The financial statements have been prepared as per the convention of historical cost accounting on the accrual basis. Significant accounting policies are as follows.

a) Amalgamation SITEL through Amalgamation with the Company

In exercise of the powers conferred under Section 18(4) of the Sick Industrial Companies Special Provisions Act, 1985 (SICA), the BIFR has, subsequent to the final hearing held on 6.3.95 for the erstwhile SITEL, sanctioned a scheme for its amalgamation vide their order dated 10.3.95..

As per the said order, the amalgamation entries have been passed in the books of accounts for the period April-94 to June-95. However, though the amalgamation was effected, the BIFR Scheme thereto could not take off due to factors and circumstances beyond the control of the Company and its management. In view of the same, BIFR directed IDBI, as the Operating Agency (OA) for SITEL, to finalise a modified amalgamation scheme based on the revised proposals forwarded by the company and consensus to be arrived at by OA with the Banks, Financial Institutions concerned and the Company. Accordingly, the IDBI submitted the modified scheme to BIFR for its sanction in April `97.

In view of the original scheme not having been effectively implemented and now involving substantial induction of fresh funds, the Directors have decided not to amortise the Goodwill in the year under question. The same would be taken into account only on pro-rata basis after the modified scheme is put into actual operation.

As per the erstwhile scheme of amalgamation, the company has effected the first two tranche of conversion of FCDs while the balance 1/3rd tranche FCDs convertible on 1-4-97 is now repayable in 4 quarterly instalments commencing from 1st January 1988 in view of the guidelines of Reserve Bank of India regarding limit of investments by banks and hence included as secured loans. Interest to banks and institutions of erstwhile SITEL units have been provided as per the sanctioned amalgamation scheme pending approval of the modified scheme by BIFR. Had the interest been provided as per the modified scheme, the charge to the profit and loss account would have been higher by Rs.13,200

b] Fixed assets and depreciation

Fixed assets are stated at historic cost or replacement cost as specified by a Government approved valuer, less accumulated depreciation. The company has capitalised assets acquired under lease finance and hire purchase agreements. Depreciation is provided on straight line method for the period of use at the rates specified in schedule XIV of the Companies Act, 1956 as amended by the notification dtd. 16.12.93 on the assets as on 1.7.1995 as also on subsequent additions.

Extra shift depreciation is provided on plant and machinery (excluding electrical installation and air-conditioning plant), based on the proportion of extra shift days worked by the concerned department/section to normal working days.

The Company follows the policy of depreciating assets acquired under finance leases and hire purchase agreements to the extent that there is a reasonable certainty that the company will obtain the ownership of such assets at the end of the finance lease/hire purchase term at the above rates or over the term of the finance/hire purchase agreement whichever is shorter.

In respect of Dombivli & Nasik, depreciation is charged on written down value method on the fixed assets acquired prior to 31.12.72 whereas it is charged on straight line method basis on the estimated useful life of the fixed assets acquired after 1.1.1973 at the rates specified in Schedule XIV of the Companies Act, 1956.

c) Inventories

Inventories are priced at the lower of first-in-first-out cost or net realisable value. Inventories for the closed unit is on the basis of available information prior to closure..

d) Sales and services

Sales and services represents amounts billed for goods sold and services rendered exclusive of excise duty, and net of all discounts, returns and allowances.

e) Gratuity

In view of the insurance policies taken from LIC of India for Group Gratuity Insurance Scheme for employees being not in force and in partly paid up condition due to non-payment of premium, the Company hears the liability for the differential amounts in respect of gratuity scheme for the period for which the cover was available and also for subsequent period as per the scheme till 30th June'96 Rs.11,627 have been provided pending payment, as per Company's own valuation on the basis of the working by LIC of India till 31.3.1994

f) Product development expenditure

The Company continues to follow the strategy of introducing a large number of nets' and substantiality improved products both of its own design and based on know-how acquired from technical collaborators. As the Company's research & development efforts have started to mature into identifiable products which are both technically and commercially viable, the Company has deferred the cost of individual product development which are expected to yield substantial benefits in the future. Development costs are amortised from the commencement of the commercial production with reference to the expected commercial life of the assets and considering the period over which the costs are to be recovered. Research & Development costs which are not separately identifiable or where the technical/commercial viability of products has not been established are charged to profit and loss account in the year in which they are incurred.

(g) Foreign currency transactions

Foreign currency transactions relating to acquisition of fixed assets acquired for the overseas offices have been translated at the original rate and for all other assets, liabilities, income and expenses, wherever applicable, at the rate prevailing at the year end.

The exchange difference on translation is adjusted to the cost of fixed assets where the foreign currency liability relates to those fixed assets and for other assets, liabilities, income and expenses to the profit & loss account. However, the net exchange gain, if any, on translation of assets and other than those relating to overseas office is not taken into account while the exchange loss, if any, is charged to revenue.

Realised gain or loss on foreign exchange transactions relating to current assets and liabilities are recognised in the Profit & Loss Account. All current assets & liabilities are translated at the rate of exchange prevailing on 30th June, 96.

(h) Miscellaneous

No adjustments have been made in respect of interest payable/receivable for transactions on deferred payment basis for unexpired period, amount whereof being indeterminate.

In view of

i) the modifications to the BIFR scheme providing no payment of penal interest on overdues.

ii) the depressionary trend of interest rates and

iii) the on going discussions and settlement proceedings with the Non-Banking Finance Companies (NBFC's) in respect of the lease/hire purchase dues and delayed interest thereon and with the expected positive outcome of the same, the delayed payment charges in respect of overdue lease/hire purchase instalments have been provided @ 18% pa. irrespective of the contractual applicable rates.

Export incentives and refund of Excise Duty including on materials purchased for export are accounted for on the basis of claims which are subject to confirmation, realisation and adjustment of short provision for earlier years, if any.