2.18. Provisions, Contingent Liabilities and Contingent Assets

i)Provisions

Provisions are recognised only when:

(a) the Company has a present obligation (legal or constructive) as a result of a past
event; and

(b) it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation; and

(c) a reliable estimate can be made of the amount of the obligation

Provision is measured using the cash flows estimated to settle the present obligation
and when the effect of time value of money is material, the carrying amount of the
provision is the present value of those cash flows. Reimbursements expected in
respect of expenditure required to settle a provision is recognized only when it is
virtually certain that the reimbursement will be received.

ii) Contingent Liabilities

Contingent liability is disclosed in the case of:

(a) A present obligation rising from past events when it is not probable that an outflow
of resources will be required to settle the obligation; and

(b) A present obligation arising from past events when no reliable estimate is
possible.

iii) Contingent Assets

Contingent assets are disclosed where an inflow of economic benefits is probable.
Provisions, contingent liabilities and assets are reviewed at each balance sheet date.

iv) Commitments are future liabilities for contractual expenditure, classified
and disclosed as follows:

a. estimated number and amount of contracts remaining to be executed on capital
account and not provided for;

b. uncalled liability on shares and other investments partly paid;

c. funding related commitment to subsidiary, associate and joint venture
companies; and

d. other non-cancellable commitments, if any, to the extent they are considered
material and relevant in the opinion of the management.

Other commitments related to sales/procurements made in the normal course of
business are not disclosed to avoid excessive details.

2.19. Government grants

Government grants with a condition to purchase, construct or otherwise acquire long¬
term assets are recognised when there is a reasonable assurance that the Company
will comply with the conditions attached to that and the grants will be received and are
initially measured based on grant receivable under the scheme. Such grants are
recognised in the Statement of Profit and Loss on a systematic basis over the useful
life of the asset. Amount of benefits receivable in excess of grant income accrued
based on usage of the assets is accounted as Government grant received in advance.
Changes in estimates are recognised prospectively over the remaining life of the
assets. Government revenue grants relating to costs are deferred and recognised in

the Statement of Profit and Loss over the period necessary to match them with the
costs that they are intended to compensate.

2.20. Taxes on income

Tax expense for the period comprises current and deferred tax.

Current tax

Tax on income for the current period is determined on the basis of taxable income
and tax credits computed in accordance with the provisions of the Income Tax Act
1961 and using estimates and judgements based on the expected outcome of
assessments/appeals and the relevant ruling in the areas of allowance and
disallowances.

(i) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of
assets and liabilities in the Company’s financial statements and the corresponding tax
bases used in the computation of taxable profit and quantified using the tax rates as
per laws enacted or substantially enacted as on the Balance Sheet date.

Deferred tax liabilities are recognized for all taxable temporary differences.

Deferred tax assets are recognized for all deductible temporary differences to the
extent that it is probable that taxable profit will be available against which the
deductible temporary differences can be utilized. Deferred tax assets are recognized
for the carry forward and unused tax credits and any unused tax losses only to the
extent that the entity has sufficient taxable temporary differences or convincing other
evidence that sufficient taxable profit will be available against which the unused tax
losses or unused tax credits can be utilised.

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

Deferred tax assets and liabilities are offset to the extent that they relate to taxes
levied by the same tax authority and there is legally enforceable right to set off current
tax assets against current tax liabilities; within that jurisdiction.

Deferred tax expense is recognised in statement of profit and loss except when they
relate to items recognized in other comprehensive income or directly in equity, in
which case, the income tax expense is also recognized in other comprehensive
income or directly in equity, as the case may be.

2.21. Revenue recognition

Revenue from contracts with customers is recognized when a performance obligation
is satisfied by the transfer of promised goods and services to a customer.

For performance obligation satisfied over time, the revenue recognition is done by
measuring the progress towards complete satisfaction of performance obligation. The
progress is measured in terms of a proportion of actual cost incurred to-date, to the
total estimated cost attributable to the performance obligation.

The Company transfers control of a good or service over time and therefore satisfies a
performance obligation and recognises revenue over a period of time if one of the
following criteria is met:

(a) the customer simultaneously consumes the benefit of the Company’s
performance or

(b) the customer controls the asset as it is being created/enhanced by the
Company’s performance or

(c) there is no alternative use of the asset, and the Company has either explicit or
implicit right of payment considering legal precedents,

In all other cases, performance obligation is considered as satisfied at a point in
time.

The revenue is recognised to the extent of transaction price allocated to the
performance obligation satisfied. Transaction price is the amount of consideration to
which the Company expects to be entitled in exchange for transferring goods or
services to a customer excluding amounts collected on behalf of a third party.

(i) Sale of goods

Revenue from the sale of manufactured and traded goods is recognised when the
control of the same is transferred to the customer, and it is probable that the Company
will collect the consideration to which it is entitled for the exchanged goods.

