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| Significant Accounting Policies | ||||||||||||||||
1. REPORTING ENTITYDiesel & Motor Engineering PLC and its Subsidiaries are limited liability companies, incorporated and domiciled in Sri Lanka. The parent company and its subsidiaries have the registered office and principal place of business located at No. 65, Jetawana Road, Colombo 14.The consolidated Financial Statements of Diesel & Motor Engineering PLC. as at and for the year ended 31st March 2008 comprise the Company and its fully-owned subsidiaries (together referred to as the ‘Group’) and the Group’s interest in an associate and jointly controlled entities. The Financial Statements of all Companies in the Group are prepared to a common financial year, which ends on 31st March. The Directors authorised the Financial Statements for issue on 9th May 2008. Diesel & Motor Engineering PLC does not have any identifiable parent of its own. i. Statement of Compliance The Financial Statements have been prepared in accordance with Sri Lanka Accounting Standards (SLAS) adopted by the Institute of Chartered Accountants of Sri Lanka (ICASL), and the requirements of the Companies Act No. 7 of 2007, and Sri Lanka Accounting & Auditing Standards Act No. 15 of 1995. ii. Responsibility for Financial StatementsThe Board of Directors is responsible for the preparation & presentation of the Financial Statements. The statement containing the Directors Responsibility for Financial Statements.iii. Basis of MeasurementThe Financial Statements have been prepared on the historical cost basis, except that certain land included in property, plant & equipment is stated at a valuation as explained in Note 9 to the Financial Statements.Functional and Presentation Currency The Financial Statements are presented in Sri Lankan Rupees, which is the Company’s functional currency. All financial information presented in Sri Lankan Rupees has been rounded to the nearest thousand, unless otherwise stated. Use of estimates and JudgmentsThe preparation of Financial Statements in conformity with SLAS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates.Estimates and underlying assumptions are reviewed on an on going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period or in the period of the revision and future periods if revision affects both current and future periods. Going concernThe Directors have made an assessment of the Group’s ability to continue as a going concern in the foreseeable future, and they do not intend either to liquidate or to cease trading.Basis of Consolidation(a) SubsidiariesSubsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable are taken into account. The Financial Statements of subsidiaries are included in the consolidated Financial Statements from the date that control commences until the date that control ceases. There is no minority interest in the consolidated Financial Statements since all subsidiary companies are wholly owned.
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic, financial and operating decisions. Associates are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The Consolidated Financial Statements include the Group proportionate share of the joint venture assets/liabilities, revenue and expenses with items of a similar nature on a line by line basis. The Consolidated Financial Statements include the Group’s share of the income and expenses and equity movements of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has incurred obligations or has made payments on behalf of the investee.
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| Years | |
| Buildings | 36-40 |
| Plant & Machinery | 08-13 |
| Workshop Implements | 03-04 |
| Motor Vehicles | 03-04 |
| Furniture & Fittings | 09-13 |
| Office Equipment & Electrical | 06-10 |
| Computer Hardware & Software | 03-04 |
Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognised.
Depreciation methods, useful lives and residual values are reassessed at the reporting date.
(f) Capital Work-in-Progress
Capital expenditure incurred during the year, which are not completed as at the Balance Sheet date are shown as capital work-in-progress.ii. Intangible Assets
An Intangible Asset is recognised if it is probable that the future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be measured reliably in accordance with SLAS 37 on Intangible Assets. Accordingly these assets are stated in the Balance Sheet at cost less accumulated amortisation and accumulated impairment losses.
Subsequent expenditure
Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates.Amortisation
Amortisation is recognised in profit and loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows:
● Computer software - 4 years.
iii. Investments
Long-Term Investments
Investments in quoted and unquoted shares held on long-term basis are measured at cost less impairment losses. In the parent company Financial Statements, investments in subsidiaries, associate and jointly controlled entity are carried at cost less impairment losses under the parent Company accounting policy for long term investments.Provision for impairment is made when in the opinion of the Directors there has been a decline other than temporary in the value of the investment.
iv. Inventories
Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
The cost of inventories is based on the weighted average cost principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.
