Accounting Policies of Lakhotia Polyesters (India) Ltd. Company

Mar 31, 2024

Note 2: SIGNIFICANT ACCOUNTING POLICIES

(I) BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS

a) Compliance with Ind AS

The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the Act) [Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act.

b) Historical cost convention

The financial statement has been prepared on a historical cost basis, except for:

- certain financial assets and liabilities (including derivative instruments) that are measured at fair value at the end of each reporting period; and

- defined benefit plans (plan assets measured at fair value at the end of each reporting period)

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

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.

Operating Cycle

The 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 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 12 months for the purpose of current and noncurrent classification of assets and liabilities.

1. CRITICAL ESTIMATES & JUDGEMENT

The estimates and judgements used in the preparation of the Ind AS Financial Information are continuously evaluated by the Company and are based on historical experience and various other assumptions and factors (including expectations of future events) that the Company believes to be reasonable under the existing circumstances. Examples of such estimates include the useful lives of property, plant, and equipment, defined benefit obligation, etc. Differences between actual results and estimates are recognized in the period in which the results are known / materialized. The said estimates are based on the facts and events, that existed as of the reporting date, or that occurred after that date but provide additional evidence about conditions existing as at the reporting date.

The preparation of the financial statements in conformity with Ind AS except where specifically stated in financial statements and notes to accounts of the non-conformity with the relevant Accounting Standard requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as at the date of financial statements and the reported amounts of revenue and expense for the year. The estimates and assumptions used in the accompanying financial statements are based upon management''s evaluation of the relevant facts and circumstances as of the date of financial statements. Actual results could differ from those estimates. Any revision to accounting estimates will be recognized prospectively in the current and future periods.

This note provides an overview of the areas that involved a higher degree of judgment or complexity, and of items that are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed.

• Useful lives of property, plant, and equipment

Property, plant, and equipment represent a significant proportion of the asset base of the Company. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. The useful lives and residual values of the Group’s assets are determined by the management at the time the asset is acquired and reviewed periodically, including at each period end.

• Defined benefitobligation

The cost and present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, attrition rate and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

• Leases

The companyas a lessor

Rental income from operating lease is recognized on a straight-line basis overthe lease term unless the same is in line with general inflation to compensate for the expected inflationary cost. Initial direct costs incurred in negotiating and arranging an operating lease is recognized overthe lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

2. CURRENT/NON-CURRENT CLASSIFICATION

All assets and liabilities have been classified as current and non-current as per the Company’s normal operating cycle and other criteria set out in Schedule III of the Companies Act, 2013.

An asset is classified as current when it satisfies any of the following criteria:

a. It is expected to be realized in, or is intended for sale or consumption in the entity’s normal operating cycle;

b. It is held primarily for the purpose of being traded;

c. It is expected to be realized within twelve months after the balance sheet date;

d. It is cash or a cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the balance sheet date.

All other assets are classified as non-current.

A liability is classified as current when it satisfies any of the following criteria:

a. It is expected to be settled in the entity’s normal operating cycle;

b. It is held primarily for the purpose of being traded;

c. It is due to be settled within twelve months after the balance sheet date;

d. The Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.

All other liabilities are classified as non-current.

3. INVESTMENTS

Investment in equity shares of subsidiaries are measured at cost. Investments in equity instruments are measured at fair value through other comprehensive income.

The Company classifies its financial assets in the measurement categories as those to be measured subsequently at fair value (through other comprehensive income) and those measured at amortized cost. The classification depends on the Company’s business model for managing the financial asset and the contractual terms of the cash flows.

4. REVENUE RECOGNITION

Revenue is recognized only when risks and rewards incidental to ownership are transferred to the customer, it can be reliably measured and it is reasonable to expect ultimate collection. Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured and it is reasonable to expect ultimate collection. The following specific recognition criteria must also be met before revenue is recognized:

Sale of products:

Revenue from sale of products is recognized upon satisfaction of performance obligations, i.e. at a point of time, which occurs when the control is transferred to the customer.

Customers obtain control as per the Incoterms. In determining the transaction price for the sale of a product, the Company considers the effects of variable consideration, if any. Invoices are issued according to contractual terms and are usually payable as per the credit period agreed with the customer.

Interest:

Interest Income is recognized on a time proportion basis taking into account the amount outstanding and the rate applicable. Interest income is included under the head “other income” in the Statement of profit and loss.

