SIGNIFICANT ACCOUNT POLICIES
1. Basis of Accounting
The financial statements are brpared under historical cost convention, on accrual basis, in accordance with the generally accepted accounting principles in India, the accounting standards and relevant guidance notes issued by the Institute of Chartered Accountants of India (ICAI) and the relevant provisions of the Companies Act, 1956.
2. Use of estimates
The brparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities on the date of the financial statements and the results of operations during the reporting periods. Although these estimates are based upon management's knowledge of current events and actions, actual results could differ from those estimates and revisions, if any, are recognised in the current and future periods.
3. Fixed assets and debrciation
A) Fixed assets (gross block) are stated at historical cost. Steel shutterings are capitalised at the costs directly relating to their fabrication and are included under plant and machinery.
Debrciation on assets (including buildings and related equipments rented out and included under current assets as stocks) is provided on straight line method at the rates and in the manner brscribed in schedule XIV to the Companies Act, 1956 except in the case of steel shuttering where the estimated useful life has been determined as seven years.
B) Amounts paid for leasehold land are not amortised, being on perpetual lease.
Current investments are stated at lower of cost and fair value. Long-term investments are stated at cost and provision for diminution in their value, other than temporary, is made in the accounts.
Profit/ loss on sale of investments is computed with reference to the average cost of the investment.
Stocks are valued as under:
A) Land and plots (including land under agreements to sell) other than area transferred to constructed properties at the commencement of construction are valued at cost, approximate average cost or as revalued on conversion to stock, as applicable. Cost includes land acquisition cost, estimated internal development costs and external development charges.
B) Constructed properties includes the cost of land (including land under agreements to purchase), internal development costs, external development charges, construction costs, development/ construction materials, and is valued at cost or estimated cost, as applicable.
C) Earnest money and part payments under agreements to purchase land/ constructed properties rebrsents amounts paid by the company to acquire irrevocable and exclusive licenses and development rights in identified land and constructed properties, the acquisition of which is at an advanced stage.
D) Constructed buildings and related equipments are valued at cost less debrciation.
6. Revenue recognition
A) Sale of land and plots is recognised in the financial year in which the agreement to sell is executed.
B) Revenue from constructed properties-.
i. Assets given on perpetual lease are considered sold in the year in which the agreement to sell is executed and revenue is recognised on the percentage of completion method of accounting referred to in (ii) below.
ii. Revenue from constructed properties is recognised on the "percentage of completion method". Total sale consideration as per the agreements to sell constructed properties entered into is recognised as revenue based on the percentage of actual project costs incurred thereon to total estimated project cost, subject to such actual cost incurred being 30 per cent or more of the total estimated project cost. Project cost includes cost of land, estimated construction and development cost of such properties. The estimates of the saleable area and costs are reviewed periodically and effect of any changes in such estimates is recognised in the period such changes are determined. However, when the total project cost is estimated to exceed total revenues from the project, the loss is recognised immediately.
7. Profit / loss from partnership firms
Share of profit / loss from firms in which the company is a partner is accounted for in the financial year ending on (or before) the date of the balance sheet.
8. Rent and licence fees, service receipts and interest from customers under agreements to sell
Rent and licence fees, service receipts and interest from customers under agreements to sell is accounted for on accrual basis except in cases where ultimate collection is considered doubtful.
9. Cost of revenue
A) Cost of land and plots includes land acquisition cost, estimated internal development costs and external development charges, which is charged to the profit and loss account based on the percentage of land/ plotted area in respect of which revenue is recognised as per accounting policy (6)above to the saleable total land/ plotted area of the scheme, in consonance with the concept of matching cost and revenue. Final adjustment is made on completion of the applicable scheme.
B) Cost of constructed properties includes cost of land (including land under agreements to purchase), estimated internal development costs, external development charges, construction costs and development/ construction materials, which is charged to the profit and loss account based on the percentage of revenue recognised as per accounting policy (6) above, in consonance with the concept of matching costs and revenue. Final adjustment is made on completion of the applicable project.
10. Borrowing costs
Borrowing costs that are attributable to the acquisition or construction of qualifying assets are capitalised as part of the cost of such assets. A qualifying asset is one that necessarily takes substantial period of time to get ready for its intended use. All other borrowing costs are charged to the profit and loss account as incurred.
