Annual Report 2010-2011 - Gammon India

10. Investments
Investments are classified as current and long term investments. Investments that are readily realisable 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. Current investments are carried
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 recognise a decline other than temporary in the value of long term investments.
Investments in associates are accounted under Equity Method as per Accounting Standard-23 “Accounting for Investments in Associates in
Consolidated Financial Statements” issued by Institute of Chartered Accountants of India (‘AS 23’).
11. Inventories
(i) In case of the Indian Operations, the Stores and Construction Materials are valued and stated at lower of cost or net realisable value. The
FIFO method of inventory valuation is used to determine the cost. Raw materials are valued at cost, net of Excise duty and Value Added
Tax, wherever applicable. Stores and spares, loose tools are valued at cost except unserviceable and obsolete items that are valued at
estimated realizable value thereof. Costs are determined on FIFO method.
(ii) Work-in-progress on construction contracts reflects value of material inputs and expenses incurred on contracts including estimated profit
in evaluated jobs.
(iii) Work in progress from manufacturing operation is valued at cost and costs are determined on FIFO method.
(iv) Finished goods are valued at cost or net realizable value, whichever is lower. Costs are determined on FIFO method except in case of
overseas operations and an Indian subsidiary where the Finished goods are valued on Weighted Average Cost basis.
(v) In case of the overseas Operations and an Indian subsidiary, the Stores & spares and Construction materials are valued at Weighted
Average Cost basis.
(vi) Works in progress for service contracts 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. The costs for purchasing
goods and services are recognized in the income statement on accrual basis and develop into decreases in economic benefits, which occur
in the form of cash outflows, or of impairment of assets or incurring liabilities.
12. Foreign Currency Translation
Initial Recognition
Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of transactions. Fixed Assets acquired in foreign
currencies are translated at the rate prevailing on the date of Bill of Lading.
Conversion
Current Assets and Current Liabilities are translated at the year end rate or forward contract rate.
Exchange Differences
(a) Any Gain or Loss on account of exchange difference either on settlement or translation is recognized in the Profit and Loss Account.
(b) The exchange gain/loss on long term loans to non integral operations being subsidiaries are restated to Foreign Exchange Translation
Reserve Account and will be transferred to the Profit & Loss Account in the year when the disposal of or otherwise transfer of the operations
are done.
Translation
(a) The transactions of Oman branch are accounted as a non-integral operation. The related exchange difference on conversion is accounted
under Foreign Currency Translation Reserve Account.
(b) The transactions of branches at Kenya, Nigeria, Bhutan and Algeria are accounted as integral operation.
(c) The conversion of component financial statements expressed in foreign currency are as follows:
– the assets and liabilities are converted using the exchange rates in effect as of the Balance Sheet date;
– the income and expenditure are converted using the average exchange rate for the period/year;
– the “Foreign Exchange Translation Reserve” comprises both the exchange differences generated by the conversion of the economic
quantities using a rate other than the closing one and those generated by the conversion of the opening shareholders’ equities at an
exchange rate other than the closing one for the reporting period;
– goodwill and adjustments deriving from the fair value linked to the acquisition of a foreign entity are treated as assets and liabilities
of the foreign entity and converted using the period end exchange rate.
(d) In line with notification of the Companies (Accounting Standards) Amendment Rules 2011 issued by Ministry of Corporate Affairs on
31st March, 2011 amending Accounting Standard-11 (AS-11) “The Effects of Changes in Foreign Exchange Rates (revised 2003)”, the Company
has chosen to exercise the option under para 46 inserted in the standard by the notification. Accordingly, exchange differences on all long
term monetary items, with retrospective effect from 1st April, 2007, are:
1. Tothe extent such items are used for the acquisition of a depreciable capital asset are added to/deducted from the cost of the asset
and depreciated over the balance life of the asset.
2. In other cases accumulated in the “Foreign Currency Monetary Item Translation Difference Account” and amortised to the profit and
loss account over the balance life of the long term monetary item but not beyond 31st March, 2012.
13. Borrowing Cost
Borrowing costs directly attributable to the acquisition or construction of qualifying assets are capitalized. Other borrowing costs are recognized
as expenses in the period in which they are incurred. In determining the amount of borrowing costs eligible for capitalization during a period,
any income earned on the temporary investment of those borrowings is deducted from the borrowing costs incurred.
A NNUAL R EPORT I 2010/11
127