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L&T MODULAR FABRICATION YARD LLC


DIRECTORS’ REPORT

The Directors have pleasure in presenting the sixth Annual Report and Accounts of L&T Modular Fabrication Yard LLC for the year ended December 31, 2012.

FINANCIAL RESULTS

2012 2011

Amount (RO Mn) Amount ( R lakhs ) Amount (RO Mn) Amount ( R lakhs )

Contract Revenue 34.36 47,462.07 12.25 14,874.52

Operating Profit/(Loss) 1.43 1,969.73 0.85 1,027.54

Less: Finance Cost 0.16 208.93 0.13 158.29

Profit before tax 1.27 1,760.80 0.72 869.25

Less: Tax 0.04 48.56 – –

Profit after tax 1.23 1,712.24 0.72 869.25

DIVIDENDThe Directors do not propose any dividend for the financial year 2012.

PERFORMANCE OF THE COMPANYOur Yard is a major fabrication service provider for the region’s booming offshore oil & gas industry, comparable with some of the biggest fabrication yards of this kind in the region.

The business portfolio during the year comprised of Upstream Oil & Gas Projects and Jack up Drill Rig Refurbishment Project for Oil & Natural Gas Corporation, India (ONGC).

During the year, we also successfully completed three offshore platform Jackets & Topsides for PTTEP Limited, Thailand for their Zawtika Project and five offshore platform Jackets for ADMA-OPCO, Abudhabi for their Umm Lulu & Al-Nasr Projects. In addition, we have completed major scope of ‘Sagar Uday’ Rig Refurbishment project for ONGC, India. Five Topsides for ADMA-OPCO, Abudhabi is presently under fabrication.

The Organization is certified for OHSAS: 18001 - 2007 , ISO : 14001 - 2004 , ISO 9001 -2008 Quality System Standard and for API 2B , API 5L , and ASME with U,S,R stamps.

The Company has secured orders during the year which are given below:

Sl.No Client Job Value ( RO Mn) Value (R lakhs)

1. Larsen & Toubro Limited Fabrication of 3 Offshore Platforms (Jackets, Topsides ) for PTTEP, Thailand

23.65 32,791.67

CAPITAL EXPENDITURECapital expenditure incurred by Company as at December 31, 2012 as under:

2012 2011

Amount (RO Mn) Amount (R lakhs) Amount (RO Mn) Amount (R lakhs)

Gross Tangible Assets 19.44 27,773.03 14.22 19,620.05

Gross Intangible Assets 0.28 398.10 0.63 862.33

Capital Work In Progress 0.58 823.71 2.01 2,772.51

Total 20.30 28,994.84 16.86 23,254.89

AUDITORS’ REPORTThe Auditors’ Report to the shareholders does not contain any qualifications. The notes to the accounts referred to in the Auditors’ Report are self-explanatory and therefore do not call for any further comments of Directors.

CHANGE OF CIRCUMSTANCESAt the date of this report, the directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Company that would render any amount stated in the financial statements misleading.

DISCLOSURE OF PARTICULARSThe Company being registered outside India, the disclosures required to be made in accordance with Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, are not relevant. Hence the same has not been furnished.

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PARTICULARS OF EMPLOYEESThe Company being registered outside India, the disclosures required to be made in accordance with the provisions of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 are not relevant and hence have not been furnished

SUBSIDIARY COMPANIESThe Company has no subsidiary companies.

DIRECTORS’ RESPONSIBILITY STATEMENTThe Board of Directors of the Company confirm:

i. that in the preparation of the annual accounts, the applicable accounting standards have been followed and there has been no material departure;

ii. that the selected accounting policies were applied consistently and the directors made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at December 31, 2012 and of the profit of the Company for the year ended on that date;

iii. that proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv. that the annual accounts have been prepared on a going concern basis; and

v. that the Company has adequate internal systems and controls in place to ensure compliance of laws applicable to the Company.

DIRECTORSThe current Directors of the Company are:

Mr. K. Venkataramanan

Mr. Rashad M Al Zubair

Mr. U. Dasgupta

Mr. P. S. Kapoor

Mr. C. S. Badrinath

Mr. R. Srivatsan

There is no change in the Directors during the year.

AUDITORSThe auditors M/s PKF LLC., Chartered Accountants continue to be the auditors of the Company for the financial year 2013.

DISCLOSURE UNDER CORPORATE GOVERNANCE VOLUNTARY GUIDELINES 2009The Company being registered outside India, many of the particulars suggested in the guidelines are not applicable. Notwithstanding the above, the Directors wish to voluntarily disclose certain information in accordance with the said guidelines as under:

SEPARATION OF OFFICES OF CHAIRMAN AND CHIEF EXECUTIVE OFFICERThe roles and offices of Chairman and Chief Executive are separated. Mr.K.Venkataramanan chairs the meetings of the Board of Directors whereas Mr. C.S.Kole is the Chief Executive.

COMPANY’S CORPORATE GOVERNANCE PHILOSOPHYAs a part of L&T group, the Company has embraced the strong values of transparency, integrity, professionalism and accountability across its operations. The Company continuously endeavours to improve upon these aspects on an ongoing basis and adopts innovative approaches for leveraging resources, converting opportunities into achievements through proper empowerment and motivation, fostering a healthy growth and development of human resources to take L&T Group forward.

BOARD OF DIRECTORSa) Composition of the Board:

The Board comprises of six non-executive directors out of which four are nominated by L&T group and two by The Zubair Corporation, L&T’s Joint Venture partner.

b) Meetings of the Board:

The Meetings of the Board are held in Oman as well as India. The senior-most member amongst the L&T nominated directors Chair the meetings. The agenda and explanatory notes are circulated in advance to the members of the Board. The minutes of the meetings are circulated in a draft form inviting comments from the Directors before being finalised and signed by the Chairman of the Meeting.

c) Information to the Board:

The Board of Directors has full access to all information in the Company, which inter alia include:

- Annual Revenue Budgets including Capital Expenditure budgets

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- Financial statements and books of account

- Minutes of Board meetings

- Reports of Statutory and Internal auditors

- Financing plans of the Company

- Safety statistics including fatal accidents, Lost Time Injuries and Near Miss Incidents

- Compliance including non-compliances, if any, reports

- Any acts of default which has a potential of materially impacting the financial performance or project performance

- Localisation (Omanisation), Industrial relations and human resource related matters and issues arising there from

d) Post-meeting internal communication system:

The important decisions taken at the Board meeting are communicated to the concerned departments promptly.