Provision for tax for the year comprises current income-tax, deferred tax and fringe benefit tax. Current income-tax is determined in respect of taxable income with deferred tax being determined as the tax effect of timing differences rebrsenting the difference between taxable income and accounting income that originate in one period, and are capable of reversal in one or more subsequent period(s). Such deferred tax is quantified using rates and laws enacted or substantively enacted as at the end of the financial year.
12. Foreign currency transactions
Transactions in foreign currency and non monetary assets are accounted for at the exchange rate brvailing on the date of the transaction. All monetary items denominated in foreign currency are converted at the year-end exchange rate. Income and expenditure of the liaison office is translated at the yearly average rate of exchange.
The exchange differences arising on such conversion and on settlement of the transactions, except for those relating to acquisition of fixed assets which are adjusted to the carrying amount of the related fixed assets are dealt with in the profit and loss account.
13. Retirement benefits
Expenses and liabilities in respect of employee benefits are recorded in accordance with Revised Accounting Standard 15 - Employee Benefits (Revised 2005) issued by the ICAI.
i) Provident fund
The Company makes contribution to statutory provident fund in accordance with Employees Provident Fund and Miscellaneous Provisions • Act, 1952 which is a defined contribution plan and contribution paid or payable is recognised as an expense in the period in which services are rendered by the employee.
Gratuity is a post employment benefit and is in the nature of a defined benefit plan. The liability recognised in the balance sheet in respect of gratuity is the brsent value of the defined benefit/ obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit/ obligation is calculated at or near the balance sheet date by an independent actuary using the projected unit credit method.
Actuarial gains and losses arising from past experience and changes in actuarial assumptions are charged or credited to the Profit and loss account in the year to which such gains or losses relate.
iii) Compensated absences
Liability in respect of compensated absences becoming due or expected to be availed within one year from the balance sheet date is recognised on the basis of undiscounted value of estimated amount required to be paid or estimated value of benefit expected to be availed by the employees. Liability in respect of compensated absences becoming due or expected to be availed more than one year after the balance sheet date is estimated on the basis of an actuarial valuation performed by an independent Actuary using the projected unit credit method.
iv) Other short term benefits
Expense in respect of other short term benefits is recognised on the basis of the amount paid or payable for the period during which services are rendered by the employee.
Assets subject to operating leases are included under fixed assets or current assets as appropriate. Lease income is recognised in the profit and loss account on a straight-line basis over the lease term. Costs, including debrciation, are recognised as an expense in the profit and loss account.
15. Impairment of assets
The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount and the reduction is treated as an impairment loss and is recognised in the profit and loss account. If at the balance sheet date there is an indication that a brviously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of debrciated historical cost and is accordingly reversed in the profit and loss account.
16. Contingent liabilities
Depending upon the facts of each case and after due evaluation of legal aspects, claims against the Company not acknowledged as debts are treated as contingent liabilities. In respect of statutory dues disputed and contested by the Company, contingent liabilities are provided for and disclosed as per original demand without taking into account any interest or penalty that may accrue thereafter.
17. Earnings per share
Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to equity shareholders (after deducting brference dividends and attributable taxes) by the weighted average number of equity shares outstanding during the period. The weighted average number of equity shares outstanding during the period are adjusted for events including a bonus issue; bonus element in a rights issue to existing shareholders; share split; and reverse share split (consolidation of shares).
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
NOTES ON ACCOUNTS
1. Share capital
a) Share capital includes:
a. 5,877,850 equity shares of Rs. 21- each (originally 1,175,570 shares of Rs. 10/- each) fully paid were allotted pursuant to a scheme of amalgamation of DLF United Limited with the Company, without payment being received in cash.
b. 1,338,243,445 equity shares of Rs. 2 each fully paid issued as bonus shares after capitalisation of free reserves and share brmium account.
b) On 17th April 2005, the Board of Directors approved conversion of 25, 2% Unsecured Optionally Convertible Debentures into equity shares of Rs. 100 each, at par, by issuing 10 equity shares of Rs.10/- each for each debenture held.
c) On 2nd May 2006, the Company issued 264,377,729 equity shares of Rs. 10 each/ - as bonus shares by issue of seven equity shares of Rs. 10 each for 1 equity share of Rs. 10 each held by the shareholders on record as on 27th April 2006, these bonus shares were issued out of the entire share brmium account and the balance out of the General Reserve and profit and loss account. Simultaneously, the Company sub-divided each equity share of face value of Rs. 10 into five equity shares of Rs. 2 each.
