of the transaction.
Liabilities/Assets in foreign currencies are reckoned in the accounts
as per the following principles:
Foreign currency liabilities contracted for acquiring fixed assets are
restated at the rates ruling at the year end and all exchange
differences arising as a result of such restatement are adjusted to the
profit and loss account.
All monetary assets and liabilities denominated in foreign currency are
restated at the rates ruling at the year end and all exchange gains /
losses arising there from are adjusted to the Profit and Loss Account,
except those covered by forward contracted rates where the premium or
discount arising at the inception of such forward exchange contract is
amortised as expenses or income over the life of the contract.
Exchange difference on forward contracts are recognised in the Profit
and Loss Account in the reporting period in which the exchange rates
change. Any profit or loss arising on cancellation or renewal of such
forward contracts is recognised as income or expense for the year.
viii. Research and Development
Revenue expenditure on research and development is charged under
respective heads of account. Capital expenditure on research and
development is included as part of fixed assets and depreciated on the
same basis as other fixed assets.
ix. Revenue Recognition
Revenue from sale of products is recognized when risk of loss, title
and insurable risk have transferred to the customer, which in most
cases, coincides with shipment of the related
products. Further the revenue from sale of special purpose machine is
recognized upon customer acceptance and despatch. A sale is recognised
net of sales returns, trade discount, sales tax and service tax but
includes excise duty wherever applicable.
Income from services rendered is recognised based on
agreements/arrangements with customers. Interest and other income are
accounted for on accrual basis.
Dividend income is accounted for in the year in which the right to
receive the same is established.
x. Employee Benefits
Short term Employee Benefits:
All employee benefits falling due wholly within twelve months of
rendering the services are classified as short term employee benefits,
which include benefits like salaries, wages, short term compensated
absences and variable performance pay and are recognized in the period
in which the employee renders related services.
Gratuity:
The Company has an obligation towards gratuity, a defined benefit
retirement plan covering eligible employees. The Company has an
Employees Gratuity Fund managed by Life Insurance Corporation of India
(LIC). The Company accounts for the liability of Gratuity Benefits
payable in future based on an independent actuarial valuation using the
projected unit credit method at the Balance Sheet date.
Leave Encashment/ Compensated Absences:
The Company provides for the encashment of leave with pay subject to
certain rules. The employees are entitled to accumulate leave subject
to certain limits, for future encashment/ availment. The liability is
provided based on the number of days of unutilized leave at each
balance sheet date on the basis of an independent actuarial valuation.
Provident Fund:
Contributions payable in respect of Provident Fund, which is a defined
contribution scheme, is
charged to the profit and loss account. Refer Note 15 (i).
xi. Provisions and Contingent Liabilities
Provisions are recognised when the Company has a present obligation as
a result of past obligating events, for which it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation, and a reliable estimate of the amount can be
made. Provisions are reviewed regularly and are adjusted where
necessary to refect the current estimates of the obligation. When the
Company expects a provision to be reimbursed, the reimbursement is
recognized as a separate asset, only when such reimbursement is
virtually certain.
Contingent liability is disclosed when there is a present or possible
obligation, the settlement of which may not involve an outflow of
resources. No disclosure is made when the possibility of outflow of
resources is remote.
xii. Taxation
Current and Deferred Tax:
Tax on income for the current year is determined on the basis of the
Income Tax Act, 1961.
Deferred tax is recognised on timing differences between the accounting
income and the taxable income for the year and quantified using the tax
rates and laws enacted or substantively enacted as on the Balance Sheet
date.
Deferred tax assets are recognised and carried forward to the extent
that there is a reasonable certainty that sufficient future taxable
income will be available against which such deferred tax asset can be
realised.