INTERNAL AUDITORSThe Corporate Audit Services department of Larsen & Toubro Limited provides internal audit services to the Company. Audits are conducted on an annual basis and detailed reports are sent to the management as well as the Board of Directors of the Company.

INTERNAL CONTROLSThe Company has in place adequate internal control systems commensurate with its size and nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorised use or losses, executing transactions with proper authorisation and ensuring compliance of corporate policies. The Company has a well-defined delegation of power with authority limits for approving revenues as well as expenditure. Processes for formulating and reviewing annual and long term business plans have been laid down. The Board ensures the effectiveness of the Company’s system of internal controls including financial, operational and compliance controls and risk management systems.

SECRETARIAL AUDITThe Secretarial audit of the Company is conducted at regular intervals by the Corporate Secretarial department of Larsen & Toubro Limited, which has competent professionals to carry out the said audit.

RELATED PARTY TRANSACTIONSThe details of all the related party transactions form part of the accounts as required under AS 18 and the same is given in Note 2(c) of Schedule Q forming part of Accounts.

ACKNOWLEDGEMENTSThe Directors acknowledge the invaluable support extended by the customers, vendors, bankers and employees of the Company.

For and on behalf of the Board

U. DASGUPTA P S KAPOOR Director Director

Place : MumbaiDate : May 9, 2013

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AUDITORS’ REPORT

TO THE MEMBERS OF L&T MODULAR FABRICATION YARD LLCThe financial statements of L&T MODULAR FABRICATION YARD LLC for the year ended 31 December 2012, being a Company registered in the Sultanate of Oman, are audited by PKF L.L.C and we have been furnished with their audit report dated 24 January 2013.

We are presented with the accounts in Indian Rupees prepared on the basis of the aforesaid accounts to comply with the requirements of Section 212 of the Companies Act, 1956. We give our report as under:

We have audited the attached Balance Sheet of L&T Modular Fabrication Yard LLC as at 31 December 2012 and the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date, annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

In accordance with the provisions of Section 227 of the Companies Act, 1956, we report that:

(1) As required by the Companies (Auditor’s Report) Order, 2003, issued by the Central Government of India under sub-section (4A) of Section 227 of the Companies Act, 1956, and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

(2) Further to our comments in the Annexure referred to above, we report that:

(a) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

(b) in our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;

(c) the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account;

(d) in our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; and

(e) as regards reporting on the disqualification of directors under Section 274(1)(g) of the Indian Companies Act, 1956, since the Company is registered in the Sultanate of Oman, no reporting is required to be made under the said section.

In our opinion and to the best of our information and according to the explanations given to us, the said accounts, read together with the notes thereon, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

1 In the case of the Balance Sheet, of the state of affairs of the Company as at 31 December 2012;

2 in the case of the Profit and Loss Account, of the profit for the year ended on that date; and

3 in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

Emphasis on Matter

1. We draw attention to note no. J (1) of Balance Sheet regarding claim against the Company of R 920,420,900 not acknowledged as debt, as the Company’s management has disputed the clients claim. Matter is presently under arbitration.

2. We draw attention to note Q (2)(m) regarding change in the estimated useful lives of certain assets.

Our opinion is not qualified in respect of the above matters.

SHARP & TANNANChartered Accountants

Firm’s Registration No. 109982Wby the hand of

FIRDOSH D. BUCHIA Partner Membership No. 38332

Place : MumbaiDate : May 9, 2013

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ANNEXURE TO THE AUDITORS’ REPORT(Referred to paragraph (1) of our report of even date)

1 (a) The Company is maintaining proper records to show full particulars including quantitative details and situation of all fixed asset.

(b) The assets were physically verified by management during the year. In our opinion, the frequency of such verification is reasonable. We were informed that no material discrepancies were noticed on such verification

(c) The assets disposed of during the year are not substantial in relation to the Company and do not affect its going concern status.

2 (a) As explained to us, inventories have been physically verified by management at reasonable intervals during the period. In our opinion, the frequency of such verification is reasonable.

(b) As per the information given to us, the procedures of physical verification of inventory followed by management are, in our opinion, reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) The Company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records were not material.

3 There are no loans, secured or unsecured, either granted to or taken from companies, firms or other parties. However, no register is required to be maintained under Section 301 of the Companies Act, 1956 since the Company is incorporated and doing business only in the Sultanate of Oman. Accordingly, paragraphs 4(iii)(b) to (g) of the Order are not applicable.

4 In our opinion and according to the information and explanations given to us, there are adequate internal control systems to commensurate with the size of the Company and the nature of its business for the purchase of inventory, fixed assets and for the sale of goods and services. Further, on the basis of our examination of the books and records of the Company, and according to the information and explanations given to us, there is no continuing failure to correct major weaknesses in the aforesaid internal control systems.

5 The Company is incorporated in the Sultanate of Oman and accordingly, maintenance of records under Section 301 of the Companies Act, 1956 is not required. Accordingly, paragraphs 4(v)(a) and (b) of the Order are not applicable.

6 The Company has not accepted any deposits in terms of provisions of Sections 58A, 58AA of Companies Act, 1956.

7 We were informed by management that the Company is not required to maintain cost accounts and records under Section 209(1)(d) of the Companies Act, 1956.

8 The Company has not conducted an internal audit during the year.

9 (a) According to the information and explanations given to us, the Company is regular in depositing undisputed statutory dues with appropriate authorities and there are no undisputed statutory dues outstanding for a period exceeding six months as at December 31, 2012.

(b) According to the information and explanations given to us, there are no dues towards income tax, sales tax, service tax customs duty, excise duty and wealth tax that were under dispute as at December 31, 2012.

10 The Company has no accumulated losses as at December 31, 2012. It has not incurred cash losses in the current financial year or in preceding financial year.

11 According to records of the Company examined by us and the information and explanations given to us, the Company has not defaulted in repayment of dues to any financial institution or bank and neither has it issued any debentures.

12 According to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

13 The provisions of any special statute applicable to chit fund/nidhi/mutual benefit fund/societies are not applicable to the Company.

14 In our opinion and according to the information and explanations given to us, the Company is not a dealer or trader in securities.

15 In our opinion and according to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions.

16 In our opinion and according to the information and explanations given to us, on an overall basis the term loans have been applied for the purposes for which they were obtained.

17 According to the information and explanations given to us and on an overall examination of the Balance Sheet of the Company, we report that no funds raised on short term basis have been used for long term investments.

18 The Company has not made any preferential allotment of shares to parties and Companies covered in the register maintained under Section 301 of the Companies Act, 1956 during the period.

