Saturday, 23 June 2012

Whats in a Name ?

Information about Mumbai....

Ever wondered why there is no church at Churchgate? Why Dhobi Talao has no water? Why we can find no lady's fingers at Bhendi Bazaar?


Many other stations too have logical roots in history - named either after legendary people, age-old traditions or businesses carried on in the area or for unknown reasons.
The Western Railway's suburban section in Mumbai stretches from Churchgate, the city's business centre, to Virar covering a span of 60km and 28 stations. The section was further extended upto Dahanu Road adding 10 more stations and another 60km. What began as a steam traction way back in April 1867, with one train each way between Grant Road and Bassien Road, was extended upto Churchgate in 1870,and by 1900, 44 trains on each way were carrying over one million passengers annually. Today more than 6 million people travel per day on the Mumbai suburban section alone, of which, Western Railway carries approximately 3 million passengers per day.
CHURCHGATE STATION
Churchgate was named after the old Church Gate demolished in the mid-1860s which was one of the three main gates to the Fort - the gate that afforded entry to St. Thomas' Church. When the station was built in close proximity to the position of the demolished outer gate, it was considered logical to name it after this antique urban object d'art. The ancient gate stood as an entrance to the church on the spot that flora fountain stands today. It formed the boundary of south Mumbai in the 16th centuries. One of the busiest stations today, the first train here is timed at 4 am and the last one leaves the station at 1 am.
CHARNI ROAD
The name is derived from the fact that Charne in Marathi applies to grazing and in the earlier days grazing lands for horses and cattle were located nearby. The main significance of Charni Road station is that it is very near to the Girgaum Chowpatti, a major destination for tourists and south Mumbai residents looking for a peaceful walk on the beach. According to another theory, the name Charni or Chendni was brought to this area from Thane. A locality near Thane Railway station is called Chendni and many of its inhabitants settled in Girgaum and so renamed the settlement after their old home.
GRANT ROAD
This station is named after Sir Robert Grant, who was the Governor of Bombay between 1835 and 1839, who was responsible for the construction of the Thane and Colaba causeways. Grant Road station is the most centrally located arterial station in South Mumbai and easily connects to all prominent place such as Gaumdevi,Girgaum Chowpatty, Babulnath, Malabar Hill, Peddar Road, Nepean Sea Rd via Nana Chowk on the West, to Duncan Rd, Dongri, Byculla(Central Railway)via Maulana Shaukatali Road and to Khetwadi, C P Tank, Mumbadevi, Mandvi, Bhuleshwar, via Sardar Vallabhai Patel Road. The road after which this station is named (now Maulana Shaukat Ali Road) was built around 1839 when its surroundings were virtually open country.
MAHALAKSHMI
The Mahalakshmi station is named after the Mahalakshmi temple.
LOWER PAREL
The area of Parel is named after the paral or padal, the trumpet-flower tree which once grew profusely in the area. According to another scholarly theory, Parel is a shortened form of Parali, a name given by the Panchkalshi community to commemorate the shrine of Vaijnath Mahadeo (Shiva) at Parali in the Deccan. Parel was one of the original seven islands that formed Mumbai. It belonged to the 13th century kingdom of Raja Bhimdev. When the Portuguese conquered Bombay, they gave the authority of this area to the Jesuit priests, who replaced the Parali Mahadev temple with a church and a convent. They remained with the Jesuits until they were confiscated by the British, when the priests sided with the Sidis during their battle with the British in 1689 and spelt the area as Parell.
ELPHINSTONE
Elphinstone Road, named after Lord Elphinstone, the Governor of Bombay from 1853 to 1860, is a railway station on the Western line of the Mumbai suburban railway. The road after which this station gets its name is now called Bhatankar Marg. It was formerly named after John, Lord Elphinstone the Governor of Bombay from 1853 to 1860. The city's progress in the 1850s and 1860s was due to the insight of this Governor and his successor, Sir Bartley Freer.
MATUNGA
According to one belief the word Matunga originates from the Marathi word, matang or elephant, owing to the belief that tuskers from Raja Bhimdev's army were stationed in the area around the 12th century. During the British Raj, Matunga served as an artillery station but was abandoned by 1835 except for a couple of small hamlets housing the descendants of former menials at the military camp.
MAHIM