Fringe benefit tax:
Fringe benefit tax was determined at current applicable rate on
expenses falling within the ambit of ÃFringe beneftà as defined under
the Income Tax Act, 1961 till the previous year. With effect from April
2009, Fringe benefit tax is not required to be borne by the Company on
account of change in legislature.
xiii. Segment Accounting
Segment Accounting Policies
Segment accounting policies are generally in line with the accounting
policies of the Company. However, the following specific accounting
policies have been followed for segment reporting:
a) Segment revenue includes sales and other income directly identifable
with / allocable to the segment.
b) Expenses that are directly identifiable with / allocable to segments
are considered for determining segment results. The expenses, which
relate to the Company as a whole and not allocable to segments, are
included under ÃUnallocable Corporate ExpensesÃ.
c) Income, which relates to the Company, as a whole and not allocable
to segments is included in "Unallocable Corporate Income".
d) Segment assets and liabilities include those directly identifiable
with respective segments. Unallocable corporate assets and liabilities
represent the assets and liabilities that relate to the Company as a
whole and not allocable to any segment.
Inter-Segment Transfer Pricing
Inter-segment transactions are not included in the segment revenue and
are accounted at cost.
xiv. Earnings Per Share
Earnings (basic and diluted) per equity share is arrived at based on
Profit/ (Loss) after taxation to the basic / weighted average number of
equity shares.
xv. Impairment of Assets
At each balance sheet date, the Company assess whether there is any
indication that an asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount. If the carrying
amount of the assets exceeds its recoverable amount, an impairment loss
is recognised in the profit and loss account to the extent the carrying
amount exceeds recoverable amount.
xvi. Product Support
The estimated liability for product support is recorded when products
are sold. These estimates are established using historical information
on the nature, frequency and average cost of product support claims and
management estimates regarding possible future incidence based on
corrective actions on product failures.
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- Balance Sheet
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Kennametal India Ltd. Reports
- Accounting Policies
- Auditors Report
- Directors Report
- Notes To Account
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Kennametal India Ltd. Corporate Announcements
- Book Closure
- Dividend
- Board Meetings
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Stocks To Buy Today, Dec 19: Top 2 Picks By Riyank Arora of Mehta Equities For Profitable Trading On Friday -
Stocks To Buy Today, Dec 18: Top 2 Picks By Riyank Arora of Mehta Equities For Profitable Trading On Thursday -
Stocks To Buy Today, Dec 17: Top 2 Picks By Riyank Arora of Mehta Equities For Profitable Trading On Wednesday -
Stocks To Buy Today, Dec 16: Top 2 Picks By Riyank Arora of Mehta Equities For Profitable Trading On Tuesday -
India Stock Market Weekly Review: Nifty and Sensex Fall as Caution Spreads -
Stocks To Buy Today, Dec 15: Top 2 Picks By Riyank Arora of Mehta Equities For Profitable Trading On Monday
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Stocks To Buy Today, Dec 12: Top 2 Picks By Riyank Arora of Mehta Equities For Profitable Trading On Friday -
Market Outlook 2026: Kotak Securities Sees Nifty 50 at 30,000; THESE 4 Sectors Lead Rally, Gold To Stay Strong -
Stocks To Buy Today, Dec 10: Top 2 Picks By Riyank Arora of Mehta Equities For Profitable Trading On Wednesday -
D-Street Bleeds For 2nd Day! Sensex Slumps 678 Pts; Nifty Cracks 25,800; Why Stock Market Is Falling Today? -
Stocks To Buy Today, Dec 9: Top 2 Picks By Riyank Arora of Mehta Equities For Profitable Trading On Tuesday -
Stocks To Buy Today, Dec 8: Top 4 Picks By Riyank Arora of Mehta Equities For Profitable Trading On Monday -
Stock Market Alert! Major Pre-Open Session Change From Dec 8: Full Timings, Rules & All You Need To Know -
Bank Nifty Surges: RBI’s 25 bps Rate Cut Triggers Strong Upside in Major Banking Stocks -
Closing Bell: Sensex Ends 158 pts Higher, Nifty Climbs Above 26,000; Hero MotoCorp, HAL Up 2% Each -
Stocks To Buy Today, Dec 4: Top 2 Picks By Riyank Arora of Mehta Equities For Profitable Trading On Thursday
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