19 According to the information and explanations given to us and the records examined by us, no debentures have been issued during the period. Accordingly , clause (xix) of the order is not applicable.

20 The Company has not raised any money by public issues during the period.

21 During the course of our examination of the books and records of the Company, carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any instances of material fraud on or by the Company, noticed or reported during the period, nor have we been informed of such case by management.

SHARP & TANNANChartered Accountants

Firm’s Registration No. 109982Wby the hand of

FIRDOSH D. BUCHIA Partner Membership No. 38332Place : MumbaiDate : May 9, 2013

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As per our attached report of even date For and on behalf of the Board

SHARP & TANNANChartered AccountantsFirm’s Registration No. 109982Wby the hand of

FIRDOSH D. BUCHIA R. BALASUBRAMANIYAN P. S. KAPOOR U. DASGUPTAPartner Head - Finance & Accounts Director DirectorMembership No. 38332

Place : Mumbai Place : Sohar, Oman Place : MumbaiDate : May 9, 2013 Date : May 9, 2013 Date : May 9, 2013

BALANCE SHEET AS AT DECEMBER 31, 2012 As at 31.12.2012 As at 31.12.2011 Note No. R R R R

EQUITY AND LIABILITIESShareholders’ funds Share capital A 327,489,633 327,489,633 Reserves and surplus B 706,859,460 500,970,151

1,034,349,093 828,459,784Non- Current Liabilities Long-term borrowings C(I) 494,463,450 636,451,507

494,463,450 636,451,507Current Liabilities Short-term borrowings D(I) 208,139,853 363,524,841 Current maturities of long term borrowings D(II) 188,540,475 159,155,748 Trade payables D(III) 984,447,826 449,372,602 Other current liabilities D(IV) 88,740,776 15,415,478 Short-term provisions D(V) 140,959,287 119,213,578

1,610,828,217 1,106,682,247

TOTAL 3,139,640,760 2,571,593,538

ASSETSNon- Current Assets Fixed Assets Tangible assets E(I) 1,678,142,196 1,205,414,445 Intangible assets E(II) 27,156,572 5,224,511 Capital-work-in-progress E(I) 81,133,362 241,142,465 Intangible Assets under Development E(II) 1,237,314 36,108,729

1,787,669,444 1,487,890,150Current Assets Inventories H(II) 34,163,492 50,167,735 Trade receivables H(III) 288,286,838 399,374,297 Cash and bank balances H(IV) 102,205,315 26,527,492 Short term loans and advances H(V) 61,406,841 179,380,581 Other current assets H(VI) 865,908,830 428,253,283

1,351,971,316 1,083,703,388

TOTAL 3,139,640,760 2,571,593,538

COMMITMENTS (Capital and others) ICONTINGENT LIABILITIES JOTHER NOTES FORMING PART OF THE ACCOUNTS QSIGNIFICANT ACCOUNTING POLICIES R

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STATEMENT OF PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011

Note No. R R R R

REVENUE

Revenue from operations (gross) K 4,764,206,763 1,487,451,913

Other income L 73,519,308 26,430,617

TOTAL REVENUE 4,837,726,071 1,513,882,530

EXPENSES

Manufacturing, Construction & Operating Expenses M

Cost of raw materials, components consumed 661,527,490 134,907,482

Stores, spares and tools consumed 733,133 17,068,120

Sub-contracting charges 381,538,333 62,371,440

Other manufacturing ,construction and operating expenses 1,117,695,297 126,824,598

2,161,494,253 341,171,640

Employee benefits expense N 1,897,049,322 676,602,783

Sales, administration and other expenses O 329,990,950 153,351,495

Finance costs P 20,892,976 15,829,338

Depreciation, obsolescence and amortisation expense 252,218,891 240,002,466

(Refer Note Q (2)(m))

TOTAL EXPENSES 4,661,646,392 1,426,957,722

Profit before tax 176,079,679 86,924,808

Current tax 4,855,940 –

Profit after tax carried to Balance Sheet 171,223,739 86,924,808

Face value per equity share RO 1

Earnings per equity share - Basic & Diluted 59.36 30.13

OTHER NOTES FORMING PART OF THE ACCOUNTS Q

SIGNIFICANT ACCOUNTING POLICIES R

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CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2012

2012R

2011R

A. Cash Flow from operating activitiesNet profit/(loss) before tax 176,079,679 86,924,808Adjustments for:Depreciation & Amortisation 252,218,891 240,002,465Interest (net) 19,968,064 10,924,902(Increase)/Decrease in Translation loss 34,812,347 127,648,066(Profit)/Loss on sale of fixed asset (net) 14,111,041 (76,396)

Operating profit before working capital changes 497,190,022 465,423,845(Increase)/decrease in trade and other receivables:(Increase)/decrease in inventories 16,004,243 (33,805,973)(Increase)/decrease in trade and other receivables (277,561,847) (678,494,218)Increase/(decrease) in trade and other payables 625,143,513 45,515,288

Changes in working capital 363,585,909 (666,784,903)

Cash generated from/(used in) operations 860,775,931 (201,361,058)Less: Direct Taxes paid – –

Net Cash generated from/(used in) operations 860,775,931 (201,361,058)

B. Cash Flow from Investing ActivitiesPurchase of Fixed assets (550,521,831) (359,684,385)Sale of fixed assets 20,336,566 414,579Difference in the opening value of fixed assets/cummulative depreciation due to exchange difference

(35,923,962) (187,522,957)

Inter Corporate Deposits (given)/repaid 68,967,500 (10,946,250)Interest received 924,912 4,904,436

Net Cash (used in)/from investing activities (496,216,815) (552,834,577)

C. Cash Flow from Financing activtiesProceeds from issue of share capital – –Proceeds from Long Term Borrowings – 332,124,691Repayment of Long Term Loans (112,603,330) (70,855,284)Proceeds/(repayment) from Short Term Loans (net) (155,384,987) 65,769,326Interest paid (20,892,976) (15,829,338)

Net cash (used in)/from financing activities (288,881,293) 311,209,395

Net (decrease)/increase in cash and cash equivalents (A+B+C) 75,677,823 (442,986,240)Cash and cash equivalents at beginning of the year 26,527,492 469,513,732

Cash and cash equivalents at end of the year 102,205,315 26,527,492

Notes :

1 Cash Flow Statement has been prepared under the Indirect method as set out in the Accounting Standard (AS) 3: “Cash Flow Statements” as specified in the Companies (Accounting Standards) Amendment Rules, 2009

2 Purchase of Fixed Assets includes movement of Capital Work-in-progress during the year

3 Cash & Cash Equivalents at end of the period represents cash and bank balances and include unrealised gain of R 3,161,776 (previous year R 757,332) on account of translation of foreign currency bank balances.

