Annual Report FY 2009-10 - Welspun

th15 Annual Report 2009-10Schedule: 18 Significant Accounting Policies and Notes to AccountsA. Significant Accounting Policies1. Basis of AccountingThe financial statements have been prepared under the Historical Cost Convention on accrual basis and in accordance withthe accounting standards referred to in Section 211(3C) of the Companies Act 1956.Pursuant to the announcement of the Institute of Chartered Accountants of India (ICAI) on “Accounting for Derivatives” onthe early adoption of Accounting Standard (AS-30) “Financial Instruments: Recognition and Measurement”, the Companyhas early adopted the standard w.e.f 1 April 2007, to the extent that the adoption does not conflict with the existingmandatory accounting and other authoritative pronouncements, Company Law and other regulatory requirements.2. Use of EstimatesThe preparation of the financial statements in accordance with the generally accepted accounting principles requires themanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure ofcontingent liabilities as at the date of the financial statements and the reported amount of revenue and expenses of the year.Actual results could differ from those estimates. Any revision of such accounting estimate is recognized prospectively incurrent and future periods.3. Fixed Assets(a)Fixed assets are stated at original cost of acquisition / installation (net of cenvat credit availed) net off accumulateddepreciation, amortization and impairment losses except land which is carried at cost. The cost of fixed assets includescost of acquisition, construction and installation, taxes, duties, freight, other incidental expenses related to theacquisition including trial run expenses (net of revenue) and borrowing cost incurred during pre-operational period.(b) Capital Work-In-Progress is stated at the amount expended upto the date of Balance Sheet including pre-operativeexpenditure and advances on capital account.(c)Cost of Software includes license fees, cost of implementation and system integration and capitalized as intangibleassets in the year in which the relevant software is put to use.4. Borrowing CostsBorrowing costs attributable to the acquisition or construction of qualifying assets are capitalized as part of cost of suchassets. All other borrowing costs are charged to revenue.5. Depreciation(a)(b)(c)Depreciation on fixed assets is provided on Straight Line Method at the rates prescribed in Schedule XIV to theCompanies Act, 1956 except for certain Plant and Machinery which are depreciated on the basis of estimated useful livesof 13-15 years. The rates of depreciation derived from these estimated useful lives are higher than those given inSchedule XIV to the Companies Act, 1956.For determining the appropriate rate of depreciation on Plant and Machinery, continuous process plant has beenidentified on the basis of technical opinion by the Company / Expert.Software is amortized over a period of five years from the date of its use based on Management's estimate of useful life.6. InvestmentsInvestments intended to be held for more than a year, from the date of acquisition, are classified as long-term and are statedat cost. Provision for diminution in value of investments is made to recognize a decline other than temporary. CurrentInvestments are stated at cost or fair value whichever is lower.7. Revenue Recognition(a)Sale of goods is recognized when the risks and rewards of ownership are passed on to the customers, which is generallyon dispatch. Export Sales are accounted for on the basis of date of bill of lading. Gross Sales include excise duty, valueadded tax incentive, adjustments for price variation, quality claims, liquidated damages and exchange rate variationsrelated to export realization.66