Accounting Policies of Pearl Engineering Polymers Ltd. Company

Mar 31, 2010

I) BASIS FOR PREPARATION OF ACCOUNTS:

These financial statements have been prepared on the accrual basis of accounting under the historical cost convention and in compliance with the applicable Accounting Standards referred in Section 211 (3C) and other requirements of the Companies Act, 1956.

ii) FIXED ASSETS:

Fixed assets are stated at cost of acquisition (net of Modvat / Cenvat, wherever applicable) less accumulated depreciation. Cost includes freight, duties, taxes and their incidental expenses related to acquisition and installation of the fixed assets.

iii) DEPRECIATION:

Depreciation on fixed assets is provided on Straight-Line Method at the rates, and in the manner prescribed under Schedule XIV to the Companies Act, 1956 except for leasehold land, which is amortised over the period of the lease and capital spares which are being depreciated on the remaining useful life of the machines to which they relate.

iv) INVESTMENTS:

Current investments are stated at lower of cost or fair value. Long Term investments are stated at cost. Provision for diminution in the value of long-term investments is made only, if, in the opinion of the management, such decline is other than temporary.

v) INCOME:

Sale of goods is recognised at the point of despatch to the customer, except in the case of export sales, which are recognised as per the terms of the contract. Gross Sales are inclusive of Excise Duty and net of trade discounts and Sales Tax / VAT.

vi) INVENTORIES:

Raw & Packing material, work in progress and finished goods are valued at lower of weighted average cost and net realisable value. In respect of finished goods and work in progress, applicable manufacturing overheads are also included. Stores & spares are valued at lower of cost determined on a First in First out basis and net realisable value.

vii) TRANSLATION OF FOREIGN CURRENCY ITEMS:

Transactions denominated in foreign currencies are recorded at exchange rate prevailing at the date of transaction. Foreign currency monetary items (including forward contracts) are translated at year end rates. Exchange differences arising on settlement of transactions and translation of monetary items (including forward contracts) are recognised as income or expense in the year in which they arise.

viii) BORROWING COST

Interest on borrowings for qualifying assets is capitalised till the date of commencement of commercial use of the asset. All other borrowing costs are charged to Profit & Loss Account.

ix) LEASES:

Lease of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating lease. Payments made under operating lease is charged to Profit & Loss Account on a “Straight-Line Basis” over the period of lease. Rentals payable under operating lease are charged to Profit & Loss Account as incurred.

x) TAXATION

Ta x expense for the period, comprising current tax, deferred tax and fringe benefit tax is included in determining the net profit / (loss) for the year.

The provision for current taxation is based on assessable profits of the Company as determined under the Income Tax Act, 1961.

Deferred tax assets and liabilities are recognized for all timing differences. Deferred tax assets are recognised based on prudence and are carried forward to the extent it is certain that future taxable profit will be available against which such deferred tax assets can be realised.

Deferred tax assets and liabilities are measured at the tax rates that have been enacted or substantively enacted by the balance sheet date.

xi) EMPLOYEE BENEFITS

(a) Short Term Employee Benefits

All employee benefits payable wholly within twelve months of rendering the service are classified as short term employee benefits. Benefits such as salaries, wages, short term compensated absences, etc. and the expected cost of bonus, ex-gratia are recognized in the period in which the employee renders the related service.

(b) Post-Employment Benefits

(i) Defined Contribution Plans: The Company’s managed Provident Fund Scheme, State Governed Pension Fund Scheme, Employee State Insurance Scheme and Superannuation Scheme are defined contribution plans. The contribution paid/payable under the schemes is recognized during the period in which the employee renders the related service.

(ii) Defined Benefit Plans: The employees’ Gratuity Fund Scheme is a Company’s defined benefit plan. The present value of the obligation under such defined benefit plan is determined based on the actuarial valuation using the Projected Unit Credit Method, which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

The obligation is measured at the present value of the estimated future cash flows. The discount rates used for determining the present value of the obligation under defined benefit plan is based on the market yields on Government securities as at the Balance Sheet date having maturity periods approximating to the terms of related obligations.

Actuarial gains and losses are recognized immediately in the Profit & Loss Account.

Gains or losses on the curtailment or settlement of any defined benefit plan is recognized when the curtailment or settlement occurs. Past service cost is recognized as expense on a straight-line basis over the average period until the benefits become vested.

(c) Other Long-term Employee Benefits

Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized as a liability at the present value of the defined benefit obligation at the Balance Sheet date. The discount rates used for determining the present value of the obligation under defined benefit plan, are based on the market yields on Government securities as at the Balance Sheet date.

xii) IMPAIRMENT OF ASSETS

All assets other than inventories, investments and deferred tax asset are reviewed for impairment, wherever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets whose carrying value exceeds their recoverable amount are written down to the recoverable amount.

xiii) PROVISIONS AND CONTINGENCIES

The company creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that probably will not require an outflow of resources or where a reliable estimate of the obligation cannot be made.