Notes forming part of the financial statements 1 Corporate Information Vascon Engineers Limited (the 'Company') was incorporated on January 1, 1986 and is engaged in the business of Engineering, Procurement and Construction services (EPC) and Real Estate Development. The shares of the Company are listed on National Stock Exchange and Bombay Stock Exchange. 2 Significant Accounting Policies 2.1 Basis of Preparation of Financial Statements The financial statements of the Company have been brpared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards specified under Section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014 and the relevant provisions of the Companies Act, 2013 ("the 2013 Act") / Companies Act, 1956 ("the 1956 Act"), as applicable. The financial statements have been brpared on accrual basis under the historical cost convention. The accounting policies adopted in the brparation of the financial statements are consistent with those followed in the brvious year. 2.2 Use of Estimates The brparation of the financial statements, in conformity with the Indian GAAP, requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities (including contingent liability) at the date of the financial statements and the reported amounts of revenues and expenses during the year. The management believes that the estimates used in brparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and differences between actual results and estimates are recognized in the periods in which the results are known/materialize. 2.3 Tangible Asset, Intangible asset and capital work in progress a) Fixed assets are carried at cost less accumulated debrciation/amortisation. The cost of fixed assets comprises its purchase price net of any trade discounts and rebates, any import duties and other taxes (other than those subsequently recoverable from the tax authorities), any directly attributable expenditure on making the asset ready for its intended use, other incidental expenses and interest on borrowings attributable to acquisition of qualifying fixed assets up to the date the asset is ready for its intended use. b) Fixed assets retired from active use and held for sale are stated at the lower of their net book value and net realisable value and disclosed separately. c) Capital Work in Progress - Projects under which tangible fixed assets are not yet ready for their intended use are carried at cost, comprising direct cost, related incidental expenses and attributable interest. Revenues earned if any, before capitalization from such capital project are adjusted against capital work in progress. d) Borrowing cost relating to acquisition / construction /development of tangible asset and capital work in progress which takes substantial period of time to get ready for its intended use are also included to the extent they relate to the period till such asset are ready to be put to use. 2.4 Impairment of fixed assets At the end of each year, the management reviews the carrying values of assets to determine whether there is any indication that those assets have suffered impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent, if any, of the impairment loss. Where it is not possible to estimate the recoverable amount of individual asset, the management estimates the recoverable amount of the cash generating unit to which the asset belongs. Intangible assets are tested for impairment every financial year even if there is no indication that the asset is impaired. If the recoverable amount of an asset of cash generating unit is estimated to be less than the carrying amount, the carrying amount of the asset or the cash generating unit is reduced to its recoverable amount. An impairment loss is recognised immediately in the Statement of Profit and Loss. When an impairment loss subsequently reverses, the carrying amount of the asset of cash generating unit is increased to the revised estimate of a recoverable amount, not exceeding the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash generating unit in prior years. A reversal of impairment loss is 2.7 Recognition of Revenue / Cost a) Construction contracts Revenue from fixed price construction contracts is recognised on the Percentage Of Completion Method (POCM). The stage of completion is determined by survey of work performed / completion ofphysical proportion ofthe contract work determined by technical estimate of work done / actual cost incurred in relation to total estimated contract cost, as the case may be. The estimate of total contract cost has been made at the time of commencement of contract work and reviewed and revised, by the technical experts, from time to time during period in which the contract work is executed. Future expected loss, if any, is recognized immediately as expenditure. In respect of unapproved revenue recognised, an adequate provision is made for possible reductions, if any. Contract revenue earned in excess of billing has been reflected as unbilled revenue under the head "Other Current Assets" " and billing in excess of contract revenue has been reflected as Unearned Revenue under the head "Other Current Liabilities" in the Balance Sheet. The Company provides for cost to be incurred during warranty period for servicing warranties on the completed projects. Such amount, net of the obligations on account of sub-contractors, is determined on the basis of technical evaluation and past experience of meeting such costs. Escalation claims raised by the Company are recognised when negotiations have reached an advanced stage such that customers will accept the claim and amount that is probable will be accepted by the customer can be measured reliably. b) Real estate development (i) Completed Units Revenue from sales of units is recognized as and when the underlying significant risk and rewards of ownership are transferred to the