(ii) Rendering of service

Revenue from rendering of services is recognised over time as the customer receives
the benefit of the company’s performance and the Company has an enforceable right
to payment for services transferred.

(iii) Other operating income

(a) Incentives

Incentives on exports and other Government incentives are recognised when it is
probable that the economic benefits associated with the incentives will flow to the
entity, the revenue can be measured reliably, and there is no significant
uncertainty about the ultimate realization of the incentive.

(b) Rental income

Lease rental income from an operating lease is recognized on a straight-line
basis over the lease term unless the payments are structured to increase in line
with expected general inflation to compensate for lessor’s expected inflationary
cost increases.

(a) Interest income

Interest income is recognised on a time proportion basis using the effective
interest method.

(b) Dividends

Dividends is recognised when the Company’s right to receive the payment arises
and it is probable that the economic benefits will flow to the Company.

(c) Other items of income

Other items of income are accounted as and when the right to receive such
income arises and it is probable that the economic benefits will flow to the
Company and the amount of the income can be measured reliably.

2.22. Foreign currency transactions

(i) The functional currency and presentation currency of the Company is Indian Rupee

(ii) Transactions in currencies other than the Company’s functional currency are
recorded on initial recognition are recorded using the exchange rate at the transaction
date. At each Balance Sheet date, foreign currency monetary items are reported at
the closing spot rate. Non-monetary items that are measured in terms of historical
cost in foreign currency are not translated. Exchange differences that arise on
settlement of monetary items or on reporting of monetary items at each Balance
Sheet date at the closing spot rate are recognized in the statement of profit and loss
in the period in which they arise.

(iii) Exchange rate as of the date on which the non-monetary asset or non-monetary
liability is recognized on payment or receipt of advance consideration is used for
initial recognition of related asset, expense or income.

2.23. Borrowing costs

Borrowing costs include finance costs calculated using effective interest method,
finance charges in respect of assets acquired on leases and other costs that the
Company incurs in connection with the borrowing of funds.

Borrowing costs net of any investment income from the temporary investment of
related borrowings that are directly attributable to the acquisition, construction or
production of qualifying assets are capitalized as part of cost of such asset till such
time the asset is ready for its intended use or sale. A qualifying asset is an asset that
necessarily requires a substantial period of time to get ready for its intended use or
sale.

All other borrowing costs are expensed in the period in which they are incurred.

2.24. Earnings per share (EPS)

Basic earnings per share is computed by dividing the net profit or loss for the year
attributable to the shareholders' by weighted average number of equity shares
outstanding during the year.

Diluted earnings per share are computed using the weighted average number of
equity shares and dilutive potential shares except where the result would be anti¬
dilutive.

2.25. Segment Reporting

Operating segments are those components of the business whose operating results
are regularly reviewed by the chief operating decision making body in the Company to
make decisions for performance assessment and resource allocation.

The reporting of segment information is the same as provided to the management for
the purpose of the performance assessment and resource allocation to the segments.

Segment accounting policies are in line with the accounting policies of the Company.
In addition, the following specific accounting policies have been followed for segment
reporting:

(i) Segment revenue includes sales and other operational revenue directly
identifiable with/allocable to the segment including inter segment revenue.

(ii) Expenses that are directly identifiable with/allocable to segments are considered
for determining the segment result.

(iii) Most of the common costs are allocated to segments mainly on the basis of the
respective segment revenue estimated at the beginning of the reporting period.

(iv) Income which relates to the Company as a whole and not allocable to segments
is included in “unallocable corporate income/ (expenditure) (net)”.

(v) Segment result represents profit before interest and tax and includes margins on
inter-segment sales/ transfer, which are reduced in arriving at the profit before
tax of the Company.

(vi) Segment assets and liabilities include those directly identifiable with the
respective segments. Unallocable corporate assets and liabilities represent the
assets and liabilities that relate to the Company as a whole.

2.26. Statement of cashflows

Statement of Cash Flows is prepared segregating the cash flows into operating,
investing and financing activities. Cash flow from operating activities is reported using
indirect method, adjusting the profit before tax excluding exceptional items for the
effects of:

(i) changes during the period in inventories and operating receivables and
payables, transactions of a non-cash nature;

(ii) non-cash items such as depreciation, provisions, unrealised foreign currency
gains and losses; and

(iii) all other items for which the cash effects are investing or financing cash flows.

Cash and cash equivalents shown in the Statement of Cash Flows exclude items
which are not available for general use as at the date of Balance Sheet.

2.27. Exceptional items

An item of income or expense which by its size, type or incidence requires disclosure
in order to improve an understanding of the performance of the Company is treated as
an exceptional item and disclosed as such in the financial statements.