2. Secured loans
a) Facilities with banks comprise, term loans and overdraft facilities which are secured by equitable mortgage of certain lands of the Company/ subsidiary Companies or against future receivables of the Company. Aircraft and Vehicle loans are secured by hypothecation of the aircraft and vehicles thus purchased.
b) Loan from others is secured by equitable mortgage of certain lands of some subsidiary/ group companies.
c) Loans due with in one year Rs. 1,22,863.44 lacs (brvious year Rs. 63,004.52 lacs)
3. Unsecured loans
a) Fixed deposits include unclaimed .deposits amounting to Rs. 0.27 lacs (brvious year Rs. 1.28 lacs) which are not due for credit to "Investor Education and Protection fund".
b) Loans due with in one year Rs. 52,647.77 lacs (brvious year Rs. 296.89 lacs)
4. Fixed Assets
Leased plant and machinery included in fixed assets is pending transfer to the lessee on fulfilment of certain conditions against which security of an equivalent amount is lying with the Company. Accordingly, no debrciation is being charged on these items.
Previous year investments include investment in 9% unsecured debentures of Rs. 500 each fully paid up, redeemable or convertible into equity shares at par on or before 20 years, at the option of the Company.
7. a) The profit/loss from sale of developed plots in DLF City, Gurgaon (Complex) is accounted for in the year of execution of the agreements to sell. The Complex comprises lands owned by the Company as also those under agreements to purchase entered into with subsidiary/ coordinating companies. In terms of such agreements, the Company has purchased 3.06 lacs sq. mts. of plotted area during the year (Previous year 4.44 lacs sq. mts.) from the land owning companies consequent to registration of the sale deeds/ transfer of ownership in favour of the customers at the average cost of land to the Company and/ or the land owning companies. The Company has also purchased during the year 0.01 lac sq mts (brvious year 0.14 lacs sq. mtr.) commercial properties from subsidiary/ coordinating companies. The average estimated internal development costs and external development charges, in respect of the plots sold have been written off in terms of accounting policy no. 9 stated in schedule 23. Final adjustment, if any, will be made on completion of the applicable scheme/ project.
b) In respect of houses, flats etc. the construction work of which was substantially completed upto 31st March 1991, revenue is recognised proportionate to sale proceeds, the cost of construction for which has been determined by excluding the cost of land based on market price brvailing at the time of booking of such properties.
c) The profit/ loss from sale of agricultural land comprising land owned by the Company and its subsidiary/coordinating companies, covered under agreement to sell the land to the Company is accounted for on execution of the sale agreements in favour of the customers. The Company has purchased during the year 10.01 acres of land (brvious year 15.20 acres) from the land owning companies, consequent to registration of the sale deeds/ transfer of ownership in favour of the customers at the average cost of land to the Company and/ or the land owning companies.
d) In terms of the agreement with DLF Housing and Construction Limited and Mayur Recreational and Development Limited (merged, effective from 1st April 2003, with Nachiketa Real Estates Limited, as per the order of the Hon'ble High Court of Delhi dated 9th July 2004) the Company has agreed to develop their lands alongwith its own lands at Loni (Ankur Vihar) into a colony. In terms of the said agreement, the Company is entitled to realise and retain the entire sale proceeds and against the same to pay the cost of land, incidentals etc. plus a sum of Rs. 0.10 lacs per acre to the aforesaid land owners on registration of the properties and revenue is recognised on proportionate realisation basis.
In respect of Dilshad Garden II Scheme, the profit/loss on sale of developed plots is accounted by adjusting cost proportionate to the realisations made.
e) In terms of the resolution passed by the board of directors in their meeting held on 28th March 2006, the Company on 3rd November 2006 has entered into an agreement to sell with one of its wholly owned subsidiary company namely, DLF Home Developers Ltd.. ("DHDL") to sell the sale area consisting of 300 lacs sq. ft. built up area under construction / to be constructed. Further, DHDL will complete all the finishing work before selling the same to its customers.
