NOTES ON ACCOUNTS:
Following notes on accounts including significant accounting policies are followed for preparation of books of accounts.
1. ACCRUAL BASIS:
The financial statements have been prepared in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) for Level-3 non-corporate entities. The entity has availed exemptions and relaxations available to such entities, including non-mandatory preparation of cash flow statements and certain disclosures. The financial statements have been prepared under historical cost convention on accrual basis of accounting unless otherwise stated. The accounting policies, in all material respects, have been consistently applied by the Entity and are consistent with those in the previous year.
Estimates and Assumptions used in the preparation of the financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the financial statements, which may differ from the actual results at a subsequent date. Difference between the actual and estimates are recognized in the period in which the results are known / materialized.
2. USE OF ESTIMATES
The preparation of financial statements requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosure of contingent liabilities, at the end of 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.
3. REVENUE RECOGNITION
Revenue is recognised to the extent, that it is probable that the economic benefits will flow to the Entity and the revenue can be reliably measured.
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Revenue from sale of goods
Revenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods are transferred to the buyer and are recorded net of trade discounts, rebates and Goods and Service Tax.
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Revenue from services
Revenue from services is recognised pro-rata over the period of the contract as and when services are rendered and the collectability is reasonably assured. The revenue is recognised net of Goods and service tax.
‘Unbilled receivables’ included in other current assets represent cost and earnings in excess of billings as at the balance sheet date.
‘Unearned revenues’ included in other current liabilities represent billing in excess of revenue recognized.
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Interest Income
Interest Income is recognised on a time proportion basis taking into account the amount outstanding and applicable interest rate.
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Dividend Income
Dividend is recognised when the Entity’s right to receive dividend is established.
4. FOREIGN CURRENCY TRANSACTIONS:
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Initial recognition:
Foreign currency transactions are recorded in the reporting currency by applying the exchange rate between the reporting currency and the foreign currency at the date of the transaction.
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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 non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when such values were determined.
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Exchange differences:
Exchange differences arising on the settlement of monetary items or on reporting the Entity’s monetary items at rates different from those at which they were initially recorded during the year, or reported in previous financial statements, are recognised as income or as expenses in the year in which they occur.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, capital work in progress are stated at cost less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price, borrowing costs, if capitalization criteria are met and any cost attributable to bringing the assets to its working condition for its intended use which includes taxes, freight, and installation and allocated incidental expenditure during construction/ acquisition and exclusive Input tax credit (IGST/CGST and SGST) or other tax credit available to the Entity.
When parts of an item of tangible assets have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Depreciation on fixed assets is provided on the written down value (WDV) method in accordance with the rates and provisions of the Income Tax Act, 1961, as this is aligned with the useful life of assets under Accounting Standards for non-corporate entities.
For the purposes of computing depreciation as well as gain or loss on disposal of assets the assessee adopts the concept of Block of Assets as per the provisions of Income tax Act, 1961. The following rates of depreciation specified under the Income tax regulations are considered for computing depreciation.
· Plant and Machinery (except Computers) 15%
· Computers 40%
· Building 10%
· Furniture & Fixtures 10%
Depreciation on property, plant and equipment used for less than 180 days in the year purchase is calculated at 50% of the above rates.
6. INTANGIBLE ASSETS
An intangible asset is recognized when it is probable that the future economic benefits attributable to the asset will flow to the enterprise and where its cost can be reliably measured. Intangible assets are stated at cost of acquisition less accumulated amortization and impairment losses, if any. Cost comprises the purchase price and any cost attributable to bringing the assets to its working condition for its intended use which includes taxes, freight, and installation and allocated incidental expenditure during construction/ acquisition and exclusive of Input tax credit (IGST/ CGST and SGST) or other tax credit available to the Company.
Subsequent expenditure relating to intangible assets is capitalised only if such expenditure results in an increase in the future benefits from such asset beyond its previously assessed standard of performance.
7. IMPAIRMENT OF ASSETS
The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets’ net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value at the weighted average cost of capital.
8. 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 that are directly attributable to the acquisition, construction or production of an asset that takes a substantial period of time to get ready for its intended use are capitalized. All other borrowing costs are recognised as expenditure in the period in which they are incurred.
9. INVESTMENTS
On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties. If an investment is acquired, or partly acquired, by the issue of shares or other securities, the acquisition cost is the fair value of the securities issued. If an investment is acquired in exchange for another asset, the acquisition is determined by reference to the fair value of the asset given up or by reference to the fair value of the investment acquired, whichever is more clearly evident.
Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Long-term investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments.
On disposal of an investment, the difference between its carrying amount and net disposal proceeds is charged or credited to the Profit and Loss Account.
10. EMPLOYEE BENEFITS
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All short term employee benefits are recognized as an expense at the undiscounted amount in the Statement of Profit and Loss Account in the period in which the employee renders the related service.
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Salary / allowances / perquisites etc. are included as and when payable.
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Gratuity is provided when the number of employees exceeds the minimum threshold limit prescribed by the Payment of Gratuity Act, 1972.
11. INVENTORIES
Raw materials, components, stores and spares, and packing material are valued at lower of cost and net realizable value. However, these items are considered to be realisable at replacement cost if the finished goods, in which they will be used, are expected to be sold below cost.
Cost of inventories is computed on a weighted-average/FIFO basis. Cost includes purchase price, (excluding those subsequently recoverable by the enterprise from the concerned revenue authorities), freight inwards and other expenditure incurred in bringing such inventories to their present location and condition.
Work in progress and manufactured finished goods are valued at the lower of cost and net realisable value. Cost of work in progress and manufactured finished goods is determined on the weighted average basis and comprises direct material, Cost of conversion and other costs incurred in bringing these inventories to their present location and condition. Cost of traded goods is determined on a weighted average basis.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated costs necessary to make the sale. The comparison of cost and net realizable value is made on item by item basis.
12. INCOME TAXES
The financial statements are primarily prepared for income tax purposes. Accordingly, the entity does not account for deferred tax liabilities or assets, and current tax is not separately provided in the financial statements, as these amounts are directly addressed in tax returns filed by the entity. The owners are individually liable for income tax on their shares of the entity’s profits.
13. GOVERNMENT GRANTS AND SUBSIDIES
Grants and subsidies from the government are recognised when there is reasonable assurance that (i) the Entity will comply with the conditions attached to them, and (ii) the grant/subsidy will be received.
When the grant or subsidy related to revenue, it is recognised as income on a systematic basis in the Profit and Loss Account over the periods necessary to match them with the related costs, which they are intended to compensate. Where the grant is related to an asset, it is recognised as deferred income and released to income in equal amounts over the expected useful life of the related asset.
14. EXEMPTIONS AND RELAXATIONS FOR LEVEL-3 ENTITIES
The entity has availed all the exemptions and relaxations available to Level-3 entities under the accounting standards issued by ICAI. Accordingly:
· Cash Flow Statement (AS 3): The entity is exempt from preparing a cash flow statement.
· Segment Reporting (AS 17): The entity is not required to provide segment information due to the nature of its operations and the exemption for Level-3 entities.
· Related Party Disclosures (AS 18): The entity has made limited disclosures regarding related party transactions, specifically with respect to partners. Detailed disclosures such as compensation of key management personnel are not required.
· Leases (AS 19): Disclosure requirements related to operating leases, including future lease payment reconciliations, are not applicable.
· Earnings Per Share (AS 20): This standard is not applicable as the entity is not required to report earnings per share.
· Impairment of Assets (AS 28): The entity performs impairment testing as required but is exempt from providing detailed assumptions and valuation disclosures.
· Employee Benefits (AS 15): The entity provides for short-term and long-term employee benefits as required but is not mandated to carry out actuarial valuations for defined benefit plans like gratuity.
15. RELATED PARTY DISCLOSURES (AS 18)
The following are the transactions with related parties, as per the requirements of AS 18, limited to relationships that are directly controlled by the owners:
Key management personnel: The owners of the entity are considered the key management personnel.
Other related party disclosures are not applicable as the entity has availed the exemption for non-corporate Level-3 entities under AS 18. For detailed description of related party transactions, refer clause 23 of Tax Audit Report.
16. PROVISIONS AND CONTINGENT LIABILITIES
Provisions are recognized when the entity has a present obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation. Contingent liabilities are disclosed in the financial statements unless the probability of an outflow of resources is remote.
17. EVENTS AFTER THE BALANCE SHEET DATE
No material events occurred after the balance sheet date that would require adjustments or disclosures in the financial statements.
Disclaimer:
The draft note provided herein is for reference purposes only and should not be considered as a technically compliant or exhaustive document. Users are advised to customize the content based on their specific requirements and circumstances. It is important to ensure that the reporting in Form 3CA/3CB is appropriately updated to reflect the relevant facts and compliance with applicable provisions. Professional judgement and due diligence should be exercised before finalizing any report.