Warranties:

Warranty estimates are established using historical information on the nature, frequency and average cost of warranty claims and also management estimates regarding possible future outflow on servicing the customers for any corrective action in respect of product failure which is generally expected to be settled within a period of 1 to 2 years from the date of supply. Onerous contract:

Provision for onerous contract represents the loss assessed by the company on its executory sale contracts. Such loss will be provided as and when the assessment is made, by the company during the course of execution / at the inception of such contracts. The provision is reviewed periodically.

Future charges:

Provision for future charges represents the estimated liability on account of revised ancillary/ packing material accepted to be delivered in lieu of ancillary/ packing material originally stipulated in the contract terms for the sales effected earlier and value of spares sent to forward location on user request for serviceability to avoid breakdown in emergency situations.

Note 38: General Notes:

Statement of Compliances:

The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS) [as notified under the section 133 of Companies Act, 2013 (the “Act”) read with Rule 3 of Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act.

38(1) Impairment Loss - Exceptional Items

The Company tests for impairment at least annually and more frequently when there is an indication of impairment. An impairment loss is recognized if the recoverable amount is lower than the carrying value.

The company has acquired 553 Acres 34 Guntas at Amravati on lease basis for one of its projects. One of the main condition is, if the factory building and works are not completed within 60 months from the date of allotment, unless the time is extended, the lease agreement may be cancelled and the lessor may take possession of the leasehold land together with all the erections, if any, on the said land, without paying any compensation to the company. The period of extension last extended was upto 5^th April, 2019. As the project for which the lease was obtained has not been confirmed by Ministry of Defence (MoD), the company could not commence / complete the activities envisaged in the lease agreement leading to non compliance of the agreement. In the meantime, the company received a notice seeking reply as to why the action provided in the lease agreeemnt should not be taken. Explaining the force majeure condition the company represented to the state government for condonation of delay and extension of time. Pending receipt of extension of time period, the company has provided for impairment amounting to 7 3358.57 lakh during 2021-22 in respect of the leasehold land and the infrastructure created therein as detailed below.

38(3) Employment Benefit obligations (i) Post-employment obligations- Gratuity

The company provides for gratuity for employees in India as per the payment of Gratuity Act, 1972. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of gratuity payable on retirement/termination is the employees last drawn basic salary per month computed proportionately for 15 day's salary multiplied for the number of years of service. The gratuity plan is a funded plan and the Company makes contributions to a separate trust. The company does not fully fund the liability and maintains a target level of funding to be maintained over a period of time based on estimations of expected gratuity payments.

The above sensitivity analysis are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as and when calculating the defined benefit liability recognised in the balance sheet.

Defined benefit liability and employer contributions

The Gratuity Trust has purchased insurance policy to provide for payment of gratuity to the employees. Every year, the insurance company carries out a funding valuation based on the latest employee data provided by the Company. Any deficit in the assets arising as a result of such valuation is funded by the Company. The company considers that the contribution rate set at the last valuation date is sufficient to eliminate the deficit over the agreed period and that regular contributions, which are based on service costs will not increase significantly.

Risk exposure

Through its defined benefit plans, the company is exposed to a number of risks, the most significant of which are detailed below:

Interest Rate Risk: The defined benefit obligation calculated uses a discount rate based on government bonds. If bond yields fall, the defined benefit obligation will tend to increase.

Salary Inflation risk : Higher than expected increases in salary will increase the defined benefit obligation.

Demographic Risk: This is the risk of variability of results due to unsystematic nature of decrements that include mortality, withdrawal, disability and retirement The effect of these decrements on the defined benefit obligation is not straight forward and depends upon the combination of salary increase discount rate and vesting criteria. It is important not to overstate withdrawals because in the financial analysis the retirement benefit of a short career employee typically costs less per year as compared to a long service employee.

(ii) Provident Fund

Provident Fund Trust of the Company has to declare interest on Provident Fund at a rate not less than that declared by the Employees’ Provident Fund Organisation. In case the Trust is not able to meet the interest liability, Company has to make good the shortfall. This is a defined benefit plan and the Company has got the same acturially valued.

Company has provided an amount of Nil (^ 845.10 lakhs during 2021-22) towards interest shortfall of the provident fund trust for the current year which has been recognised in Statement of Profit and Loss.