Dividend:

Dividend income is accounted as and when right to receive dividend is established. Provision is made for the amount of any dividend declared, being appropriately authorized 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.

5. FOREIGN CURRENCY TRANSACTIONS AND BALANCES

The financial statements are presented in I NR, which is the Company''s functional currency.

Foreign currency transactions are initially recorded at functional currency’s spot rates atthe date the transaction first qualifies for recognition.

Foreign currency monetary items are translated using the functional currency spot rates prevailing at the reporting date.

Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction.

Non-monetary items, which are measured at fair value or other similar valuation denominated in a foreign currency, are translated using the exchange rate atthe date when such value was determined.

Exchange differences arising on the settlement ortranslation of monetary items are recognized in the Statement of Profit and Loss in the period in which they arise.

6. CURRENTAND DEFFEREDTAX

Income tax expense represents the sum of the tax currently payable and deferred tax.

i. Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit before tax’ as reported in the Statement of Profit and Loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible.

The Company’s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations is subject to interpretations. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.

ii. Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary

differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax assets arising from deductible temporary differences associated with such interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets are not recognised for temporary differences between the carrying amount and tax bases of investments in subsidiaries where it is not probable that the differences will reverse in the foreseeable future and taxable profit will not be available against which the temporary differences can be utilised.

Deferred tax assets and liabilities are offset when there is 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 liabilities are offset when entity has legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Deferred tax assets are recognised for all deductible temporary differences, unused tax losses and credits only if, it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

iii. Current and deferred tax for the year

Current and deferred tax are recognised in the Statement of Profit and Loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively.

7. FINANCIAL INSTRUMENTS

i. Classification

The Company classifies its financial assets under the following measurement categories:

- those to be measured subsequently at fair value through other comprehensive income (FVOCI) or fair value through profit and loss (FVTPL), and

- those measured at amortized cost.

The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in the Statement of Profit or Loss or Other Comprehensive Income. For investments in equity instruments, this will depend on whether the Company has made an irrevocable election at the time of initial recognition to account for the equity instrument at fair value through Other Comprehensive Income.

ii. Initial recognition and measurement

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not atfair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in Ind AS Statement of Profit and Loss

- Financial Assets

iii. Amortized cost:

Financial assets are subsequently measured at amortized cost if these financial assets are held within a business whose objective is to hold these assets 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.

iv. Fair value through profit or loss:

Financial assets are measured at fair value through profit or loss unless it is measured at amortized cost or at fair value through other comprehensive income on initial recognition. Gains or losses arising on remeasurement are recognized in the Statement of Profit and Loss. The net gain or loss recognized in the Statement of Profit and Loss incorporates any dividend or interest earned on the financial asset and is included in the ‘Other income’ line item.

v. Measurement of equity instruments

All equity investments in the scope of Ind AS 109, Financial Instruments, are measured at fair value. For equity instruments, the Company may make an irrevocable election to present the subsequent fair value changes in Other Comprehensive Income (OCI). The Company makes such election on an instrument-by-instrument basis. The classification is made on initial recognition and is irrevocable.

There is no recycling of the amounts from OCI to profit or loss, even on the sale of an investment. Equity instruments included within the FVTPL (fair value through profit or loss) category are measured at fair value with all changes in fair value recognized in the profit or loss.

vi. Impairment of financial assets

The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial assets which are not fair valued through profit or loss. Loss allowance for all financial assets is measured at an amount equal to lifetime ECL. The Company has used practical expedient by computing expected credit loss allowance for trade receivable by taking into consideration historical credit loss experience and adjusted for forward looking information. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date is recognized as an impairment gain or loss in the Statement of Profit and Loss.

vii. De-recognition of financial assets

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party and does not retain control of the asset. The Company continues to recognize the asset to the extent of the Company’s continuing involvement.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in the Statement of Profit and Loss if such gain or loss would have otherwise been recognized in the Statement of Profit and Loss on disposal of that financial asset.

