Annual Report 2006-2007 - Gammon India

SCHEDULE 16
GAMMON INDIA LIMITED
SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS
A. SIGNIFICANT ACCOUNTING POLICIES:
1. Basis of preparation of Financial Statements:
The financial statements are prepared under the historical cost convention in accordance with the generally accepted accounting
principles in India, Provisions of the Companies Act, 1956 and in compliance with mandatory Accounting Standards issued by the
Institute of Chartered Accountants of India (ICAI).
2. Use of Estimates:
The preparation of financial statements requires estimates and assumptions to be made that affect the reported amount of assets
and liabilities on the date of financial statements and the reported amount of revenues and expenses during the reporting period.
Difference between the actual results and estimates are recognized in the period in which the results are known.
3. Revenue Recognition:
(a) On Construction Contracts:
Long-term contracts including Joint Ventures are progressively evaluated at the end of each accounting period. On contracts
under execution which have reasonably progressed, profit is recognised by evaluation of the percentage of work completed at
the end of the accounting period, whereas, foreseeable losses are fully provided for in the respective accounting period.
Additional claims (including for escalation), which in the opinion of the Management are recoverable on the contract, are
recognised at the time of evaluating the job.
(b) Insurance claims are accounted for on cash basis.
4. Turnover:
Turnover represents work certified as determined by taking into consideration the actual cost incurred and profit evaluated by
adopting the percentage of the work completion method of accounting.
5. Joint Venture:
(a) Joint Venture Contracts under Consortium are accounted as independent contracts to the extent of work completion.
(b) In Joint Venture Contracts under Profit Sharing Arrangement, services rendered to Joint Ventures are accounted as income on
accrual basis, profit or loss is accounted as and when determined by the Joint Venture and Net Investment in Joint Venture is
reflected as investments or loans & advances or current liabilities.
6. Research and Development Expenses:
All expenditure of revenue nature is charged to the Profit and Loss Account of the period. All expenditure of capital nature is capitalised
and depreciation provided thereon, at the rates as applied to other assets of similar nature.
7. Employee Retirement Benefits:
Provision for liabilities in respect of Gratuity and Leave Encashment are made based on actuarial valuation as at Balance Sheet
date.
The Company’s contribution to recognised Employees’ Provident Fund and Superannuation Fund are charged to the Profit and Loss
Account.
8. Fixed Assets and Depreciation:
Fixed Assets are valued and stated at cost of acquisition less accumulated depreciation thereon. Revalued assets are stated at the
revalued amount. Foreign exchange fluctuation relating to repayment of foreign currency loan utilized for acquisition of Fixed Assets
is adjusted in the carrying amount of Fixed Assets.
Depreciation for the accounting period is provided on:
(a) Straight Line Method, for assets purchased after 2-4-1987, at the rates and in the manner specified in Schedule XIV to the
Companies Act, 1956.
(b) Written Down Value Method, for assets acquired on or prior to 2-4-1987, at the rates as specified in Schedule XIV to the
Companies Act, 1956.
(c) Depreciation on revalued component of the assets is withdrawn from the Revaluation Reserve.
(d) The depreciation on assets used for construction has been treated as period cost.
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