In terms of the accounting policy no. 6 on revenue recognition, revenue of this agreement to sell is being recognised based on "percentage of completion" method.
f) The company has entered into business development agreements with DLF Commercial Project Corporation and Rational Builders & Developers (Partnership Firms). As per these business development agreements, the company has acquired sole irrevocable development rights in land which are acquired / to be acquired by these firms.
In terms of accounting policy no 5 of schedule 23 the advances given against these business development agreements are classified as stock/loans and advances, as applicable.
8. Pursuant to the Guidance note on Recognition of Revenue by Real Estate Developers, issued by the Institute of Chartered Accountants of India ("ICAI"), the Company has changed the accounting policy for recognising revenue in respect of plots/ agricultural land including those covered under Agreement to sell entered into with subsidiary/ coordinating companies, from the year of registration of the sale deeds of the plots to the year of execution of the agreement to sell. Had the Company followed the earlier method of recognising revenue in the year of registration of the sale deeds of the plots, revenue would have been lower by Rs. 736.29 lacs, cost of revenue would have been lower by Rs. 373.03 and accordingly profits before tax would have been lower by Rs. 363.26 lacs.
9. Consequent to sale of constructed properties recognised during the year, a sum of Rs 139.59 lacs being proportionate capital reserve created, on conversion from fixed assets to stock, has been credited to the Profit and Loss account.
10. The Company accrues construction costs under individual vendor contracts based on invoices received from the respective vendors. Accordingly, construction cost as at the balance sheet date is accrued upto the last joint measurement date of the respective contracts immediately brceding the balance sheet date as management believes that the Company's obligation under these contracts arises only when joint measurement is completed.
11. Amounts based on estimates not provided/ under provided in brvious years are accounted for in the year of final settlement or adjustment.
12. During the year ended 31st March 2007, the Company adopted the provisions of revised Accounting Standard 15 on "Employee Benefits, issued by the ICAI applicable for accounting periods commencing on or after 7th December 2006. However, the Company adopted the standard with effect from 1st April 2006 as an earlier adoption of the standard. In accordance with the transitional provisions of Revised AS 15, additional liability (net of tax) under new method as at 1st April 2006 as compared to liability provided under Pre-revised AS 15 is adjusted against the opening balance of General Reserve. (Refer note 18)
13. The scheme of amalgamation of DLF Power Limited, DLF Phase IV Commercial Developers limited with the Company was approved/ sanctioned by the respective High Courts within the jurisdiction of respective registered offices were situated. However, the order of the H'onble High Court of Punjab and Haryana could be filed by the Company with the concerned Registrar of Companies after the expiry of the period brscribed under the Companies Act, 1956. However, the Company had not sought condonation of delay in the filing of the order of the said H'onble High Court with the concerned Registrar of Companies as the Company has abandoned the scheme by not implementing the same as per law. Accordingly, the said Registrar of Companies has treated the said application for filing the order sanctioning the scheme as withdrawn/cancelled and communicated the same to the Company by its letter dated 9th March 2007. The order passed by the High Court of Delhi was not filed with the concerned Registrar of Companies. Since the said order has not been filed and taken on record, and the same is also treated as withdrawn/cancelled and abandoned by the concerned Registrar of Companies, the said scheme for amalgamation/merger could not come into effect.
14. During the year ended 31st March 2007, the Company entered into an agreement with IL&FS Trust Company Limited ("IL&FS" or the "Irust") for assigning the receivables amounting to Rs. 54,276.73 lacs ,of the Belaire project (the "Project") in favour of IL&FS. In consideration of the above assignment, the Company received Rs, 48,297.82 lacs being the Net Present value of the receivables of the project from the Trust. Further to the above agreement, the Company entered into a collection agency agreement with IL&FS for collecting the payments from the customers and paying the same to the Trust. The finance cost on the above transaction is being accounted for by the Company over the tenure of the agreement.
15. During the year ended 31st March 2007, the Company pledged 29.80625 acres of land [along with M/s. Chandrajyoti Estate Developers Pvt. Ltd. (a subsidiary company) who has pledged 7.1875 acres of land] with IDBI Trusteeship Services Limited as collateral security against an undertaking given by the Company to buy back brference shares subscribed by LB India Holding Mauritius II Limited in one of the subsidiary companies - M/s. Shivaji Marg Properties Limited.