- Financial Liabilities

All financial liabilities are subsequently measured a amortized cost using the effective interest method.

viii. Financial liabilities subsequentlymeasured atamortized cost

Financial liabilities that are not held for trading and are not designated as at FVTPL are measured at amortized cost at the end of subsequent accounting periods. The carrying amounts of financial liabilities that are subsequently measured at amortized cost are determined based on the effective interest method.

ix. Derecognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company''s obligations are discharged, canceled or have expired.

x. Fair value measurement

The Company measures financial instruments at fair value at each balance sheet date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value 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 participant’s 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 prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2 — inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either

directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3 — inputs for the asset or liability that are not based on observable market data (unobservable inputs).

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines

whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

8. PROPERTY, PLANT & EQUIPMENT

Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Freehold land is not depreciated. Leasehold land is amortized over the remaining period of the lease.

On transition to Ind AS, the Company has elected to continue with the carrying value of all its property, plant and equipment recognized as at April 1,2017 measured as per previous GAAP and use that carrying value as deemed cost of the property, plant and equipment.

Fixtures and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any.

Depreciation is recognized so as to write off the cost of assets (other than freehold land) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Depreciation on other items of property, plant and equipment has been provided on the straight-line method as per the useful life as estimated by the Management. The estimate of the useful life of the assets has been based on technical advice, taking into account the nature of the asset, the estimated usage of the asset, the operating conditions of the asset, past history of replacement, anticipated technological changes, etc. The estimated useful life of these property, plant and equipment is mentioned below:

9. INTANGIBLEASSETS

Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses, if any. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Useful lives of intangible assets

Computer Software are amortized on straight-line basis over the estimated useful life ranging between 3-5 years. Derecognition of intangible assets

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from the derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in the Statement of Profit and Loss when the asset is derecognized.

10. IMPAIRMENT OF TANGIBLE AND INTANGIBLEASSETS

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. For the purpose of assessing impairment, assets are grouped at the lowest level, 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 unit).

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the Statement of Profit and Loss.

When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cashgenerating unit) in prior years. A reversal of an impairment loss is recognized immediately in the Statement of Profit and Loss.

11. INVENTORIES

Inventories (Raw material, Work-In-Progress, Finished Goods) are stated at the lower of cost and net realizable value. The cost of purchased material is determined on a weighted average basis. The net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

The cost of work-in-progress and finished goods includes material cost, labor cost, and manufacturing overheads absorbed on the basis of the normal capacity of production.

12. EMPLOYEE BENEFITS

Short term employee benefits

Short-term employee benefits such as salaries, wages, performance incentives etc. are recognized as expenses at the undiscounted amounts in the Ind AS Statement of Profit and Loss of the period in which the related service is rendered.

Post-employment benefits Defined contribution plan

Contributions to defined contribution schemes such as provident fund and employees’ state insurance (ESIC) are charged as an expense based on the amount of contribution required to be made as and when services are rendered by the employees’ provident fund contribution is made to a government-administered fund and charged as an expense to the Ind AS Statement of Profit and Loss. The above benefits are classified as Defined Contribution Schemes as the Company has no further obligations beyond the monthly contributions.

Defined benefit plan

The Company provides for gratuity which is a defined benefit plan the liabilities of which is determined based on valuations, as at the reporting date, made by an independent actuary using the projected unit credit method. Remeasurement, comprising of actuarial gains and losses, in respect of gratuity are recognized in the OCI, in the period in which they occur. Re-measurement recognized in OCI are not reclassified to the Ind AS Statement of Profit and Loss in subsequent periods. Past service cost is recognized in the Ind AS Statement of Profit and Loss in the period of plan amendment or curtailment. The classification of the obligation into current and non-current is as per the actuarial valuation report.

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Mar 31, 2014

1. Basis of Preparation -

A) The financial statements of the company have been prepared & presented in accordance with the generally accepted accounting principles in India under the historical cost convention on an accrual basis. The company has prepared these Financial Statements to comply in all material aspects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956.

B) The company had adopted revised schedule VI notified under the Companies Act for preparation & presentation of its Financial Statements for the ended 31st March 2014. This has no impact on recognition & measurement principles followed for preparation of financial statements. The Company has re- classified previous year''s figures in accordance with the requirement as applicable in the current year.

C) The Accounting policies adopted in preparation of Financial Statements are consistent with those followed in previous year.

2. USE OF ESTIMATES -

The preparation of Financial Statements in conformity with Indian GAAP requires the management to make estimates & assumptions that affect the reported amount of assets & liabilities (Contingent liabilities) and the reported amounts of revenues & expenses for the year. The management believes that estimates using preparation of financial statements are prudent & reasonable. All though these estimates are based on management''s best knowledge of current events & actions, uncertainty about these assumptions and estimates could result in the outcome different from the estimate.

