MSP STEEL & POWER LIMITED SIGNIFICANT ACCOUNTING POLICIES 1. Corporate Information MSP Steel & Power Limited ('the Company') is a public company domiciled in India and is listed on the BSE Limited (BSE) and the National Stock Exchange of India Limited (NSE). The Company is engaged in the manufacture and sale of iron and steel products and generation and sale of power. The Company has manufacturing plant in Raigarh, Chhattisgarh. 2. Summary of Significant Accounting Policies (a) Basis of Preparation of Financial Statements These financial statements of the company have been brpared to comply in all material aspects with applicable accounting principles in India, the applicable Accounting Standards brscribed under Section 133 of the Companies Act, 2013 ('Act') read with Rule 7 of the Companies (Accounts) Rules, 2014, the provisions of the Act (to the extent notified) and other accounting principles generally accepted in India, to the extent applicable. The financial statements have been brpared on an accrual basis and under the historical cost convention. The financial statements are brsented in Indian rupees rounded off to the nearest rupees in lacs. (b) Use of Estimates The brparation of the financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities on the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Although these estimates are based on the management's best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods. (c) Tangible and Intangible Fixed Assets Fixed Assets are stated at cost, less accumulated debrciation and impairment if any. The cost of acquisition comprises of purchase price inclusive of duties (net of Cenvat / VAT), taxes, incidental expenses, erection/commissioning/trial run expenses and borrowing cost etc., up to the date the assets are ready for intended use. Borrowing costs relating to acquisition of fixed assets for the period of time for it to get ready for its intended use are also included to the extent they relate to the period till such assets are ready to be put to use. Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its brviously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred. Machinery spares which can be used only in connection with an item of fixed assets and whose use as per technical assessment, is expected to be irregular, are capitalized and debrciated prospectively over the residual life of the respective assets. All direct expenditure and administrative costs relating to construction/erection of the project for bringing it to the working conditions for intended use are capitalized as "Preoperative & Trial Run Expenses (pending allocation)". Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and impairment loss, if any. (d) Debrciation/Amortization of Fixed Assets The classification of Plant and Machinery into continuous and non-continuous process is done as per the technical evaluation and debrciation thereon is provided accordingly. Debrciation on fixed assets is provided on a pro-rata basis on the straight line method based on useful life of the assets as brscribed in Schedule ll to the Companies Act, 2013. Debrciation on assets added / disposed off during the year is provided on pro-rata basis. In case of impairment, if any, debrciation is provided on the revised carrying amount of the assets over their remaining useful life. Cost of leasehold land is amortized over the period of lease. The intangible assets are amortized over the useful economic life of the respective assets. (e) Leases Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as 'Operating Leases'. Operating lease payments are recognized as an expense in the Statement of Profit and Loss on a straight-line basis over the lease term. (f) Impairment of Fixed Assets The carrying amount of assets are reviewed at each balance sheet date to determine if there is any indication of impairment based on external/internal factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount which rebrsents the greater of the net selling price and 'value in use' of the assets. In assessing value in use, the estimated future cash flows are discounted to their brsent value. (g) Borrowing Costs Borrowing cost includes interest, amortization of ancillary costs incurred in connection with the arrangement of borrowings and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Borrowing costs directly attributable to the acquisition, construction/erection or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are charged to revenue. (h) Government Grants and Subsidies Grants and subsidies from the government are recognized when there is reasonable assurance that (i) the Company will comply with the conditions attached to them, and (ii) the grant/subsidy will be received. When the grant or subsidy relates to revenue, it is recognized as income on a systematic basis in the Statement of Profit and Loss over the periods necessary to match them with the related costs, which they are intended to compensate. Where the grant relates to an asset, it is recognized as deferred income and released to income in equal amounts over the expected useful life of the related asset. Where the Company receives non-monetary grants, the asset is accounted for on the basis of its acquisition cost. In case a non-monetary asset is given free of cost, it is recognized at a nominal value. (i) Investments Investments that are readily realizable and intended to be held for not more than a year are classified as 'Current