4 Previous years figures have been regrouped/reclassified wherever applicable





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NOTES FORMING PART OF ACCOUNTS

As at 31.12.2012 As at 31.12.2011

Number of shares R Number of shares R

NOTE ASHARE CAPITALAuthorised:28,84,615 Equity shares of RO. 1 each 2,884,615 327,489,633 2,884,615 327,489,633

Issued, Subscribed and Paidup28,84,615 Equity shares of RO. 1 each

2,884,615 327,489,633 2,884,615 327,489,633

TOTAL 327,489,633 327,489,633

Reconciliation of Equity SharesIssued, Subscribed and fully paid up equity shares outstanding at beginning of the Year

2,884,615 327,489,633 2,884,615 327,489,633

Issued, Subscribed and fully paid up equity shares outstanding at end of the Year

2,884,615 327,489,633 2,884,615 327,489,633

Terms/Rights attached to equity shares:The Company has only one class of share capital, i.e equity shares having face value of RO 1 per share. Each holder of equity share is entitled to one vote per share

Holding Company18,75,000 equity shares of Face Value OMR 1 each amounting to R 212,868,262 are held by Larsen & Toubro International FZE, which is the immediate holding Company. The ultimate holding Company is Larsen & Toubro Limited, India

Shareholders holding more than 5% of equity shares as at the end of the yearAs at 31.12.2012 As at 31.12.2011

Number of shares Shareholding % Number of shares Shareholding %

Larsen & Toubro International FZE, Sharjah, UAE 1,875,000 65% 1,875,000 65%The Zubair Corporation, Oman 1,009,615 35% 1,009,615 35%

TOTAL 2,884,615 100% 2,884,615 100%

As at 31.12.2012 As at 31.12.2011R R R R

NOTE BRESERVES AND SURPLUSReserves and Surplus: Opening Legal Reserve 40,466,709 32,811,066 Addition during the year 15,893,353 7,655,643

56,360,062 40,466,709Foreign Currency Translation Reserve As per last Balance Sheet 123,149,342 (4,498,721) Addition/(deduction) during the year 34,665,570 127,648,063

157,814,912 123,149,342Surplus Statement of Profit and Loss As per last Balance Sheet 337,354,100 258,084,935 Profit for the year 171,223,739 86,924,808Less: Transfer to Legal Reserve 15,893,353 7,655,643

492,684,486 337,354,100

TOTAL 706,859,460 500,970,151

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NOTES FORMING PART OF ACCOUNTS (Contd.)

As at 31.12.2012 As at 31.12.2011R R R R

NOTE C(I)LONG-TERM BORROWINGSSecured LoansTerm Loan from banks (refer note C(I)(a)) 82,410,566 238,562,085Unsecured LoansShareholders Loan Account - L&T International FZE (refer note C(I)b) 267,834,375 258,628,125Shareholders Loan Account - The Zubair Corporation (refer note C(I)b)

144,218,509 139,261,297

TOTAL 494,463,450 636,451,507

As at 31.12.2012 As at 31.12.2011Rate of interest

Terms of repayment

Nature of security

V V

Note C(I)(a):

Term Loan from HSBC Bank 270,951,041 397,717,833USD Libor +

Spread

Repayable in 10 semi-annual

installments commencing

from January 2010

Secured by Mortgage over

Company’s plant and machinery

and sub-usufruct agreement.

Less: Current portion of long term borrowings (as per Note D(II))

188,540,475 159,155,748

Long Term Borrowings as disclosed in Note C(I) 82,410,566 238,562,085

Note C(I)(b): The loans, received in several installments over the period from November 2006 to December 2010 are unsecured and interest free. Interest is payable on loans after settlment of debt obligations to the banks. The loans are not repayable for a minimum period of 10 years from the date of infusion.

As at 31.12.2012 As at 31.12.2011R R R R

NOTE D(I)SHORT-TERM BORROWINGSSecured LoansLoans repayable on demand from banks 158,144,103 94,551,591Short term loans from bank (refer Note D(I)(a)) 49,995,750 –Unsecured LoansInter Corporate Loan from L&T Electromech LLC – 268,973,250

TOTAL 208,139,853 363,524,841

NOTE D(I)(a)The above loans include fund based working capital facilities viz. cash credits and demand loans.

The secured portion of working capital facilities and other non-fund based facilities viz. bank guarantees and letters of credit are secured by letter of awareness from shareholders and Ultimate parent Company for R 65,99,40,000 (equivalent to USD 12,000,000), and assignment of receivables and insurance policies over stock and plant and machinery for R 27,49,75,000 (Equivalent to USD 5,000,000)

NOTE D(II)CURRENT MATURITIES OF LONG TERM BORROWINGSCurrent maturities of long term borrowings 188,540,475 159,155,748(refer note C(I)(a))

TOTAL 188,540,475 159,155,748

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NOTES FORMING PART OF ACCOUNTS (Contd.)As at 31.12.2012 As at 31.12.2011

R R R R

NOTE D(III)TRADE PAYABLESLiability for Revenue goods 208,290,398 80,423,900Liability for Capital goods – 72,801,337Liability for Revenue Services 174,403,581 134,553,696Due to Others 501,936,252 150,362,173Due to related parties: Fellow subsidiaries 75,828,186 713,692 Companies over which significant influence is exerted by members 23,989,409 10,517,804

99,817,595 11,231,496

TOTAL 984,447,826 449,372,602

NOTE D(IV)OTHER CURRENT LIABILITIESDue to Ultimate holding Company 1,677,859 1,648,047Other payables 87,062,917 13,767,431

88,740,776 15,415,478

TOTAL 88,740,776 15,415,478

NOTE D(V)SHORT-TERM PROVISIONSProvision for Employee Benefits Provision for Gratuity 55,402,755 28,940,249 Leave Encashment Payable Account 75,059,754 30,009,390

130,462,509 58,949,639Others Provision for Current Tax 5,002,718 – Provisions (refer note J(1)) 5,494,060 60,263,939