Estimates and underlying assumptions are reviewed on an ongoing basis any revision to the accounting estimates is recognized prospectively in the current & future period.

3. TANGIBLE FIXED ASSETS-

Fixed assets are carried at cost less accumulated depreciation and impairment losses, if any. The cost of fixed assets includes interest on borrowings attributable to acquisition of qualifying fixed assets up to the date the asset is ready for its intended use and other incidental expenses incurred up to that date. Exchange differences arising on restatement / settlement of long-term foreign currency borrowings relating to acquisition of depreciable fixed assets are adjusted to the cost of the respective assets and depreciated over the remaining useful life of such assets. Subsequent expenditure relating to fixed assets is capitalized only if such expenditure results in an increase in the future benefits from such asset beyond its previously assessed standard of performance.

4. DEPRECIATION -

Depreciation has been provided on the SLM method as per the rates prescribed in Schedule XIV to the Companies Act, 1956. No depreciation is claimed on the assets as merged / acquired at the year end.

5. IMPAIRMENT OF ASSETS -

The carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal / external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its estimated recoverable amount. The recoverable amount is the greater of the asset''s net selling price and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. Previously recognized impairment loss is further provided or reversed depending on changes in circumstances.

6. BORROWING COST -

Borrowing costs, other than those incurred for acquisition of fixed assets are recognized in the statement of Profit and Loss in the period they occur. Borrowing cost consists of Interest and other costs incurred in connection with the borrowing of the funds.

7. INVESTMENTS -

Investments which are readily realizable and 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 non-current investments. Non Current investments are stated at cost.

8. INVENTORIES -

Inventories are valued at the lower of cost or the net realizable value after providing for obsolesce and other losses, where considered necessary. Cost includes all charges in bringing the goods to the point of sale, including octroi & LBT and other levies, transit insurance and receiving charges. Inventories at all places are taken as certified by the management.

9. CASH AND CASH EQUIVALENTS -

Cash and Cash equivalents for the purpose of cash flow statement comprise cash in hand, demand deposits with banks and other short term highly liquid investments with an original maturity of three months or less.

10. REVENUE RECOGNITION -

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the company and the revenue can be reliably measured.

SALE OF GOODS -

Revenue is recognized when the significant risks and rewards of the ownership of the goods have been passed to the buyer. Sales are disclosed at net of VAT as applicable and also net of returns.

11. OTHER INCOME -

Interest is recognized on Receipt basis.

12. ACCOUNTING OF CLAIMS-

Claims payable are accounted at the time of the acceptance. Claims raised by the Government Authorities regarding taxes and duties, which are disputed by the company, are accounted based upon the merits of the claim.

13. GOVERNMENT GRANTS AND SUBSIDIES-

Government grants and subsidies are recognized when there is a reasonable assurance that the conditions attached to them will be complied, and grant/subsidy will be received.

Government grants of the nature of promoter''s contribution are credited to the reserves and are treated as a part of the share holder''s fund.

14. INCOME TAXES-

Tax expenses comprise of the current and deferred tax includes any adjustments treated to past periods in current and or deferred tax adjustments that may become necessary due to certain

developments or reviews during the relevant period. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961

Deferred Income Taxes reflect the impact of the current year''s timing difference between the taxable income and accounting income for the year and reversal of the timing differences of the earlier periods.

Deferred tax is measured based upon the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet Date. Deferred Tax Assets are recognized only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.

The carrying amount of the deferred tax is reviewed at each Balance Sheet date. The company writes down the carrying amount of the deferred tax assets to the extent that it is no longer reasonably certain that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write down is reversed to the extent that it becomes reasonably certain that sufficient future taxable income will be available.

15. PROVISIONS AND CONTINGENT LIABILITIES-

A provision is recognized when the company has a present obligation as a result of the past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation. Provisions are not discounted to their present value and are determined based upon the best estimate required to settle the obligation at the reporting period.

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The company does not recognize a contingent liability but discloses its existence in the financial statements.

