1) General Information
Stovec Industries Limited ("the Company") was incorporated on 5th June, 1973. The Company's factory and registered office is presently located in Ahmadabad, Gujarat. The Company is listed on BSE Ltd and Ahmadabad Stock Exchange Ltd. The Company has three major Business Segments: Textile Machinery & Consumables, Graphics Consumables and Galvanic. The Company is a Technology and Market leader in Rotary Screen Printing Industry in India.
2) Statement of significant accounting policies
a) Basis of preparation of financial statements
These financial statements have been prepared in accordance with the generally accepted accounting principles in India under the historical cost convention on accrual basis. Pursuant to section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules 2014, till the standards of accounting or any addendum thereto are prescribed by Central Government in consultation and recommendation of the National Financial Reporting Authority, the existing Accounting Standards notified under the Companies Act, 1956 shall continue to apply. Consequently, these financial statements have been prepared to comply in all material aspects with the accounting standards notified under Section 211(3C) [Companies (Accounting Standards) Rules, 2006, as amended] and other relevant provisions of the Companies Act, 2013.
All assets and liabilities have been classified as current or non-current as per the Company's operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013. Based on the nature of products and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current — noncurrent classification of assets and liabilities.
Inventories are valued at lower of cost and net realizable value.
i) Cost of raw materials, packing materials, stores, spares and tools are computed on a moving weighted average cost basis.
ii) Cost of work-in-progress/ finished goods are determined on moving weighted average cost basis comprising material, labour and related factory overheads.
c) Revenue Recognition
i) Sale of Goods and Services
Revenue is recognized when the property and all significant risks and rewards of ownership are transferred to the buyer and no significant uncertainty exists regarding the amount of consideration that is derived from the sale of goods. Sales are recorded net of trade discount, rebates and sales tax / value added tax is inclusive of excise duty.
Service income is recognized on completion of rendering of services and is recorded net of service tax. Cost incurred during the pendency of the contract is carried forward as job in progress at lower of cost and net realizable amounts.
ii) Other Revenue
Commission income is recognized and accounted on accrual basis.
Interest income is recognized on a time proportion basis taking into account the amount outstanding and the rate applicable.
Eligible export incentives are recognized in the year in which the conditions precedent are met and there is no significant uncertainty about the collectability.
Lease rental income is recognized on accrual basis.
Dividend income is accounted for in the year in which the right to receive the same is established.
d) Fixed Assets and Depreciation / Amortization Tangible Assets
i) Fixed assets are stated at historical cost less depreciation / amortization. Cost includes all expenses relating to acquisition and installation of the concerned assets.
ii) Depreciation has been provided on a straight-line method (pro-rata from the date of additions) over the useful life as prescribed in Schedule II to the Companies Act 2013 or as per technical evaluation.
e) Foreign Currency Transactions Initial Recognition
On initial recognition, all foreign currency transactions are recorded by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.
As at the reporting date, 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. All monetary assets and liabilities in foreign currency are restated at the end of accounting period.
Exchange differences on restatement of all monetary items are recognized in the Statement of Profit and Loss.
Forward Exchange Contracts
The premium or discount arising at the inception of forward exchange contracts entered into to hedge an existing asset / liability, is amortized as expense or income over the life of the contract. Exchange differences on such a contract are recognized in the Statement of Profit and Loss in the reporting period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of such a forward exchange contract are recognized as income or as expense for the period.
Investments that are readily realizable and are intended to be held for not more than one year from the date, on which such investment are made, are classified as Current Investment. All other Investments are classified as Long Term Investments. Current Investments are carried at cost or fair value, whichever is lower. Long Term Investments are carried at cost. However, provision for diminution is made to recognize a decline, other than temporary, in the value of the investments, such reduction being determined and made for investment individually.
g) Employee Benefits
i) Short Term Employee Benefits:
The employees of the Company are entitled to leave encashment as per the leave policy of the Company. The liability in respect of leave encashment of short term nature is provided, based on an actuarial valuation carried out by an independent actuary as at the year-end.
ii) Long Term Employee Benefits:
Defined Contribution Plans
The Company has Defined Contribution plans for post employment benefits namely Provident Fund.
The Company contributes to a Government administered Provident Fund and has no further obligation beyond making its contribution.
The Company makes contributions to state plans namely Employee's State Insurance Fund and Employee's Pension Scheme 1995 and has no further obligation beyond making the payment to them.
The Company's contributions to the above funds are charged to Statement of Profit and Loss every year.
Defined Benefit Plans
The Company has Defined Benefit Plan comprising of Gratuity and Leave Encashment. The Company contributes to the Gratuity Fund which is recognized by the Income Tax Authorities and administered through its trustees.
Liability for Defined Benefit Plans is provided on the basis of actuarial valuation, as at the Balance Sheet date, carried out by an independent actuary using the Projected Unit Credit Method.
iii) Termination benefits are recognized as an expense as and when incurred.
iv) Actuarial gains and losses comprise experience adjustments and the effects of changes in actuarial assumptions and are recognized immediately in the Statement of Profit and Loss as income or expense.
h) Research and Development Expenditure
Research and development expenditure is charged to revenue under the natural heads of account in the year in which it is incurred. However, development expenditure qualifying as an intangible asset, if any, is capitalized, to be amortized over the economic life of the product. Research and development expenditure on fixed asset is depreciated in accordance with the useful life specified in paragraph (d) above.
i) Operating Leases As a lessee:
Leases in which a significant portion of the risks and rewards of ownership are retained by the less or are classified as operating leases. Payments made under operating leases are charged to the Statement of Profit and Loss on a straight-line basis over the period of the lease.
As a less or:
The Company has leased certain tangible assets and such leases where the Company has substantially retained all the risks and rewards of ownership are classified as operating leases. Lease income on such operating leases are recognized in the Statement of Profit and Loss on a straight line basis over the lease term.
j) Taxes on Income
Provision for tax for the year is made on the assessable income at the tax rate applicable to the relevant assessment year.
Deferred tax is recognized for all the timing differences, subject to the consideration of prudence in respect of deferred tax assets. Deferred tax assets are recognized and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.
Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. At each Balance Sheet date, the Company re-assesses unrecognized deferred tax assets, if any.
A provision is recognized for expected warranty claims on products sold, based on past experience of level of repairs and returns. Assumptions used to calculate the provision for warranties are based on current sales level and current information available about returns.
l) Impairment of Assets
The Company assesses at each Balance Sheet date whether there is any indication that asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the Statement of Profit and Loss.
m) Provisions and Contingent Liabilities
Provisions: Provisions are recognized when there is a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and there is a reliable estimate of the amount of the obligation. Provisions are measured at the best estimate of the expenditure required to settle the present obligation at the Balance sheet date and are not discounted to its present value.
Contingent Liabilities: Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made, is termed as a contingent liability.
n) Accounting Estimates
The preparation of financial statements requires estimates and assumptions to be made that affect the reported amounts of assets and liabilities on the date of financial statements and the reported amounts of revenue and expenses during the reporting period. Difference between the actual results and the estimates are recognized in the year in which the results are known/ materialised.