1: Significant accounting policies and notes on accounts Company overview Mos Chip Semiconductor Technology Limited (and reduced) ("Mos Chip" or "the Company") is a fabless semiconductor company engaged in providing customized Services in application specific integrated circuits (ASICs), System on Chip (SOC) and Software technology services to its clients across the globe. Mos Chip has its headquarters in Hyderabad, India 18.1 Significant Accounting Policies 18.1.1 Basis for Preparation of Financial Statements The financial statements have been brpared to comply in all material respects with the mandatory Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) and the relevant provisions of the Companies Act, 2013. The financial statements have been brpared under the historical cost convention on an accrual basis. The accounting policies have been consistently applied by the Company and are consistent with those used during the brvious year. 18.1.2 Use of Estimates The brsentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Examples of such estimates include future obligations under employee retirement benefit plans and the useful life of fixed assets. Although these estimates are based on management's best knowledge of current events and actions the Company may undertake in future, actual results ultimately may differ from the estimates. 18.1.3 Revenue Recognition Revenue from software sales / Services are recognized and billed as per the terms of specific contracts. Interest income is recognized on accrual basis. Provision for doubtful debts are recorded in the period in which such losses become probable based on the current estimates. 18.1.4 Fixed Assets and Capital Work-in-Progress Fixed Assets are stated at cost of acquisition inclusive of inland freight, duties and taxes and incidental expenditure incurred during installation wherever applicable. Leasehold improvements rebrsent expenses incurred towards civil works, interior furnishings, etc. on the leased brmises. Capital work-in-progress comprises outstanding advances paid to acquire fixed assets, and the cost of fixed assets that are not yet ready for their intended use at the balance sheet date. Fixed Assets sold or retired from active use are eliminated from accounts by removing the related cost and accumulated debrciation. On elimination or removal any gain or loss is included in the results of operations. 18.1.5 Debrciation Debrciation on Fixed Assets other than Improvement to Leasehold Premises provided as per Schedule II of the Companies Act, 2013. Debrciation on additions and deletions to assets during the year is charged to revenue pro rata to the period of their use. Leasehold Improvements are amortized over the estimated useful life. Assets costing less than Rs.5,000/-individually have been fully debrciated in the year of purchase. 18.1.6 Impairment of Fixed Assets Consideration is given at each balance sheet date to determine whether there is any indication of impairment of the carrying amount of the Company's fixed assets. If any indication exists, an asset's recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset exceeds recoverable amount. 18.1.7 Foreign Exchange Transactions Initial Recognition: Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency approximately at the date of the transaction Conversion: Foreign currency monetary items are reported using the closing rate. Non-monetary items, which are carried in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. Exchange Differences: Exchange differences arising on the settlement or conversion of monetary items, are recognised as income or as expenses in the period in which they arise except those arising on liabilities pertaining to fixed assets acquired from outside India, which are adjusted with the cost of the fixed assets. Foreign Operations: The financial statements of an integral foreign operation are translated as if the transactions of the foreign operation have been those of the Company itself. Exchange differences arising on a monetary item forming part of net investment in a non-integral foreign operation is accumulated in foreign currency translation reserve until disposal of the net investments. 18.1.8 Investments Investments are classified into current investments and long-term investments. Current Investments are carried at the lower of cost and fair value, and provision is made to recognize any decline in the carrying value. Long-term investments are carried at cost, and provision is made to recognize any decline, other than temporary, in the value of such investment. 18.1.9 Retirement benefits Provident Fund: The Company contributes to the employees' provident fund (a defined contribution benefit) maintained under the Employees Provident Fund scheme by the Central Government. Gratuity: The Company Contributes to LIC Group Gratuity Fund. Liabilities with regard to the Gratuity Plan are determined by actuarial valuation as on the balance sheet date. Leave Encashment: Liabilities with regard to the Leave Encashment are determined by actuarial valuation as on the balance sheet date. 18.1.10 Earnings per share The Company reports basic and diluted earnings per share in accordance with Accounting Standard 20 "Earnings per Share". Basic earnings per share is computed by dividing the net profit or loss for the period by the weighted average number of Equity shares outstanding during the period. Diluted earnings per share is computed by dividing the net profit or loss for the period by the weighted average number of Equity shares outstanding during the period as adjusted for the effects of all dilutive potential equity shares, except where the results are anti-dilutive. 