10,496,778 60,263,939

TOTAL 140,959,287 119,213,578

NOTE - E(i)FIXED ASSETS

Description

COST / VALUATION DEPRECIATION BOOK VALUEAs at

01.01.2012Exchange difference

included in the translation

reserve

Additions during the

year

Deductions / Adjustment

As at 31.12.2012

Upto 01.01.2012

Exchange difference


reserve

For the Year Deductions / Adjustment

Upto 31.12.2012

As at 31.12.2012

As at

31.12.2011

R R R R R R R R R R R R

Leasehold land Development 80,252,794 2,856,783 37,609,232 – 120,718,809 16,753,902 780,794 6,100,499 – 23,635,195 97,083,614 63,498,892

Buildings 285,467,609 10,161,581 53,597,444 – 349,226,634 54,935,654 2,518,854 18,638,009 – 76,092,518 273,134,116 230,531,955

Plant and Equipment 1,367,951,650 48,694,220 543,036,124 45,542,414 1,914,139,579 601,357,899 25,676,271 153,129,671 11,865,455 768,298,387 1,145,841,192 766,593,751

Computers 31,294,081 1,113,929 13,488,853 254,835 45,642,029 11,588,757 593,514 6,100,083 116,192 18,166,162 27,475,867 19,705,324Furniture & Fixtures 51,630,614 1,837,975 17,258,390 2,172,530 68,554,450 41,096,222 1,875,909 15,740,834 2,070,936 56,642,029 11,912,421 10,534,392Vehicles 60,040,464 2,137,101 23,222,740 707,083 84,693,222 47,351,162 2,073,974 13,314,112 458,251 62,280,996 22,412,226 12,689,302Office Equipments 165,620,091 5,895,488 23,572,139 759,935 194,327,783 63,759,262 3,091,551 27,672,565 478,356 94,045,023 100,282,760 101,860,829TOTAL 2,042,257,303 72,697,077 711,784,922 49,436,797 2,777,302,506 836,842,858 36,610,867 240,695,773 14,989,190 1,099,160,310 1,678,142,196 1,205,414,445

Previous Year 1,642,505,048 309,873,912 90,619,606 741,263 2,042,257,303 475,647,727 122,260,469 239,337,739 403,076 836,842,859 1,205,414,444 1,166,857,321

Add: Capital Work in progress 81,133,362 241,142,465

Grand Total 1,759,275,558 1,446,556,910

Refer Note Q(2)(m)

S-115



NOTES FORMING PART OF ACCOUNTS (Contd.)NOTE - E (ii)FIXED ASSETS - INTANGIBLE

Description

COST / VALUATION AMORTISATION BOOK VALUEAs at

01.01.2012Exchange difference


reserve

Additions during the

year

Deductions / Adjustment

As at 31.12.2012

Upto 01.01.2012

Exchange difference


reserve

For the Year Deductions / Adjustment

Upto 31.12.2012

As at 31.12.2012

As at

31.12.2011

R R R R R R R R R R R R

Software 5,979,723 212,950 33,617,428 – 39,810,101 755,212 375,198 11,523,118 12,653,529 27,156,572 5,224,511

Total 5,979,723 212,950 33,617,428 – 39,810,101 755,212 375,198 11,523,118 – 12,653,528 27,156,572 5,224,511

Previous Year – – 5,979,723 – 5,979,723 90,486 664,726 755,212 5,224,511 –

Add: Intangible Assets under Development 1,237,314 36,108,729

GRAND TOTAL 28,393,886 41,333,240

As at 31.12.2012 As at 31.12.2011R R R R

NOTE H(II)

INVENTORIES (at cost or net realisable value whichever is lower)

Raw Material 324,641 –

Stores, spares & tackles 6,099,260 8,213,539

Consumables 27,739,591 41,954,196

34,163,492 50,167,735

TOTAL 34,163,492 50,167,735

NOTE H(III)

TRADE RECEIVABLES

Unsecured

Debts outstanding for more than 6 months 5,281,870 134,891,879

Other Debts:

Considered good 283,004,968 264,482,418

288,286,838 399,374,297

TOTAL 288,286,838 399,374,297

NOTE H(IV)

CASH AND BANK BALANCES

Cash and cash equivalents

Cash on hand 2,810,732 2,781,392

Balances with banks 99,394,583 23,746,100

102,205,315 26,527,492

TOTAL 102,205,315 26,527,492

NOTE H(V)

S-116



NOTES FORMING PART OF ACCOUNTS (Contd.)As at 31.12.2012 As at 31.12.2011

R R R R

SHORT-TERM LOANS AND ADVANCES

Unsecured

Loans and Advances to related parties

Considered good

Intercorporate deposit with related party – 68,967,500

Due from related parties

Ultimate Holding Company 96,420 –

Fellow subsidiary companies 1,507,677 12,229,559

Shareholder having significant influence 55,763 53,795

1,659,860 81,250,854

Others

Considered good

Unamortised expenses 41,560,256 32,372,030

Advances recoverable in cash or in kind 11,556,898 60,490,989

Balance with customs, etc 6,629,827 5,266,708

59,746,981 98,129,727

TOTAL 61,406,841 179,380,581

NOTE H(VI)

OTHER CURRENT ASSETS

Due from Customers (construction & project related activity) 865,908,830 428,253,283

TOTAL 865,908,830 428,253,283

NOTE I

COMMITMENTS

Estimated amount of contracts remaining to be executed on capital account (net of advances) 11,049,775 93,737,591

TOTAL 11,049,775 93,737,591

NOTE J

CONTINGENT LIABILITIES

Claims against the Company not acknowledged as debts 965,708,622 837,537,871

TOTAL 965,708,622 837,537,871

NOTE J (1)

A customer has claimed R 925,915,005 from the Company towards losses, damages, costs expenses and loss of profits. In the prior year, Company has provided R 62,409,123 as provision for customer’s claim out of which Company has reversed R 56,915,062 in current year and kept R 5,494,061 as closing provision. The balance claim of R 920,420,900 (previous year R 833,824,661) (including R 191,936,684 relating to subcontract work done by the ultimate parent company) has been disclosed above as claims against the Company not acknowledged as debt. The Company’s management has strongly disputed the customer’s claim. The matter is under arbitration.

NOTE J (2)

R 41,442,334 (previous year nil) relate towards seven labour related legal issues pending with courts in Oman and R 3,845,388 (previous year R 3,713,210) towards legal case filed by supplier pending with primary court Sohar.