Mahim was one of the seven islands that originally made up Mumbai. Mahim, or Mahikawati as it was known, was the capital of Raja Bhimdev in the 13th century. He built a palace and a court of justice in Prabhadevi, as well as the first Babulnath temple. The original Mahim town is located near Palghar about 60 miles north of Bombay. The ancient temple of Mahim or Mahikawati still exists there. The epic Ramayana mentions that when Ram and Laxman were captured by Ahiravan and Mahiravan, they were imprisoned in this temple. They were rescued by Hanuman from here. As it is known to the people who live in this beautiful village of Mahim; that after Raja Bhimdev lost his capital, i.e. Mahim, to another king, he established his new capital in the present Bombay region giving it the same name Mahim. This fact is not known to most people. Mahim is also the name of a prominent Iranian family, whose members reside in both Iran and Canada.
BANDRA
Bandra is a possibly an altered pronunciation of 'Vandre', a Marathi name. There are other views on the origin of the name: like its relation to some Portuguese princess and it being derived from "Bandar-gah" in Hindi, which means port. Vandre in Marathi and Bandar in Hindi both mean port and come from the same Sanskrit root word. It is referred to as "Bandora" in the writings of Mount Stuart Elphinstone of the English East India Company which describes the acquirement of the island of Salsette. Bandra remained a sylvan village dotted with thatched cottages. Known as the Queen of the suburbs, Bandra has much to offer in terms of sightseeing, shopping and gourmet dining.
KHAR
KHAR ROAD. The area is often called Khar-Danda - khar in Marathi means salt, danda is a thick, short stick while dandi is a strip of land running out to sea.
SANTACRUZ
It is derived from the Latin word Santa Cruz meaning Holy Cross. It was formerly called by local villagers as Khulbawdi - wherein khul implies a mortar and also a yard, and bawdi or bowri meaning a well. Santa Cruz (Holy Cross) was so named by its large population of Salsette East Indian Christians after a crude wooden cross that they erected on a hilltop. One fine day, the wooden stump of this cross is believed to have begun sprouting leaves miraculously enough.
VILE PARLE
The name 'Vile Parle' is derived from the names of small villages that included Idlai - Padlai.
The original name of the village was Veleh Padle, possibly originating from a combination of the Portuguese word, velha and the Marathi word pada, a cluster of villages.
ANDHERI
Several trains begin and end at this station (left), whose strange name means vertigo or dark in Marathi. Andheri is one of the fastest growing suburbs in the north-west.
JOGESHWARI
The name is derived from the Jogeshwari caves that are located in the eastern part of this suburb. They are some of the earliest Hindu caves in the region and are dedicated to the Hindu god Shiva. There is an old belief that the temple of Jogeshwari was named after the donor of the temple, Jog.
GOREGAON
While few believe that this station and suburb is named after the politically active Gore (spelled Go-ray) family, who lived on the Western side of the suburb, others are of the opinion that the area got its name from gore-gaon - the white village since it was a large milk-producing centre since earlier times. Going by the former belief, the name literally means "Gore's village" in Marathi. What is now known as Goregaon Suburb is a conglomeration of Four Villages Pahadi, Goregaon, Aarey and Eksar. Goregaon got the Railway Station as early as 1862. The suburb was one of the Four Railway Stations between Borivali and Grant Road. However, it was known as Pahadi.
MALAD
The origin of this name appears to be untraceable. In Marathi mala can imply either a garland or row, or a whitish, unctuous earth. In the 1920s and 1930s, several public and private buildings in the city were constructed with facings of the attractive beige Malad stone from the quarries located in the area.
KANDIVALI
The Kandivali or Khandolee station as it was once called was opened in 1907. The name is possibly derived from 'Khand', a sharp projection of rock, perhaps part of the stone quarries situated here.
VASAI
The original name of Vasai was Vesalé in Sanskrit. Under the Muslim sovereigns it was renamed to Baxay; the Portuguese christened it Bancaim, and the Marathas called it Bajipura. Later on under the British rule, it was named Bassein. Finally, after Indian independence it was renamed 'Vasai'. The origin of Vasai is traced to the Sanskrit word vas, which means to dwell, or residence.
NALASOPARA
It is the site of the ancient port of Shurparaka or Sopara, now silted up. Sopara is one of the oldest port towns in India dating back to more than 1000 years. It is believed to be Solomon's Ophir by some scholars, and also said to be Shurparaka, the place where the Pandavas rested during their exile mentioned in the epic Mahabharata.
VIRAR
An outpost of Mumbai, Virar was named after Indian philosopher Jeevan Virar and was connected with the mainland with electric train way back in 1925.