18.1.11 Provisions A provision is recognised when the Company has a brsent obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions except those disclosed elsewhere in the financial statements, are not discounted to their brsent value and are determined based on best estimate required to settle the obligation at the each Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. 18.2.2 Accounting for taxes on income During the period under review, the Company carried its operations in India through its 100% Export Oriented Unit, registered with the Software Technology Parks of India (STPI), Hyderabad. The operations of the STPI Unit have resulted in a net loss for the year ended 31 March 2015. Hence, no provision has been made in the books of account for the tax liability for the year as well as for the deferred taxes as per the Accounting Standard - 22 on Accounting for Taxes on Income, issued by the Institute of Chartered Accountants of India. 18.2.3 Reduction in Share Capital (Scheme of Capital Reduction) During the year the Company has proposed for Scheme of Capital Reduction. Under this Scheme the Company reduced Face Value of its equity shares from 10/- to Rs.2/- per share. After the reduction, the paid up share capital stands at Rs. 92,071,034/- divided into 46,035,517 equity shares of Rs.2/- each fully paid up. The reduction in share capital amounting to Rs 368,284,136/- and the balance standing in the share brmium account of Rs 666,633,920/- has been used to set off accumulated losses to the extent of Rs 1,034,918,056. The Company has received necessary approval from High Court of Judicature at Hyderabad for the State of Telangana and for the State of Andhra Pradesh on 09 January 2015. The Company filed the form INC-28 with ROC and received necessary approvals. 18.2.4 Short Term Borrowings During the period the Company has obtained further unsecured loans from Directors an amount of Rs.4.30 crores and the outstanding as on 31.03.2015 is Rs. 14.60 crores at varying interest rates payable. The provision for the same has been made in these accounts in the financial year ending 31st March 2015. 18.2.5 Employee Stock Option Plans As per the Employee Stock Option Scheme and Employee Stock Purchase Guidelines, 1999 issued by the Securities and Exchange Board of India, the excess of the market price of the underlying equity shares as of the date of the grant of the options over the exercise price of the options is to be recognized and amortized on a straight-line basis over the vesting period. The Company has established nine schemes i.c, Employee Stock Option Plan, Mos Chip Stock Option Plan 2001, Mos Chip Stock Option Plan 2002, Mos Chip Stock Option Plan 2004, Mos Chip Stock Option Plan 2005 (MI), Mos Chip Stock Option Plan 2005 (WOS), Mos Chip Stock Option Plan 2008, Mos Chip Stock Option Plan 2008(ALR) and Mos Chip Stock Option Plan 2008(Director) with 600,000 equity shares, 300,000 equity shares, 700,000 equity shares, 1,000,000 equity shares, 500,000 equity shares, 500,000 equity shares, 3,000,000 equity shares, 1,000,000 equity shares and 1,000,000 equity shares respectively. Of these the Employee Stock Options Plan was established when the Company was unlisted and consequently, the Employee Stock Option Scheme and Employee Stock Purchase Guidelines, 1999 are not applicable to the options granted under this Plan. 18.2.13 Retained Earnings Pursuant to the Companies Act, 2013 effective from April 1, 2014, the Company has recomputed the debrciation based on the useful life of the assets as brscribed in Schedule II of the Act. As a result an amount of Rs. 135.63 lakhs has been adjusted against opening balance of retained earnings for the assets which had no residual life as at April 1, 2014. 18.2.14 Dues to Micro and Small Enterprises (SME): In terms of Section 22 of the Micro, Small and Medium Enterprises Development Act 2006, (SME Act) the outstanding payable to Micro and Small enterprises, as defined under the SME Act, are required to be disclosed in the brscribed format. However, such Enterprises are required to be registered under the SME Act. There are no dues to any small scale industrial undertakings and micro, small & medium enterprises which are outstanding for more than 30 days or 45 days respectively at the Balance Sheet date. This information has been determined to the extent such parties have been identified on the basis of information available with the company. 18.2.15 Regrouping/ Reclassification The figures for brvious year have been regrouped / reclassified wherever necessary. Per and subject to our report of even date For Gokhale & Co., Chartered Accountants Reg.No.FRN 000942S For and on behalf of the Board of Directors Chandrashekhar Gokhale Partner Membership No. 23839 K. Ramachandra Reddy Chairman & CEO C.DayakarReddy Managing Director Damoder Bethamalla Company Secretary Place Hyderabad Date 22 May 2015 |