S-117



NOTES FORMING PART OF ACCOUNTS (Contd.)2012 2011

R R R R

NOTE K

REVENUE FROM OPERATIONS

Sales & Service

Construction and project related activity 4,764,206,763 1,487,451,913

TOTAL 4,764,206,763 1,487,451,913

NOTE L

OTHER REVENUE

Income from services to Group Companies – 4,566,839

Recoveries from Group companies 16,181,111 2,895,516

Profit on Sale of Fixed Assets 427,396 76,396

Miscellaneous income 55,985,889 13,987,430

72,594,396 21,526,181

Interest Income

Interest received from Bank 44,554 1,955,655

Interest received from others 880,358 2,948,781

924,912 4,904,436

TOTAL 73,519,308 26,430,617

NOTE M

MANUFACTURING, CONSTRUCTION AND OPERATING EXPENSES

Manufacturing, Construction & Operating Expenses

Raw Materials & Components 47,695,850 90,129,733

Components 34,075,018 9,428,145

Less: Scrap sales 88,812,393 59,944,583

Consumables 668,569,015 95,294,187

661,527,490 134,907,482

Stores, spares & tools 733,133 17,068,120

Subcontracting Expenses 381,538,333 62,371,440

Other manufacturing ,construction and operating expenses

Freight 93,586,220 23,019,060

Power and fuel 30,978,368 11,738,734

Engineering & technical services 65,622,660 2,413,006

Lease Rent 62,071,329 52,432,053

Hire charges 730,169,035 16,224,335

Repairs and maintenance P&M 67,640,840 4,477,096

Repairs and maintenance Buildings – 2,194,108

Repairs and maintenance Others 34,623,152 3,866,266

Cost of Software 12,102,383 480,114

Insurance premium 20,901,310 9,979,826

1,117,695,297 126,824,598

TOTAL 2,161,494,253 341,171,640

S-118



NOTES FORMING PART OF ACCOUNTS (Contd.)2012 2011

R R R R

NOTE NEMPLOYEE BENEFITS EXPENSESalaries, wages and bonus 1,631,052,790 598,884,392Contribution to social security scheme 27,676,388 15,280,874Provision for Gratuity 33,647,008 13,932,319Welfare and other expenses 204,673,136 48,505,198

TOTAL 1,897,049,322 676,602,783

NOTE OSALES, ADMINISTRATION AND OTHER EXPENSESRent 54,366,486 37,327,271Travelling and conveyance 33,034,018 12,875,902Telephone, postage and telegram 37,894,037 16,373,472Professional Fees 14,197,223 12,074,270Insurance 8,719,632 5,545,956Stationery and printing 5,763,817 2,647,097Entertainment expenses 6,051,098 678,686Bank charges 1,641,244 881,712Repairs & Maintenance Buildings 11,460,842 6,485,937Repairs & Maintenance Others 22,590,798 7,578,883Software – 151,153Fees paid to Ministry of Manpower 44,578,059 22,817,840Power & Fuel 47,429,197 12,072,680Rates & Taxes 1,344,070 217,182Exchange difference (gain)/loss (1,339,912) (1,061,237)Loss on sale of fixed assets 14,538,437 –Miscellaneous expenses 27,721,904 16,684,691

TOTAL 329,990,950 153,351,495

O(I) Aggregation of expenses disclosed vide Note M and O in respect of specific items is as follows:

Nature of Expenses2012 2011

Note M Note O Total Note M Note O TotalR R R R R R

Power & Fuel 30,978,368 47,429,197 78,407,565 11,738,734 12,072,680 23,811,414Rent 62,071,329 54,366,486 116,437,815 52,432,053 37,327,271 89,759,324Repairs & Maintenance- Buildings – 11,460,842 11,460,842 2,194,108 6,485,937 8,680,045Repairs & Maintenance- Others 34,623,152 22,590,798 57,213,950 3,866,266 7,578,883 11,445,149Insurance 20,901,310 8,719,632 29,620,942 9,979,826 5,545,956 15,525,782

2012 2011R R R R

NOTE P

FINANCE COST

Interest paid to banks 17,124,784 15,340,961

Interest paid to others 3,768,192 488,377

TOTAL 20,892,976 15,829,338

S-119




NOTE Q: OTHER NOTES FORMING PART OF THE ACCOUNTS

1) LEGAL STATUS L&T Modular Fabrication Yard LLC is a limited liability company, registered under the Commercial Laws of the Sultanate of Oman. The Company

is engaged in execution of modular fabrication contracts.

2) OTHER NOTES FORMING PART OF THE ACCOUNTS a. The Balance Sheet as on December 31, 2012 and the Statement of Profit and Loss for the year ended December 31, 2012 are drawn and

presented as per the new format prescribed under Schedule VI to the Companies Act, 1956 applicable for the financial year commencing from April 1, 2011. The amounts pertaining to the previous year have been recast to conform with the new format

b. Disclosure pursuant to Accounting Standard (AS) 7 (Revised)

Amount in R

Particulars 2012 2011

i) Contract revenue recognized for the financial year 4,764,206,763 1,487,451,913

ii) Aggregate amount of contract costs incurred and recognized profits (less recognized losses) as at end of the financial year for all contracts in progress as at that date 5,625,605,854 692,735,778

iii) Amount of customer advances outstanding for contracts in progress as at end of the financial year Nil Nil

iv) Retention amounts due from customers for contracts in progress as at end of the financial year Nil Nil