purchaser. (ii) Units Under Development Revenue from sales of such units is recognized as and when all the following conditions are satisfied: (a) The underlying significant risk and rewards of ownership are transferred to the purchaser. (b) All critical approvals necessary for commencement of the project are obtained . (c) Reasonable level of development is reached when project cost incurred excluding land cost and borrowing cost exceeds 25% of the project cost. (d) At least 25% of the estimated project area are secured by contracts or agreement with the buyers. (e) At least 10% of the total revenue as per agreements of sale are realised at the reporting date in respect of each of the contracts and there are no outstanding defaults of the payment terms in such contracts. (f) Certainty of recoverability of the balance consideration. Project revenue and project costs associated with the real estate project are recognized as revenue and expenses by reference to the stage of completion of the project activity at the reporting date in accordance with "Guidance Note on Accounting for real estate transactions". The percentage completion for the purpose of recognition of revenue is determined based on actual costs incurred thereon by the Company to total estimated cost with reference to the saleable area. Cost for this purpose includes cost of land/development rights, construction and development costs of such properties borrowing costs and overheads, as may be applicable. The estimates of the saleable area and costs are reviewed periodically and effect of any changes in such estimates is recognized in the period in which such changes occur. However, when the total project cost is estimated to exceed total revenues from the project, loss is recognized immediately. c) Share of Profit/Loss from Partnership firm/ Association of Person is recognised as income during the relevant period on the basis of accounts made-up audited or unaudited as the case may be and allocation made by the firm/AOP in accordance with the Deed of Partnership/AOP Agreement. d) Interest Income - Interest income is recognized on time proportion basis taking into account the amounts invested and the rate of interest. e) Dividend Income - Dividend income is recognized as and when the right to receive the same is established. f) Rental Income - Income from letting-out of property is accounted on accrual basis- as per the terms of agreement and when the right to receive the rent is established. g) Income from services rendered is recognised as revenue when the right to receive the same is established. h) Profit on sale of investment is recorded upon transfer of title by the Company. It is determined as the difference between the sale price and the then carrying amount of the investment. 2.8 Inventories a) Stock of Materials, etc. Stock of materials, etc. has been valued at lower of cost or net realisable value. The cost is determined on Weighted Average method. b) Development Work (i) Development - Completed Units Finished goods comprising of constructed units ready for sale are valued at lower of cost and net realisable value. (ii) Development - Units under construction The unit under construction to the extent not recognised as sales under the revenue recognition policy adopted by the Company is carried at lower of cost or net realisable value on the basis of technical estimate certified by the Managing Director / Technical Experts. c) Stock of Trading Goods Stock of trading goods has been stated at cost or net realisable whichever is lower. The cost is determined on Weighted Average Method. 2.9 Retirement benefits a) Short-term Employee Benefits - The undiscounted amount of short-term employee benefits expected to be paid in exchange of services rendered by the employees is recognised during the year when the employees render the service. b) Post Employment Benefits i) Defined Contribution Plan - Payments to defined contribution retirement benefit schemes viz. Company's Provident Fund Scheme and Superannuation Fund are recognised as an expense when the employees have rendered the service entitling them to the contribution. ii) Defined Benefit Plan - The Company's liability towards gratuity is determined using the Projected Unit Credit method, with actuarial valuation being carried out at each balance sheet date. Actuarial gains and losses are recognised in the Statement of Profit and Loss in the period in which they occur. Past service costs is recognised on a straight line basis over the average period until the benefits become vested. To the extent the benefits are vested, the past service cost is recognised immediately in the Statement of Profit and Loss. The liability recognised in the Balance Sheet rebrsents the brsent value of the defined benefit obligation adjusted for unrecognized past service cost and as reduced by the fair value of the scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the brsent value of available refunds and reductions in future contributions to the schemes. c) Other Long-term Employee Benefits -The Company's liability towards compensated absence which are not expected to accrue within twelve months after the end of the period in which employee renders the related service is determined by using the Projected Unit Credit method, with actuarial valuations being carried out at each balance sheet date. 2.10 Borrowing Cost Borrowing costs include interest, amortisation of ancillary costs incurred and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Costs in connection with the borrowing of funds to the extent not directly related to the acquisition of qualifying assets are charged to the Statement of Profit and Loss over the tenure of the loan. Borrowing costs, allocated to and utilised for qualifying assets, pertaining to the period from commencement of activities relating to construction / development of the qualifying asset up to the date of capitalization of such asset are added to the cost of the assets. Capitalisation of borrowing costs is suspended and charged to the Statement of Profit and Loss during extended periods when active development activity on the qualifying assets is interrupted. Advances/deposits given to the vendors under the contractual arrangement for acquisition/construction of qualifying assets is considered as cost for the purpose of capitalization of borrowing cost. 2.11 Leases a) Assets acquired on leases where a significant portion of the risk and rewards of ownership are retained by the lessor are classified as operating leases. Lease rentals are charged to statement of profit and loss on accrual basis. b) Assets leased out under operating leases are capitalized. Rental income recognized on accrual basis over the lease term. 2.12 Provisions and Contingent Liabilities A provision is recognised when the Company has a brsent obligation as a result of past event, it is probable that outflow of resources will be required to settle the obligation and in respect of which reliable estimates can be made. Provisions (excluding employee benefits) are not discounted to their brsent value and are determined based on the best estimates required to settle the obligation as at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. Contingent Liabilities are disclosed in the financial statements unless the probability of outflow of resources is remote. A contingent asset is neither recognised nor disclosed in the financial statements. 2.13 Taxes on Income a) Tax expense comprises of current tax and deferred tax. b) Current tax is measured at the amount expected to be paid to/recovered from the tax authorities, using the applicable tax rates and tax laws. c) Deferred tax is recognised on timing differences between taxable income and accounting income which originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and tax laws enacted or substantively enacted as at the reporting date. Deferred tax assets are recognised for timing differences other than unabsorbed debrciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future income will be available against which these can be realised. Deferred tax assets in respect of unabsorbed debrciation and carried forward losses are recognized only if there is virtual certainty that sufficient future taxable income will be available to realise the assets. Deferred tax assets are reviewed at each balance sheet date for their reliability. d) Minimum Alternate Tax (MAT) credit entitlement available under the provisions of Section 115JAA of the Income Tax Act, 1961 is recognised if there is convincing evidence that the Company will pay normal tax during the specified future period. The Company reviews the carrying amount of MAT credit entitlement at each balance sheet date and writes-down the carrying amount to the extent there is no longer convincing evidence that the Company will pay normal tax during the specified future period. 2.14 Joint Venture Projects a) Jointly Controlled Operations - In respect of joint venture contracts in the nature of jointly controlled operations, the assets controlled, liabilities incurred, the share of income and expenses incurred are recognised in the agreed proportions, as may be belonging to the Company, under respective heads in the financial statements. b) Jointly Controlled Entities - i) Integrated Joint Ventures - Company's share in profits or losses of Integrated Joint Ventures is accounted on determination of the profits or losses by the joint venture. Investments in Integrated Joint Ventures are carried at cost net of company's share in recognised profits or losses. ii) Incorporated Jointly Controlled Entities - • Income on investments in incorporated Jointly Controlled Entities is recognised when the right to receive the same is established. • Investment in such Joint Ventures are carried at cost after providing for diminution in value considered other than temporary in nature in the opinion of the management, if any. 2.15 Segment reporting The Company identifies primary segments based on the dominant source, nature of risks and returns and the internal organization and management structure. The operating segments are the segments for which separate financial information is available and for which operating profit / loss amounts are evaluated regularly by the executive Management in deciding how to allocate resources and in assessing performance. The accounting policies adopted for segment reporting are in line with the accounting policies of the Company. Segment revenue, segment expenses, segment assets and segment liabilities have been identified to segments on the basis of their relationship to the operating activities of the segment. Inter-segment revenue is accounted on the basis of transactions which are primarily determined based on market / fair value factors. Revenue, expenses, assets and liabilities which relate to the Company as a whole and are not allocable to segments on reasonable basis have been included under "unallocated revenue / expenses / assets / liabilities". 2.16 Employee Stock Option Scheme The Company has formulated Employee Stock Option Schemes (ESOS) in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Schemes provide for grant of options to employees of the Company to acquire equity shares of the Company that vest in a graded manner and that are to be exercised within a specified period. The Company accounts the employee stock based compensation under intrinsic value method. In accordance with the SEBI Guidelines; the excess, if any, of the closing market price on the day prior to the grant of the options under ESOS over the exercise price is amortised on a straight-line basis over the vesting period. 