16. CONTINGENT LIABILITIES NOT PROVIDED FOR -

The company, promoters, directors and certain group promoted entities are a party to litigation with the customs departments for import of certain materials based upon alleged "misleading information". The matter is pending in Appeal before the Central Excise and Customs Appellate Tribunal, Mumbai and before the High Court, Mumbai. The total demand in the matter raised by the adjudicating authorities is to the tune of Rs. 220.91 Lakhs against company and Rs. 42.00 Lakhs against Shri M.S. Lakhotia, the Managing Director of the company. The amounts as stated are ex interest thereon.

Pursuant to the directions received from the above authorities, the company has deposited a sum of Rs. 24.00 Lakhs as pre deposit for appeal.

On the basis of expert legal advice in the matter the management of the company is of the opinion that the matter will be decided in its favor and hence the company has not provided for the sums as stated above in its books of accounts for the period under this report and the same is treated as "Contingent Liability"

17. EARNINGS PER SHARE-

Basic earning per share is calculated by dividing the net profit or the loss for the year attributable to equity shareholders by the weighted number of equity shares outstanding at the end of the year.

For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted number of equity share outstanding during the year are adjusted for the effect of all dilutive potential equity shares.

18. CURRENT / NON CURRENT-

All assets and liabilities are presented as Current or Non Current as per the company''s normal operating cycle and other criteria set out in the revised Schedule VI of the Companies Act, 1956. Based upon the nature of products and the time between the acquisition of assets for processing and their realization, the company has ascertained its operating cycle as 12 months for the purpose of current/non - current classification of assets and liabilities.

19. SEGMENT REPORTING-

The company is predominantly in the business of "Man Made Yarn" and as such there are no separate reportable segments. The company''s operations are predominantly only in India.

Note: The above provision is exclusive of Service Tax Payable thereon.

22. PRIOR PERIOD ITEMS -

Expenses pertaining to Service tax and Provident Fund (Employers Share) were quantified during the year under Audit. The amount so quantified includes amounts pertaining to earlier financial years as well. The details of which is as under -

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Mar 31, 2013

1. Basis of Preparation -

A) The financial statements of the company have been prepared & presented in accordance with the generally accepted accounting principles in India under the historical cost convention on an accrual basis. The company has prepared these Financial Statements to comply in all material aspects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956.

B) The company had adopted revised schedule VI notified under the Companies Act for preparation & presentation of its Financial Statements for the ended 31st March 2012 This has no impact on recognition & measurement principles followed for preparation of financial statements. The Company has re- classified previous year''s figures in accordance with the requirement as applicable in the current year.

C) The Accounting policies adopted in preparation of Financial Statements are consistent with those followed in previous year.

2. USE OF ESTIMATES -

The preparation of Financial Statements in conformity with Indian GAAP requires the management to make estimates & assumptions that affect the reported amount of assets & liabilities (Contingent liabilities) and the reported amounts of revenues & expenses for the year. The management believes that estimates using preparation of financial statements are prudent & reasonable. All though these estimates are based on management''s best knowledge of current events & actions, uncertainty about these assumptions and estimates could result in the outcome different from the estimate.

Estimates and underlying assumptions are reviewed on an ongoing basis any revision to the accounting estimates is recognized prospectively in the current & future period.

3. TANGIBLE FIXED ASSETS -

Fixed assets are carried at cost less accumulated depreciation and impairment losses, if any. The cost of fixed assets includes interest on borrowings attributable to acquisition of qualifying fixed assets up to the date the asset is ready for its intended use and other incidental expenses incurred up to that date. Exchange differences arising on restatement / settlement of long-term foreign currency borrowings relating to acquisition of depreciable fixed assets are adjusted to the cost of the respective assets and depreciated over the remaining useful life of such assets. Subsequent expenditure relating to fixed assets is capitalized only if such expenditure results in an increase in the future benefits from such asset beyond its previously assessed standard of performance.

4. DEPRECIATION -

Depreciation has been provided on the SLM method as per the rates prescribed in Schedule XIV to the Companies Act, 1956. No depreciation is claimed on the assets as merged / acquired at the year end.

5. IMPAIRMENT OF ASSETS -

The carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal / external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its estimated recoverable amount. The recoverable amount is the greater of the asset''s net selling price and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. Previously recognized impairment loss is further provided or reversed depending on changes in circumstances.

6. BORROWING COST -

Borrowing costs, other than those incurred for acquisition of fixed assets are recognized in the statement of Profit and Loss in the period they occur. Borrowing cost consists of Interest and other costs incurred in connection with the borrowing of the funds.