A provision is made for all non-moving and obsolete items of inventory.
v. Trade and Other Receivables
Trade and other receivables are stated in the accounts at their estimated realisable value. A provision has been made in respect of bad & doubtful debts. Debts that are known to be uncollectible are written off.
vi. Cash & Cash Equivalents
Cash & cash equivalents comprise cash balances and demand deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash & cash equivalents for the purpose of the Statement of Cash Flows.
vii. Impairment
The carrying amounts of the Group’s assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated at each reporting date or more frequently, if events or changes in circumstances indicate that it might be impaired.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
3. LIABILITIES AND PROVISIONS
Liabilities classified as current liabilities on the Balance Sheet are those, which fall due for payment on demand or within one year from the Balance Sheet date. Non-current liabilities are those balances that fall due for payment after one year from the Balance Sheet date.All known liabilities have been accounted for in preparing the Financial Statements.
i. Employee Benefits
(a) Defined Contribution Plans
Obligations for contributions to defined contribution plans, EPF & ETF, are recognised as an expense in profit and loss when incurred.
(b) Defined Benefits Plans - Retiring Gratuity
Provision has been made for retiring gratuity from the first year of service for all employees in conformity with Sri Lanka Accounting Standard (SLAS 16) - Retirement Benefit Costs. However, under the Payment of Gratuity Act No. 12 of 1983, liability to an employee arises only on completion of five years service.
The liability has not been actuarially valued and is not externally funded.
The liability is calculated on the basis of half a month’s salary for each completed year of service.
ii. Deferred Income
The excess of sales proceeds over the carrying amount of an asset in a sale and lease back transaction is classified as Deferred Income. Deferred Income is systematically amortised to profit and loss over the lease period.iii. Trade and Other Payables
Trade and other payables are stated at their cost.iv. Provisions
A provision is recognised, if as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable than an outflow of economic benefits will be required to settle the obligation.v. Warranties
A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighing of all possible outcomes against their associated probabilities.4. INCOME & EXPENSES
For the purpose of presentation of the Income Statement, the function of expenses method is adopted, as it represents fairly the elements of the Company performance.i. Turnover
The net Group turnover excludes turnover taxes and trade discounts. The gross turnover represents the invoiced value of goods & services to customers outside the Group.ii. Revenue
(a) Goods Sold & Services Rendered
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances and trade discounts. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be measured reliably, there is no continuing managerial involvement with the goods and the amount of revenue can be measured reliably.Revenue from services rendered is recognised in profit and loss on the invoicing of the job after completion. In instances where the revenue from services spreads over a period of time, revenue is recognised in profit and loss in proportion to the stage of completion of the transaction at the reporting date.
(b) Service Support Income
Service support commission income from foreign principals is accounted for on an accrual basis once the shipment is effected.(c) Other Operating Income
Other operating income comprises mainly of gain on disposal of property, plant & equipment, bad debt recoveries, sale of scrapped items and motor vehicle valuation fees, etc.iii. Expenses
(a) Operating Leases
Leases where the lessor effectively retains substantially all the risks and rewards of ownership over the lease term are classified as operating leases. Payments made under operating leases are recognised in profit and loss on a straight-line basis over the term of the lease.IV. Borrowing Costs
Borrowing Costs are recognised as an expense in the period in which they are incurred, except to the extent where borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset that take a substantial period of time to get ready for its intended use or sale, is capitalised as part of that asset.(a) Finance income and finance expenses
Finance income comprise interest income on funds invested, dividend income and gains on translation of foreign currency. Interest income is recognised in profit and loss as it accrues, taking into account the effective yield on the asset.Finance expenses comprises interest cost on borrowings and losses on translation of foreign currency. The interest expense component of finance lease payments is recognised in profit and loss using the effective interest method.
Dividend income is recognised in profit and loss on the date the entity’s right to receive payment is established.
V. Income Tax
Income tax expense comprises current and deferred tax. Income tax is recognised in profit and loss except to the extent that it relates to items directly recognised in equity, in which case it is recognised in equity.Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantially enacted by the reporting date.
5. CASH FLOW STATEMENT
The Cash Flow Statement has been prepared using the ‘direct method’.Interest paid is classified as operating cash flows; interest and dividend received are classified as investing cash flows, while dividends paid are classified as financing cash flows for the purpose of presenting the Cash Flow Statement.
6. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE
All material post Balance Sheet events have been considered and where appropriate adjustment or disclosure has been made according to SLAS 12 (Revised) - Events after the Balance Sheet date in the respective Notes to the Financial Statements.
7. CAPITAL COMMITMENTS AND CONTINGENCIES
Capital commitments and contingent liabilities of the Group are disclosed in respective Notes to the Financial Statements. Refer Note 27.
8. COMPARATIVE INFORMATION
Where necessary comparative information has been reclassified to conform to the current year’s presentation.