38(7) Details of short closed projects:

Out of the advances of 7 36234.42 Lakh (as at March 31,2022 7 36234.42 Lakh) received from the customers, in respect of five contracts/ indents and one LOI which are short closed, the Company has made payments to suppliers for procurement of Special Tools and Equipment and Inventory. Against these payments, Special Tools and Equipment (Note 1) include an amount of 7 114.05 Lakh (as at March 31,2022 7114.05 Lakh), Current Assets (Note 10-16) comprises an amount of 7 11041.65 Lakh (as at March 31,2022 7 11041.65Lakh) in Advances to vendors and 7 8350.75 Lakh (as at March 31,2022 7 9446.00 Lakh) in Inventories, total amounting to 7 19506.45 Lakh (as at March 31,2022 7 20601.70 Lakh). As these assets had been acquired/expenditure had been incurred by the company based on firm orders/ LOI and out of the funds provided by the customer, no loss devolves on the company on account of long outstanding advances and non-moving Special Tools and Inventory. Hence, no provision is considered necessary. Further, in respect of these short closed Indents/contracts/LOI, the company approached the customers for compensation of 7 1908.11 lakh (as at March 31,2022 7 1908.11 lakh) being the net amount of expenditure after adjustment of the available advance. Hence, for want of finalisation of the amount from the Government/ Customers, no claim/ impact on profit has been accounted in the books.

38(11) Retention Sales:

The value of the retention sales (i.e., goods retained with the company at the customers’ request and at their risk) included in gross turnover during the year is 7 90,485.78 lakh (7 90,187.51 lakh during the year 2021-22). Out of which 7 57,547.95 lakh (7 59653.86 lakh during 2021-22) pertains to contracts on FOR-Destination basis. The contract provides for retention of goods in certain circumstances mentioned therein. In respect of 7 32937.83 lakh, though the contracts are on FOR-destination basis, the customer has allowed the company to recognise a sale and hold the material.

38(12) Charges registered:

Company has registered floating charge with State Bank of India and Union Bank of India to the extent of 7 60,000.00 lakh (as at March 31,2022 7 41,010.00 lakh) on current assets.

38(13) Operating Cycle:

As per the requirement of Schedule III to the Companies Act, 2013, the operating cycle has been determined at the product level as applicable.

Fair value hierarchy:

Fair value of the financial instruments is classified in various fair value hierarchies based on the following three levels:

Level 1: Quoted prices (unadjusted) in active market for identical assets or liabilities.

Level 2: Inputs other than quoted price including within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

Level 3: Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case with listed instruments where market is not liquid and for unlisted instruments.

Valuation technique used to determine fair value:

Specific valuation techniques used to value financial instruments include:

• The fair value of unquoted equity instrument are determined with respect to the net worth of the company.

• During the year 2021-22, APGPCL i.e., the company in which BDL had invested in equity, received an adverse arbitration award. The implementation of which is likely to erode the networth of APGPCL. Accordingly Fair value of the investment is considered as ‘Nil’.

• The fair value of 45 years deferred credit and receivables is determined using foreign exchange rates as per the contract.

38(16) Financial Risk Management:

The Company’s activities expose it to market risk, liquidity risk and credit risk. The analysis of each risk is as follows:

A) Credit risk

Credit risk arises from cash and cash equivalents, instruments carried at amortised cost and deposits with banks, as well as credit exposures to customers including outstanding receivables.

(i) Credit risk management

A. Credit risk on cash and cash equivalents is limited as the Company generally invest in deposits with banks with high credit ratings assigned by external agencies.

B. Credit risk on claims/refunds receivables, trade receivables and unbilled revenues are evaluated as follows:

(iv) Significant estimates and judgements:

Impairment of financial assets:

The impairment provisions for financial assets disclosed above are based on assumptions about risk of default and expected loss rates. The company uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

B) Liquidity Risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding to meet obligations when due and to close out market positions. Company’s treasury maintains flexibility in funding by maintaining availability under deposits in banks.

Management monitors cash and cash equivalents on the basis of expected cash flows.

38(17) Segment information:

As the Company is engaged in defence production, exemption was granted from applicability of Accounting standard on Segment reporting under Sec 129 of Companies Act 2013 vide Notification dated 23rd February 2018 of Ministry of Corporate Affairs.

38(19) Grant for Solar Plant:

The Company has implemented two Solar Plants of 5 MW each under Jawahar Lal Nehru National Solar Mission (JNNSM) scheme. Viability Gap Fund (VGF) is accounted based on project cost as per the contracts. An amount of ^ 1545.89 Lakhs is accounted as VGF and disclosed under Deferred Revenue (Note No. 22) in the books of the Company. Deferred Revenue @4% p.a amounting ^ 61.83 Lakhs is recognized as from Solar Plant.

38(20) Disclosures under Ind AS 115: Revenue from contracts with customers A Satisfaction of performance obligation

i. In majority of the contract performance obligation is satisfied “at a point in time” which is primarily determined on customer obtaining control of the asset. Performance obligation in respect of contract involving supply , Installation and commissioning of complex system is recognised “over a period of time”

ii. Under “Bill and hold” arrangement performance obligation is satisfied on unconditional appropriation of the goods to the contract on acceptance by the customer.

iii. Company’s Contract normally do not contain significant financial component and any advance payment received and /or amount retained by customer is with intention of protecting either parties to the contract.

iv. Variable consideration primarily consist of amount receivable/reimbursable against foreign exchange variation clause and liquidated damages. The amount of revenue recognised in respect of the same is determined based on the methodology specified in the contract . The amount is recognised as revenue based on contractual terms.

v. The company’s turnover mainly includes supply of missiles and allied defence equipments.

vi. Warranties provided are primarily in the nature of performance warranty.

vii. The company normally uses the input method to recognise revenue is respect of contracts in which performance obligation are satisfied over a period of time. For arriving at the quantum of revenue to be recognised the percentage of completion method is adopted where in the percentage of actual cost incurred to total estimated cost is applied to the contract price for arriving at the quantum of revenue to be recognised. The company’s contract (other than AMC) in respect of which revenue is recognised over a period of time typically involves multiple activities of different nature like construction of building, supply and installation of equipments etc. Due to this it is not possible to quantify in physical terms the quantum of work done (i.e., output) reliably . Where as, under input method , the cost incurred in respect of these varied activities can be captured and compared to the total estimated cost to be incurred (which can be estimated reliably) , for arriving at the percentage of completion. In case of AMC contracts, output method is used to recognise revenue where passage of time is the criteria for satisfaction of performance obligation.

viii. For revenue recognition in respect of performance obligation satisfied at a “point in time” the following criteria is used for determining whether customer has obtained “Control on asset”

• Terms of delivery as per the contract

• Customer has legal title to the asset

• The entity has transferred physical possession of the asset

• Customer has accepted the asset

• Entity has the present right to payment for the asset

ix. Transaction price is typically determined based on contract entered into with customer. Allocation of transaction price in respect to multiple obligations is based on relative standalone selling price which is arrived at based on the latest contract available for similar item sold.

B The fair value of investment property is not based on the valuation by a registered valuer as defined under rule 2 of Companies

(Registered Valuers and Valuation) Rules, 2017. However, the same is being calculated as per the records of Registration Department of State Government.

C Company has not revalued any of its Property, Plant and Equipment or Intangible Assets during the current reporting period.

D Company has not granted any Loans or Advances in the nature of loans to any of its promoters, directors, KMPs and the related

parties (as defined under Companies Act, 2013), either severally or jointly with any other person.

G There are no proceedings initiated or pending against the company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules made there under.

H Company has no borrowings from banks or financial institutions on the basis of security of current assets. Company is not declared wilful defaulter by any bank or financial Institution or other lender.

I Company has no transactions with companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956.

J Company has no charges or satisfaction yet to be registered with ROC beyond the statutory period.

38(22) There are no transaction which are not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961.

38(24) Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.

38(25) Impact of Russia-Ukraine war:

Due to the ongoing Russia-Ukraine war there are delays in receipt of certain electronic components and critical explosive materials from OEMs which have impacted the performance during the year and company is exploring alternatives to mitigate the impact.

38(26) Code on Social Security,2020:

The Code on Social Security , 2020 (Code) relating to employee benefits during employment and post employment benefits received Presidential assent in September 2020. The Code has been published in the Official Gazette of Government Of India. However, the date on which the Code will come into effect has not been notified. The Company will evaluate the impact and will give appropriate impact in the financial statements in the period in which, the Code becomes effective.

38(27) impact due to change in Accounting policy on Customer financed assets:

Hitherto the company has been recognising the revenue in respect of cutomer financed assets in proportion to the depreciation. In view of the recent opinion of Expert Advisory Committee of ICAI on accounting treatment of assets funded by customer, the company revised its accounting policy on customer financed assets. As per the opinion / revised policy, the revenue in respect of funds received from the customer for the assets procured by the company should be recognised as or when the control over the assets is transferred to the customer in line with the requirements of Ind AS 115. In respect of assets funded by the customer but the company obtains control over such assets are treated as non-cash consideration and revenue is recognised in proportion to the existing order quantity plus additional quantity, if any, for which orders are anticipated on the date of receipt of the contract from customer. Existing contracts were reviewed and necessary changes were made. Impact of change in accounting policy is tabulated below: