Accounting Policies in Bharat Electronics:

1. BASIS OF ACCOUNTING The financial statements are brpared and brsented under the historical cost convention, in accordance with Generally Accepted Accounting Principles in India (GAAP), on the accrual basis of accounting, except as stated herein. GAAP comprises of the mandatory Accounting Standards (AS) issued by the Institute of Chartered Accountants of India (ICAI), to the extent applicable, and the provisions of the Companies Act, 1956 and these have been consistently applied. 2. USE OF ESTIMATES The brparation of the financial statements in conformity with GAAP, requires that the Management make estimates and assumptions that affect the reported amounts of assets and liabilites, disclosure of contingent liability as at the date of financial statements and the reported amounts of revenue and expenses during the reporting period. Although such estimates are made on a reasonable and prudent basis taking into account ail available information, actual results could differ from these estimates and such differences are recognised in the period in which the results are ascertained. 3. REVENUE RECOGNITION (i) Revenue from sale of goods are recognised as under: a. In the case of FOR contracts, when the goods are handed over to the. carrier for transmission to the buyer after prior inspection and acceptance, if stipulated, and in the case of FOR destination contracts, if there is a reasonable expectation of the goods reaching destination within the accounting period. Revenue is recognised even if goods are retained with the Company at the request of the customer. b. In the case of ex-works contracts, when the specified goods are unconditionally appropriated to the contract after prior inspection and acceptance, if required. c. In the case of contracts for supply of complex normal cycle time of completion/delivery period is more than 24 months and the value of the equipment/system is more than Rs. 100 crores,

revenue is recognised on the "percentage completion" method. Percentage completion is based on the ratio of actual costs incurred on the contract upto the reporting date to the estimated total cost of the contract. Since the outcome of such a contract can be estimated reliably only on achieving certain progress, revenue is recognised upto 25% progress only to the extent of costs. After this stage, revenue is recognised on proportionate basis and a contingency provision equal to 20% of the surplus of revenue over costs is made while anticipated losses are recognised in full. d. If the sale price is pending finalisation, revenue is recognised on the basis of price expected to be realised. Where break up prices of sub units sold are not provided for, the same are estimated. e. Price revisions and claims for price escalation/reduction on contracts are accounted on admittance. f. Where installation and commissioning is stipulated and price for the same agreed separately, revenue relating to installation and commissioning is recognised on conclusion of installation and commissioning activity. In case of a composite contract, where separate fee for installation and commissioning is not stipulated and the supply is effected and installation and commissioning work is pending, the estimated costs to be incurred on installation and commissioning activity is provided for and revenue is recognised as per the contract. g. Sales exclude Sales Tax/Value Added Tax (VAT) and include Excise Duty. (ii) Other income is recognised on accrual. 4. FIXED ASSETS (i) Tangible Assets: Tangible fixed assets are stated at cost less accumulated debrciation/ambrtisation including where the same is acquired in full or in part with Government grant. Cost for this purpose includes ail attributable costs for bringing the asset to its location and condition, cost of computer software which is an integral part of the related hardware, and also includes borrowing costs during the acquisition/construction phase, if it is a qualifying asset requiring substantial period of time to get ready for intended use. The cost of fixed assets acquired from a place outside India

includes the exchange differences if any, arising in respect of liabilities in foreign currency incurred for acquisition of the same. (ii) Intangible Assets: The cost of software (which is not an integral part of the related hardware) acquired for internal use and resulting in significant future economic benefits, is recognised as an intangible asset in the books of accounts when the same is ready for use. (iii) Impairment of Assets: The Company assesses the impairment of assets with reference to each Cash Generating Unit (CGU) at each Balance Sheet date if events or changes in circumstances, based on internal and external factors, indicate that the carrying value may not be recoverable in full. The loss on account of impairment, which is the difference between the carrying amount and recoverable amount, is accounted accordingly. Recoverable amount of a CGU is its Net Selling Price or Value in Use whichever is higher. The Value in Use is arrived at on the basis of estimated future cash flows discounted at company's br-tax borrowing rates. 5. DEbrCIATION/AMORTISATION Tangible debrciable fixed assets are generally debrciated on straight-line method at the rates (or higher rates as disclosed) and in the manner brscribed in Schedule XIV to the Companies Act, 1956 except in cases where the machine utilisation hour basis is adopted. Special instruments are amortised over related production. Intangible Assets are amortised over a period of three years on straight-line method. Prorata debrciation/ amortisation is charged from/upto the date on which the assets are ready to be put to use/are deleted or discarded. Leasehold land is amortised over the period of lease. 6. BORROWING COSTS Borrowing costs that are specifically attributable to qualifying assets as defined in Accounting Standard AS 16 are added to the cost of such assets until use or sale and the balance expensed in the year in which the same is incurred.

Q3. What is the importance of auditors report in ensuring financial discipline in a company. Read the auditors report of from the annual report of your chosen company and explain.

Answer: