Annual Report 2010-2011 - Gammon India

SCHEDULE 17 : SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
A. ACCOUNTING POLICIES:
1. Principles of consolidation
The Consolidated Financial Statements comprise the financial statements of GAMMON INDIA LIMITeD (“the Company”) and its Subsidiary
companies (the Company and its subsidiaries are hereinafter referred to as ‘the Group’), Associates and Joint Ventures (JV’s) in the form of jointly
controlled entities. The Consolidated Financial Statement has been prepared on the following basis:
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(a) Interests in Subsidiaries
• The Financial Statements of the Company and its subsidiary companies have been combined on a line by line basis by adding the
book values of like items of assets, liabilities, income and expenses, after fully eliminating intra-group balances and intra-group
transactions resulting in unrealized profits or losses as per Accounting Standard-21 “Consolidated Financial Statements” issued by
Institute of Chartered Accountants of India (‘AS-21’).
• The Consolidated Financial Statements have been prepared using uniform policies for like transactions and other events in similar
circumstances and are presented to the extent possible in the same manner as the Company’s separate financial statements.
• The excess of cost of investments of the Company over its share of equity in the Subsidiary is recognised as goodwill. The excess of
share of equity of Subsidiary over the cost of investments is recognised as capital reserve.
• The revenue related to construction services in respect of the BOT contracts, which are governed by Service Concession Agreements
with government authorities (grantor), is considered as exchanged with the grantor against toll collection rights/annuities receivable,
profit from such contracts is considered as realized. Accordingly, BOT contracts awarded where work is subcontracted within the
group, the inter group transactions on BOT contracts and the profits arising thereon are taken as realised and not eliminated.
(b) Interests in Joint Ventures
The Company’s interests in Joint Ventures in the nature of jointly controlled entities are included in these Consolidated Financial Statements
using the Proportionate Consolidation Method as per the Accounting Standard–27 “Financial Reporting of Interests in Joint Ventures”
issued by the Institute of Chartered Accountants of India (‘AS-27’). The group combines its share of each of the assets, liabilities, income
and expenses of the joint venture with similar items, on a line by line basis.
(c) Investment in Associates
Investments in Associate Companies are accounted under the equity method as per the Accounting Standard–23 “Accounting for
Investments in Associates in Consolidated Financial Statements” issued by the Institute of Chartered Accountants of India (‘AS -23’).
Under the Equity Method, the investment in associates is carried in the balance sheet at cost plus post acquisition changes in the Group’s
share of net assets of the associate. The income statement reflects the Group’s share of the results of operations of the associates.
The excess of the Company’s cost of investment over its share of net assets in the associate on the date of acquisition of investment is
accounted for as goodwill. The excess of the Company’s share of net assets in the associate over the cost of its investment is accounted
for as capital reserve.
Goodwill/Capital Reserve is included/adjusted in the carrying amount of the investment.
2. Use of Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to make estimates
and assumptions to be made that affect the reported amount of assets and liabilities and disclosure of contingent liabilities on the date of
financial statements and the reported amount of revenues and expenses during the reporting period. Difference between the actual results and
estimates are recognized in the period in which the results are known.
3. Revenue Recognition
(a) On Construction Contracts:
Long-term contracts including Joint Ventures are progressively evaluated at the end of each accounting period. On contracts under
execution which have reasonably progressed, profit is recognised by evaluation of the percentage of work completed at the end of the
accounting period, whereas, foreseeable losses are fully provided for in the respective accounting period. The percentage of work completed
is determined by the expenditure incurred on the job till each review date to total expected expenditure of the job.
Additional claims (including for escalation), which in the opinion of the management are recoverable on the contract, are recognised at the
time of evaluating the job.
(b) In case of certain high end boilers the milestones method is used for the measurement of the stage of completion, so as to ensure greater
compliance of the valuation in the financial statements with respect to the effective stage of completion of the activities.
(c) On supply of materials related to the transmission towers, revenue is recognized upon the delivery of goods to the client in accordance
with the terms of contract. Sales include excise duty & other receivable from the customers but exclude VAT, wherever applicable.
(d) Revenue from providing services are recognized in income statement at the moment said services are completed. As for works in progress,
they are measured based on the status of completion of work. Whenever the results of the agreement cannot be reliably evaluated,
revenues are recognized only to the extent that costs are deemed to be recoverable.
(e) Insurance claims are accounted for on cash basis.
(f) On Infrastructure Development Business:
(i) Annuity and Toll Receipts:
The toll fees collection from the users is accounted when the amount is due and recovered.
A NNUAL R EPORT I 2010/11