7. INVESTMENTS -

Investments which are readily realizable and 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 non-current investments. Non-Current investments are stated at cost.

8. INVENTORIES -

Inventories are valued at the lower of cost or the net realizable value after providing for obsolesce and other losses, where considered necessary. Cost includes all charges in bringing the goods to the point of sale, including control and other levies, transit insurance and receiving charges. Inventories at all places are taken as certified by the management.

9. CASH AND CASH EQUIVALENTS -

Cash and Cash equivalents for the purpose of cash flow statement comprise cash in hand, demand deposits with banks and other short term highly liquid investments with an original maturity of three months or less.

10. REVENUE RECOGNITION -

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the company and the revenue can be reliably measured.

Revenue is recognized when the significant risks and rewards of the ownership of the goods have been passed to the buyer. Sales are disclosed at net of VAT as applicable and also net of returns.

11. OTHER INCOME -

Insurance claims receipts are recognized on receipt basis.

12. ACCOUNTING OF CLAIMS-

Claims payable are accounted at the time of the acceptance. Claims raised by the Government Authorities regarding taxes and duties, which are disputed by the company, are accounted based upon the merits of the claim.

13. GOVERNMENT GRANTS AND SUBSIDIES-

Government grants and subsidies are recognized when there is a reasonable assurance that the conditions attached to them will be complied, and grant/subsidy will be received.

Government grants of the nature of promoter''s contribution are credited to the reserves and are treated as a part of the shareholder''s fund.

14. INCOME TAXES-

Tax expenses comprise of the current and deferred tax includes any adjustments treated to past periods in current and or deferred tax adjustments that may become necessary due to certain developments or reviews during the relevant period. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961

Deferred Income Taxes reflect the impact of the current year''s timing difference between the taxable income and accounting income for the year and reversal of the timing differences of the earlier periods.

Deferred tax is measured based upon the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet Date. Deferred Tax Assets are recognized only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.

The carrying amount of the deferred tax is reviewed at each Balance Sheet date. The company writes down the carrying amount of the deferred tax assets to the extent that it is no longer reasonably certain that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write down is reversed to the extent that it becomes reasonably certain that sufficient future taxable income will be available.

15. PROVISIONS AND CONTINGENT LIABILITIES-

A provision is recognized when the company has a present obligation as a result of the past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation. Provisions are not discounted to their present value and are determined based upon the best estimate required to settle the obligation at the reporting period.

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The company does not recognize a contingent liability but discloses its existence in the financial statements.

16. CONTINGENT LIABILITIES NOT PROVIDED FOR -

The company, promoters, directors and certain group promoted entities are a party to litigation with the customs departments for import of certain materials based upon alleged "misleading information". The matter is pending in Appeal before the Central Excise and Customs Appellate Tribunal, Mumbai and before the High Court, Mumbai. The total demand in the matter raised by the adjudicating authorities is to the tune of Rs. 220.91 Lakhs against company and Rs. 42.00 Lakhs against Shri M.S. Lakhotia, the Managing Director of the company. The amounts as stated are ex interest thereon.

Pursuant to the directions received from the above authorities, the company has deposited a sum of Rs. 24.00 Lakhs as pre deposit for appeal.

On the basis of expert legal advice in the matter the management of the company is of the opinion that the matter will be decided in its favour and hence the company has not provided for the sums as stated above in its books of accounts for the period under this report and the same is treated as "Contingent Liability"

17. EARNINGS PER SHARE-

Basic earning per share is calculated by dividing the net profit or the loss for the year attributable to equity shareholders by the weighted number of equity shares outstanding at the end of the year.

For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted number of equity share outstanding during the year are adjusted for the effect of all dilutive potential equity shares.

18. CURRENT / NON CURRENT-

All assets and liabilities are presented as Current or Non-Current as per the company''s normal operating cycle and other criteria set out in the revised Schedule VI of the Companies Act, 1956. Based upon the nature of products and the time between the acquisition of assets for processing and their realization, the company has ascertained its operating cycle as 12 months for the purpose of current/non - current classification of assets and liabilities.

19. SEGMENT REPORTING-

The company is predominantly in the business of "Man Made Yarn" and as such there are no separate reportable segments. The company''s operations are predominantly only in India.