Investments'. All other investments are classified as 'Long-term Investments'. On initial recognition, all investments are measured at cost. Current investments are carried at lower of cost and fair value determined on an individual investment basis. Long term investments are carried at cost. Provision for diminution in value is recognized when there is an 'other than temporary' decline in the value of the investments. (j) Inventories Raw materials, Components, Stores and Spares are valued at lower of cost and net realizable value. However, materials and other items held for use in the production of inventories are not written down below cost if the finished products for which they will be used are expected to be sold at or above cost. Cost of raw materials, components and stores and spares is determined on 'First in First out' basis. Work-in-progress and finished goods are valued at lower of cost and net realizable value. Cost includes direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Cost of finished goods includes excise duty. Cost is determined on annual average basis. Saleable scrap and by-products are valued at net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. (k) Revenue Recognition All expenses and income to the extent considered payable and receivable respectively, unless otherwise stated, are accounted for on an accrual basis. Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Sale of Goods Revenue from sale of goods is recognized when all the significant risks and rewards of ownership of the goods have been passed to the buyer, which generally coincides with delivery. Sale of Power Revenue from sale of power is recognized on transmission of power to the customers from the grid. Sale of Carbon Credits Revenue is recognized when carbon credit units are sold to third parties and there is no significant uncertainty as regards the collection thereof. Export Incentives Export Incentives under the Duty Drawback scheme are recognized when such incentive accrues upon export of goods provided that there is reasonable certainty of receiving the credit and its quantification can be assessed. Income is recognized at lower of the estimated credit receivable and estimated net realisable value. Interest Interest income is recognized on a time proportion basis taking into account the amount outstanding and the applicable interest rate. Interest income is included under the head "other income" in the Statement of Profit and Loss. Dividend Dividend income on investments is recognised when the right to receive dividend is established. Insurance Claims Insurance Claims are accounted depending on the certainty of receipts on settlement. (l) Foreign Currency Transactions and Balances Transactions denominated in foreign currencies are normally recorded at the exchange rates brvailing on the date of the transaction. Foreign currency monetary items are restated using the exchange rate brvailing at the reporting date. Non-monetary items, which are measured at fair value or other similar valuation denominated in a foreign currency, are translated using the exchange rate at the date when such value was determined. Exchange differences arising on the settlement or reporting of monetary items at rates different from those at which they were initially recorded are recognized as income or expenses in the year in which they arise except for fixed assets. The brmium/ discount arising at the inception of forward exchange contract is amortized and recognized as an expense/ income over the life of the contract. Exchange differences on such contracts at the reporting date are recognized in the Statement of Profit and Loss. Any profit or loss arising on cancellation or renewal of such forward exchange contract is also recognized as income or as expense for the period. (m) Employee Benefits Short term employee benefits are charged off at the undiscounted amount in the period in which the related service is rendered. Post employment and other long term employee benefits are charged off in the period in which the employee has rendered services. The amount charged off is recognized at the brsent value of the amounts payable determined using actuarial valuation techniques. Actuarial gains and losses in respect of post employment and other long term benefits are charged to Statement of Profit and Loss. The Company's contribution to the Provident Fund and the Family Pension Fund are charged to Statement of Profit and Loss. (n) Income taxes Tax expense comprises of Current Tax and Deferred Tax at the applicable enacted or substantively enacted rates. Current Tax rebrsents the amount of Income Tax payable in respect of taxable income for the reporting period. Provision for Current Tax is made on the basis of estimated taxable income for the period at the rates brvailing under the Income-tax Act, 1961. Current Tax is net of credit for entitlement for Minimum Alternate Tax (MAT). Deferred Tax rebrsents the effect of timing difference between taxable income and accounting income for the reporting period that originates in one year and are capable of reversal in one or more subsequent years. Deferred Tax asset is recognized and carried forward only to the extent that there is a virtual certainty that the asset will be realized in future. MAT Credit is recognized as an asset only when and to the extent there is convincing evidence that the Company will pay normal Income Tax during the specified period. In the year in which