2.17 Foreign currency transaction a) Initial Recognition Transactions in foreign currency are initially recorded at the exchange rate brvailing on the date of the transaction. b) Conversion Monetary assets and liabilities denominated in foreign currencies are translated at the rates brvailing on the balance sheet date. Non-monetary foreign currency items are carried at their historical costs and not retranslated. Gains and losses arising on translation and settlement of foreign currency monetary assets and liabilities are recognised in the Statement of Profit and Loss. c) Exchange Difference Exchange differences on forward exchange contracts are recognised in the Statement of Profit and Loss in the period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of a forward exchange contract is recognised in the Statement of Profit and Loss. 2.18 Earning Per Share The Company reports basic and diluted earnings per share (EPS) in accordance with Accounting Standard 20 "Earnings per Share". Basic EPS is computed by dividing the net profit or loss for the year attributable to equity shareholder by the weighted average number of equity shares outstanding during the year. Diluted EPS is computed by dividing the net profit or loss attributable to equity shareholders by weighted average number of equity shares outstanding during the year as adjusted for the effects of all dilutive potential equity shares, except where the results are anti-dilutive. 2.19 Cash Flow Statement Cash flows are reported using the indirect method, whereby profit / (loss) before extraordinary items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information. Cash and cash equivalents brsented in cash flow statement consists of cash in hand and unencumbered, highly liquid bank and other balances that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. 2 Effective 1st April, 2014, the Company has revised the useful life of fixed assets based on schedule II of the Companies Act, 2013 ("the Act") except Plant & Machinery for the purpose of provision of debrciation. Useful life of Plant & Machinery has been revised to 15 years based on the Chartered Engineer's evaluation. Accordingly, the carrying amount of the fixed assets as on 1st April, 2014 has been debrciated over the remaining revised useful life. Consequently, the debrciation charge for the year ended 31st March, 2015 is higher by Rs.210.73 lakhs and loss is higher to that effect. Further, an amount of Rs.32.87 lakhs rebrsenting the carrying amount for assets with useful life as nil has been adjusted against the opening balance for retained earnings i.ebalanceinthestatementofprofit&lossasperpermitedundernote7(B)topartCofscheduleIIofCompaniesAct,2013. 3 The Company has incurred losses of approximately Rs. 14,469 lakhs during the year ended March 31, 2015 and has continued incurring losses since March, 2013. Further, the Company has incurred cash losses during the year and brvious year and there are delays in payment of statutory dues. Also considering deficit in the Statement of Profit and Loss as at the year end, 15% of the debenture amounts repayable during the year ending March 31, 2016 has not been maintained in one or more methods as brscribed under the Companies (Share Capital and Debenture) Rules, 2014. However, the financial statements have been brpared on a going concern basis in view of the financial support from some of its shareholders and the future business / growth plans of the Company. The Company has plans to augment its resources by going for rights issue of about Rs. 10,000 lakhs and has got the requisite approval from SEBI and to sale certain non core assets. The main object of the issue is to reduce debt and complete certain projects. These efforts would result in improving cash flow, strengthen the operations of the Company and reduce the interest burden. 3 The Company has accrued managerial remuneration to managing director amounting to Rs. 620.53 lakhs for the year ended March 31, 2015 in terms of shareholdersresolution,whichisinexcessoflimitsbrscribedinScheduleVoftheCompaniesAct,2013. the company has made necessary application to the Central Government for it's approval, which is pending. 4 The Company has given loans amounting to Rs. 674.28 lakhs to wholly owned subsidiary company. This subsidiary has accumulated losses and its net worth has been fully eroded and incurred a net loss during the current year and brvious year. The repayment of this advances from subsidiary is dependent upon receipt of advance paid to third party for which claim is made by the subsidiary. In the opinion of the management the said advance is fully recoverable, and hence no provision is made as on March 31, 2015. 5 During the year, the Company has converted loan given to one of the subsidiary GMP Technical Solutions Private Limited into Preference Share. The subsidiary is in the process of allotment of brference shares and is pending allotment as on March 31, 2015. 6 During the year, the Company has reduced it's stake in one of the associate Company in the scheme of capital reduction. The Company has debited the loss of Rs 223.25 lakhs to the Statement of Profit and Loss as an exceptional item. 7 During the current year, the Company had terminated one of the joint ventures, accordingly all the assets and liabilities of the joint venture are merged with the Company. 8 The brvious year's figures were audited by a firm of chartered Accountants other than Deloitte Haskins & Sells LLP on which the existing auditors have relied upon. Previous year's figures have been regrouped/ reclassified wherever necessary to correspond with the current year's classification/disclosure. R Vasudevan Managing Director V Mohan Chairman D Santhanam Chief Financial Officer Dr Santosh Sundararajan Chief Executive Officer M Krishnamurthi Company Secretary & Compliance Officer Place : Mumbai Date : 12th May 2015 |