16. During the year ended 31st March 2007, the Company has given an undertaking to M/s Kidson Pte. Ltd. to buy back brference shares subscribed in DLF New Gurgaon Homes Developers Private Limited (Formerly Caitlin Builders and Developers Private Limited) (an associate company) against which collateral security has been given by DLF Cyber City Developers Limited (a subsidiary company) who has pledged 23.78 acres of land with IDBI Trusteeship Services Limited
18. Employee benefits
In accordance with the transitional provisions of Revised AS 15, additional liability (net of tax) under new method as at 1st April 2006 as compared to liability provided under Pre-revised AS 15 is adjusted against the opening balance of Profit and loss account. The Company does not maintain any fund to pay for gratuity.
B. Provident fund
The Company makes contribution to statutory provident fund in accordance with Employees Provident Fund and Miscellaneous Provision Act, 1952. This is post employment benefit and is in the nature of defined contribution plan. Contribution made by the Company during the year is Rs. 101.95 lacs, (brvious year Rs. 57.00 lacs)
19. The Company is engaged in the business of colonisation and real estate development, which as per Accounting Standard 17 on "Segment Reporting" issued by the ICAI is considered to be the only reportable business segment. The Company is operating India which is considered as a single geographical segment.
20. No companies have been identified under The Micro, Small and Medium Enterprises Development Act, 2006. The above disclosure has been determined to the extent such parties have been identified on the basis of information available with the Company. This has been relied upon by the auditors.
21. Employees Stock Option Scheme, 2006
In the Extra ordinary General meeting held on April 20, 2006, member approved the Employee Stock Option Scheme (the "Scheme") of the Company for grant of 3,500,000 equity shares as options to its eligible employees. Subsequently, in the extra ordinary meeting held on January 4, 2007, the number equity shares as options increased from 3,500,000 to 170,000,000. Further, certain provisions of the scheme were amended vide resolution passed in the Extra ordinary general meeting held on February 15, 2007.
22. Events occurring after the Balance'sheet date
a) Company has entered into the following significant/ strategic ventures subsequent to 31st March 2007:
• Memorandum of Cooperation with "Fragport AG Frankfurt Airport Services Worldwide" for the purposes of airport design, construction and development of airport.
• Joint Venture with "Haryana State Industrial and Infrastructure Development Corporation Limited" for the purpose of development of multi-product Special Economic Zones in Gurgaon and Ambala.
• Joint Venture with "Bharat Hotels Limited" through Eila Builders and Developers Private Limited, one of its subsidiaries, for the purpose of developing hotels in Chandigarh.
• Joint Venture with "Prudential International Investments Corporation" to form an Asset Management Company.
b) On 18th May 2007, a special committee of the Board of Directors, in pursuance of approval granted by the shareholders in the Extra-Ordinary General Meeting held on 14th November 2006, affected the issue of :-
• 1,029 2% Unsecured Optionally Convertible Debentures of Rs 100 each;
• Conversion of these debentures into fully paid 51,450 equity shares, at par, by issuing 50 equity shares of Rs. 21- each for each debenture held.
• Issue of 360,150 equity shares as bonus shares in the ratio of 7 equity shares against each of these equity shares by capitalising an equal amount from the general reserves.
c) Subsequent to the year end, the Company successfully completed its Initial Public offer. The Company allotted 175,000,000/- Equity Shares of Rs 21- each at a price of Rs 525/- per share on June 28, 2007. The Equity shares of the Company listed on 5th July 2007 for trading on Bombay Stock Exchange Limited and National Stock Exchange of India Limited.
23. Previous year figures have been regrouped/ recast wherever considered necessary to make them comparable with those for the current year. The schedules referred to above form an integral part of the financial statements.
On behalf of the Board of Directors
Rajiv Singh - Vice Chairman
T. C. Goyal - Managing Director
K. Swarup - Executive Director- legal
Ramesh Sanka -Sr. Executive Director (Finance) and Group Chief Financial Officer
Hari Haran - Company Secretary cum Chief Executive (Corporate Affairs)
Place: New Delhi
Dated: July 19, 2007