c. (i) Name of the Companies who exercise control

• Larsen & Toubro Limited – Ultimate Holding Company

• Larsen & Toubro International FZE - Holding Company

(ii) Disclosure of major transactions with related parties Amount in R

Sr No

Nature of transaction/

Related Party

Year 2012 Year 2011

AmountAmt for

major partiesAmount

Amt for major parties

1 Contract and other revenues 4,764,206,763 1,441,156,091

Ultimate Holding Company

Larsen & Toubro Limited 4,764,206,763 1,440,756,460

2 Purchase of Plant and Machinery 44,821,470 7,816,352

Fellow Subsidiaries

Larsen & Toubro Heavy Engineering LLC 19,993,907

Larsen & Toubro Infotech Limited 18,984,268 4,161,136

Larsen & Toubro Valdel Engineering Limited

1,869,525

Party on which significant influence is exerted by shareholder

Zubair Enterprises (Northern) LLC 1,687,575

3 Purchase and expenses 9,557,459 12,856,859

Ultimate Holding Company

Larsen & Toubro Limited 1,525,561 9,093,264

Party on which significant influence is exerted by shareholder

Oasis Water Company LLC 2,549,869 1,129,161

International Heavy Equipment Co. LLC 2,439,660

Zubair General Automotive 1,690,783 1,431,330

S-120




Sr No

Nature of transaction/

Related Party

Year 2012 Year 2011

AmountAmt for

major partiesAmount

Amt for major parties

Zubair Enterprises (Northern) LLC 1,227,983

4 Subcontract expenses 104,880,126 1,515,054

Fellow Subsidiaries

Larsen & Toubro Electromech LLC 104,880,126 1,515,054

5 Interest Expense 3,718,562 488,377

Fellow Subsidiaries

Larsen & Toubro Electromech LLC 3,718,562 488,377

6 Interest Income 880,358 2,948,781

Fellow Subsidiaries

Larsen & Toubro Heavy Engineering LLC 880,358 2,948,781

7 Term Loan taken 2,77,308,000 236,746,185

Fellow Subsidiaries

Larsen & Toubro Electromech LLC 2,77,308,000 236,746,185

8 Repayment of Term loan taken 5,47,683,300 –

Fellow Subsidiaries

Larsen & Toubro Electromech LLC 5,47,683,300 –

9 Term loan given – 60,704,150

Fellow Subsidiaries

Larsen & Toubro Heavy Engineering LLC 60,704,150

10 Repayment of Term loan given 69,327,000 60,704,150

Fellow Subsidiaries

Larsen & Toubro Heavy Engineering LLC 69,327,000 60,704,150

(iii) Amount due to/due from related parties Amount in R

Transaction/Related Party Nature of relationship

Year 2012 Year 2011Due from

Related PartyDue to

Related PartyDue from

Related PartyDue to

Related Party

Trade Receivable

Larsen & Toubro Limited, IndiaUltimate Holding

Company 288,286,838 399,374,297Due from Customers


Company 865,908,830 428,253,283Short Term Loans & Advances : Due from related parties


Company 96,420 –Larsen & Toubro Heavy Engineering LLC, Oman Fellow Subsidiary 1,505,749 12,229,559

Larsen & Toubro Infotech Limited Fellow Subsidiary

1,928

–

The Zubair Corporation LLC, Oman

Shareholder having significant

influence 55,763 53,795Other Current Liabilities

S-121




Transaction/Related Party Nature of relationship

Year 2012 Year 2011Due from

Related PartyDue to

Related PartyDue from

Related PartyDue to

Related Party


Company 1,677,859 1,648,047Trade Payables:

Due to related partiesLarsen & Toubro Electromech LLC Fellow Subsidiary 75,828,186 589,948Larsen & Toubro (Oman) LLC Fellow Subsidiary – 27,311Larsen & Toubro Valdel Engineering Limited Fellow Subsidiary – 96,433

Marsh Oman

Party on which significant influence is exerted by

shareholder 19,439,957 8,165,735

Zubair Electric Northern LLC


shareholder 889,925 2,109,027

Pentagon Freight Services Oman LLC


shareholder 58,852 56,829

Zubair General Automotive LLC


shareholder 529,470 –

International Heavy Equipment Company LLC


shareholder 2,641,448 68,968

Oasis Water Company LLC


shareholder 429,757 117,245Loans takenLarsen & Toubro International FZE Holding Company 267,834,375 258,628,125

The Zubair Corporation LLC, Oman

Shareholder having significant

influence

144,218,509

139,261,297

Larsen & Toubro Electromech LLC Fellow Subsidiary – 268,973,250Loans given

Larsen & Toubro Heavy Engineering LLC, Oman Fellow Subsidiary – 68,967,500 –TOTAL 1,155,855,528 513,548,338 908,878,434 679,742,215

(iv) No amount due from Group companies has been written-off as bad debts during the year.

S-122




d. Taxation

The Company has obtained in Sultanate of Oman income tax exemption for a period of 5 years with effect from 1 September 2007 (date of production, till 31 August 2012), renewable for another period of 5 years on fulfillment of specific criteria. During the current year Company has applied to the Income tax Department for extension of the income tax exemption for a further period of 5 years commencing from 1 September 2012. The approval with tax authorities is under process. The management is confident of getting it renewed but on a conservative basis provision for Income tax is made in the financial statements for pro-rata period from 1 September 2012 to 31 December 2012.

e. Foreign Currency Exposures

There are no significant exchange rate risks as substantially all financial assets and financial liabilities are denominated in Rials Omani or UAE Dirham’s/US Dollar to which the Rial Omani is fixed, except for the following:

Amt in R

Currency Trade Payables Due to Customer

2012 2011 2012 2011

Euro 1,606,863 571,879 – –

Indian Rupee 25,998 – – 348,976

f. The Company is engaged only in the business of modular fabrication and hence no reporting has been made as per the requirements under Accounting Standard 17 on Primary Segmental Reporting. Secondary Segmental Reporting in respect of Contract revenue (Geographical segment) provided below:

Amount in R

Location 2012 2011

India 4,763,969,676 1,440,756,460

Central America – 46,695,453

All assets are located in the Sultanate of Oman

g. Operating leases:

The Company has taken on non-cancellable operating leases certain assets, the future minimum lease payments in respect of which, as at December 31, 2012 are as follows:

Amount in R

Minimum Lease Payments Dec 31, 2012 Dec 31, 2011

i. Payable not later than one year 88,205,645 95,921,654

ii. Between one year and five years 271,034,246 268,895,868

iii. Beyond five years 609,046,370 628,824,009

Total minimum lease payments 968,286,261 993,641,532

h. Auditor’s remuneration and expenses charged to the accounts:

R


Audit Fees 811,086 710,239

Taxation 152,512 133,549

Auditor’s Remuneration - Certification 228,768 –

Expenses Reimbursed 181,547 96,455

i. Under the sub-usufruct agreement between the Company and Sohar Industrial Port Company SAOC, (SIPC), the SIPC at the time of expiry or termination of the sub-usufruct agreement would require the Company to restore the land to its original form at the Company’s sole costs. Since, the obligation of the Company is contingent and the liability can only be determined at the time of termination of the usufruct agreement, the Company has not made any provision towards site restoration costs in the financial statements.

j. There are no transactions with micro and small enterprises as defined in the Micro, Small and Medium Enterprises Development Act, 2006 during the year.

S-123



NOTES FORMING PART OF ACCOUNTS (Contd.) k. Borrowing costs capitalised during the year is R Nil (previous year R Nil).

l. The Company has reviewed the future discounted cash flows based on value in use of fixed assets and satisfied that the recoverable amount is more than the amount carried in the books. Accordingly, no provision has been made for the impairment in the accounts.

m. During the year, the rate of depreciation on plant and machinery has been revised from 15% to 10% based on the revised estimates of useful life of plant & machinery items. Consequently, the profit for the year is higher by R 98,060,761 compared to the previous year.

n. Basic & diluted earnings per share (EPS) computed in accordance with AS 20 are as follows:

R


Profit for the year 171,223,739 86,924,808

Weighted Average number of Equity shares 2,884,615 2,884,615

Basic & Diluted EPS 59.36 30.13

o. Figures for the previous year have been regrouped/reclassified wherever necessary.

NOTE R: SIGNIFICANT ACCOUNTING POLICIESa. Basis of Accounting

The accounts have been prepared using historical cost convention and accrual basis and in accordance with the provisions of Section 211(3C) and the other provisions of the Companies Act, 1956.

The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires that the management of the Company makes estimates and assumptions that affect the reported amounts of income and expenses of the period, the reported balances of assets and liabilities and disclosure relating to contingent liabilities as of the date of the financial statements. Example of such estimates include the useful life of fixed assets and intangible assets, provision for doubtful debts/advances, future obligations in respect of retirement benefit plans etc. Actual results could differ from these estimates.

b. Presentation of financial statements

The Balance Sheet and the Statement of Profit and Loss are prepared and presented in the format prescribed in the Schedule VI to the Companies Act, 1956 (“the Act”). The Cash Flow Statement has been prepared and presented as per the requirements of Accounting Standard (AS) 3 “Cash Flow Statements”. The disclosure requirements with respect to items in the Balance Sheet and Statement of Profit and Loss, as prescribed in the Schedule VI to the Act, are presented by way of notes forming part of accounts along with the other notes required to be disclosed under the notified Accounting Standards

c. Revenue Recognition

Revenue from project related activity is recognized on percentage of completion basis. Percentage of completion is determined as a proportion of the cost incurred to date to the total estimated cost.

No profit is recognized until a contract has progressed to the point where the ultimate realizable profit can be reasonably determined. Provision is made for all losses incurred to the accounting date together with any further losses that are foreseen in bringing the contracts to completion.

Contract billings are recorded on the basis of progress bills prepared by the Company and are considered to the extent that they are probable of being certified and recovered.

d. Retirement/Termination Benefits

The Company contributes to the Social Security Scheme under Royal Decree 72/91 (defined contribution retirement plan and occupational hazard insurance for Omani employees in accordance with Omani Social Insurance Law 1991) for Omani employees administered by the Government of Sultanate of Oman. The contribution paid/payable under the said plan is recognized during the period in which the employee renders the related service.

Accruals for employees benefits comprising of leave salary and end of service gratuity for non Omani employees is in accordance with Company’s rules and is based on the liability which would arise if the employment of all staff were terminated at the year end.

e. Fixed assets

Fixed assets are stated at cost less depreciation.

f. Leases

Operating lease rentals are recognized as an expense on a straight line basis over the lease term.

S-124



NOTES FORMING PART OF ACCOUNTS (Contd.)g. Depreciation

Depreciation is calculated on a straight-line basis over the estimated useful lives of assets as follows:

1. Plant, Machinery 10%

2. Equipment, Camps and Caravans 15%

3. Vehicles 33%

4. Furniture & Fixtures 33%

5. Office Buildings 4%

6. Factory Buildings 8%

7. Software 33%

8. Assets value below OMR 50 100%

The above rates are higher than the rates specified under Schedule XIV of the Companies Act 1956 for the respective categories. Also refer Note Q (2)(m) above.

h. Impairment of assets

As at each Balance Sheet date, the carrying amount of assets is tested for impairment so as to determine

a) the provision for impairment loss, if any, required or

b) the reversal, if any, required of impairment loss recognized in previous periods.

Impairment loss is recognized when the carrying amount of an asset exceeds its recoverable amount.

i. Inventories

Inventories are stated at the lower of cost and net realizable value after making due allowance for obsolete and slow moving items.

Raw Materials, Stores, spares and consumables Weighted average cost

Tools, tackles, etc. Weighted average cost less amortization over estimated useful life.

j. Legal reserve

Legal reserve is created by appropriating 10% of the net profit for the year as required by Article 154 of the Commercial Companies Law of Oman 1974. The Company may resolve to discontinue such annual transfers when the reserve totals 33.33% of the paid up share capital. The reserve is not available for distribution.

k. Translation of financial statements in foreign currency to Indian Rupees

Accounts are translated in Indian Rupees as follows:

a. Share Capital and Legal Reserve are retained at the initial contribution amount.

b. Fixed Assets, Current & Non Current assets and Current & Non Current liabilities are translated at year-end rates.

c. Revenue transactions are translated at the average rates.

The resultant difference is accounted as translation reserve in the Balance Sheet.

l. Provisions, contingent liabilities and contingent assets

Provisions are recognised for liabilities that can be measured only by using a substantial degree of estimation, if

a) the Company has a present obligation as a result of a past event

b) a probable outflow of resources is expected to settle the obligation and

c) the amount of the obligation can be reliably estimated.

Reimbursement expected in respect of expenditure required to settle a provision is recognised only when it is virtually certain that the reimbursement will be received.

Contingent liability is disclosed in case of

a) a present obligation arising from past events, when it is not probable that an outflow of resources will be required to settle the obligation

b) a present obligation arising from past events, when no reliable estimate is possible

c) a possible obligation arising from past events where the probability of outflow of resources is not remote.

Contingent assets are neither recognised, nor disclosed.

Provisions, contingent liabilities and contingent assets are reviewed at each Balance Sheet date.

S-125



m. Commitments

Commitments are future liabilities for contractual expenditure. Commitments are classified and disclosed as follows:

a) Estimated amount of contracts remaining to be executed on capital account and not provided for

b) Other non-cancellable commitments, if any, to the extent they are considered material and relevant in the opinion of management.

Other commitments related to sales/procurements made in the normal course of business are not disclosed to avoid excessive details.

n. Operating Cycle for current and non-current classification

Operating cycle for the business activities of the Company covers the duration of the specific project/contract/product line/service including the defect liability period, wherever applicable and extends up to the realization of receivables (including retention monies) within the agreed credit period normally applicable to the respective lines of business.

o. Cash Flow Statement

Cash Flow Statement is prepared segregating the cash flows from operating, investing and financing activities. Cash flow from operating activities is reported using indirect method. Under the indirect method, the net profit is adjusted for the effects of:

a. transactions of a non-cash nature

b. any deferrals or accruals of past or future operating cash receipts or payments and

c. items of income or expense associated with investing or financing cash flows.

Cash and cash equivalents (including bank balances) are reflected as such in the Cash Flow Statement. Those cash and cash equivalents which are not available for general use as on the date of Balance Sheet are also included under this category with a specific disclosure






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