the Minimum Alternative Tax (MAT) credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in guidance note issued by the ICAI, the said asset is created by way of credit to Statement of Profit & Loss and shown as MAT credit entitlement. The Company reviews the same at each Balance Sheet date and writes down the carrying amount of MAT entitlement to the extent there is no longer convincing evidence to the effect that Company will pay normal Income Tax during the specified period. (o) Provisions, Contingent Liabilities and Contingent Assets Provisions involving substantial degree of estimation in measurement are recognised when there is a brsent obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent Liabilities are not recognised but are disclosed in the Notes. Contingent Assets are neither recognised nor disclosed in the financial statements. (p) Derivative Instruments Derivative contracts, other than foreign currency forward contracts covered under AS 11, are marked to market on a portfolio basis, and the net loss, if any, after considering the offsetting effect of gain on the underlying hedged item, is charged to the Statement of Profit and Loss. Net gain, if any, after considering the offsetting effect of loss on the underlying hedged item, is ignored. (q) Excise Duty Excise Duty and Cess on manufacturing goods is accounted for at the time of their clearances from the factory. Excise Duty and Cess in respect of stock of finished goods and scrap awaiting clearance from the factory at the year-end are considered for valuation of inventory. (r) Earnings per share Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders are divided with the weighted average number of shares outstanding during the year after adjustment for the effects of all dilutive potential equity shares. Terms/Rights attached to Equity Shares The company has only one class of Equity Shares having a nominal value of Rs. 10/- per share. Each holder of Equity Shares is entitled to one vote per share. The company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. In the event of liquidation of the company, the holders of Equity Shares will be entitled to receive remaining assets of the company, after distribution of all brferential amounts. The distribution will be in proportion to the number of Equity Shares held by the shareholders. Terms/Rights attached to Preference Shares The company has only one class of Preference Shares (i.e. 6% Non Cumulative Redeemable Preference Shares) having a nominal value of Rs. 10/- per share. The Preference Shareholders shall have the right to vote on any resolution of the company directly affecting their rights. The company declares and pays brferential dividends in Indian rupees. The Preference Share of the company are Non Cumulative in nature and therefore in case the company does not declare dividend in any particular year, dividend right gets lapsed and is not eligible for carry forward in future years. Preference Shares are redeemable within 20 years from the date of allotment at a price to be decided by the Board of Directors at the time of redemption. In the event of liquidation of the company, the holders of Preference Shares will be entitled to receive assets of the company, before its distribution to equity shareholders. The distribution will be in proportion to the number of Preference Shares held by the brference shareholders. 1. Valuation of Current Assets, Loans & Advances and Current Liabilities In the opinion of the management, current assets (including trade receivables), loans and advances and current liabilities (including trade payables) have the value at which these are stated in the Balance Sheet, unless otherwise stated, and adequate provisions for all known liabilities have been made and are not in excess of the amount reasonably required. 2. As per information available with the Company, there are no suppliers covered under "Micro, Small and Medium Enterprise Development Act, 2006". As a result, no interest provision/payment has been made by the Company to such creditors, if any, and no disclosure thereof is made in the accounts. 3. The amount due from related parties are good and hence no provision for doubtful debts in respect of dues from such related parties is required. No amount has been written back / written off during the year in respect of due to / from related parties. 4. The Company has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Company has reviewed and ensured that adequate provision as required under any law/accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) has been made in the books of accounts. 5 The brvious year's figures have been reworked, regrouped, rearranged and reclassified wherever necessary. Amounts and other disclosures for the brceding year are included as an integral part of the current year financial statements and are to be read in relation to the amounts and other disclosures relating to the current year. Bifurcation of assets and liabilities into Non-Current and Current for brparation of financial statements has been made by the management. As per our report of even date. For Sunil Kumar Agrawal & Associates Firm Registration No: 323133E Chartered Accountants CA Sunil Kumar Agrawal Partner Membership No: 057731 For and on behalf of Board of Directors Puran Mal Agrawal Chairman Saket Agrawal Managing Director Kamal Kumar Jain Chief Financial Officer Ruchi Garg Company Secretary Date: 6th June, 2015 Place: Kolkata |