"What's in a name?" asked Shakespeare. But having read all the above information, it is certain that there indeed is a great deal behind every name!

Tuesday, 29 May 2012

Indian Economic Turbulence – A Comparative View

Also published on http://www.caclubindia.com/articles/indian-economic-turbulence-a-comparative-view-13950.asp

 
Finance Minister Pranab Mukherjee on Wednesday, 23rd May 2012, assured Parliament that India's growth story remained intact despite Euro zone crisis and Greece turmoil. Mr. Mukherjee attributed the downward trend in the share markets to the global economic crisis.
However we need to introspect and appreciate the “Growth Story” of India in comparison with our neighbours. Let us take the recent hike in petrol prices and the foreign exchange rates as a point of comparison of economic governance of the Country.

Following is the table that benchmarks petrol prices after using respective country’s exchange rate and then comparing with INR for parity:

Country
$ per Ltr 2010
INR/ ltr  @ 45.9
$ per Ltr 2011
INR/ ltr @ 49.26
$ per Ltr 2012
INR/ ltr @55
% Deviation from India, 2012
USA
0.64
30.00
0.96
48.40
0.96
53.00
-32%
Pakistan
0.79
36.60
0.97
45.80
1.12
61.60
-21%
India
1.22
56.00
1.48
72.90
1.42
78.00
--

Source: www.kshitij.com/research/petrol.shtml. Nos updated for 2012.

We can see that over the period from 2010 till 2012, people of India have paid more for every ltr of petrol when compared to Pakistan and US. Isn’t there any issue on balance of payments!!

Again, when it comes to exchange rates, the depreciation of Indian rupee is much high than compared to Pakistan. The exchange rate of Feb 2012 was 90:1 which moved upto 91.5:1 in May 2012, hardly any fluctuation when compared to Indian market which moved from 50 to 56 in the same 90 day period.ie 12%.


When we say that India is a growing economy, does it mean that cost of living of the Country should also increase in an exponential manner!! It is said that we have a strong growth story, which is benchmarked with the GDP rates of India over the period. But can high GDP rates be seen in isolation?
It is been 8 years during which one may say that the sensex has risen from 6,000 to 16,000 but inflation rates have also been on upsurge since then. Is it a real growth? Companies are increasing the prices of goods and services constantly and raising their margins to boost EPS and PE multiples. Even prices of essential commodities such as dairy products, foodgrains etc have all doubled and tripled in many cases.    

 Period
Inflation*
Sensex**
India GDP rate^
Pak GDP rate^
 March 2012
8.649 %
15,948
-
-
 March 2011
8.823 %
15,455
7.5
3.0
 March 2010
14.865 %
20,510
10.094
3.759
 March 2009
8.029 %
17,465
6.771
1.722
 March 2008
7.874 %
9,647
6.186
3.685
 March 2007
6.723 %
20,286
9.991
6.815
 March 2006
4.571 %
13,786
9.53
5.818
 March 2005
4.167 %
9,397
9.033
8.958
 March 2004
3.491 %
6,602
7.591
7.483

* http://www.global-rates.com/economic-indicators/inflation/consumer-prices/cpi/india.aspx
**http://www.bseindia.com/histdata/hindices2.asp
^ http://www.tradingeconomics.com

Prices in India have been on rising scale since 2004, especially the realty price index is not seeing a sign of correction. The growth in GDP is not visible to common man who is exposed to such high rates of inflation. Per capital GDP of India was $3500 as compared to $ 46,800 of United States for 2010. The numbers have not improved as understood from the GDP growth rates. The cost of living in metros especially in Mumbai is inching towards that in United States but without matching income. The increase in salaries over last 3 years has been in single digit where as the real consumer prioce inflation has been in double digits.
 
Its time to introspect in our Governance Policies and come out with the right fix. It is quite possible that the more internationalization and exposure to international commodity markets has impacted us adversely and have contributed to inflation and volatility.

It is however surprising that the cattle in India that feeds on the grass grown in India has also been producing milk whose prices have also not been controlled. Probably these are side effects of inflation linked Governance and Growth.

Pakistan’s GDP rate is just half of India’s GDP and is not a rising trend, still they are in control of Foreign exchange rate and Petrol prices to name a two, then why not India!

Sanjay Chauhan

Thursday, 10 May 2012

Compulsory Convertible Instruments under Revised Schedule VI

A. Introduction

Indian Entities have issued Foreign Currency Compulsory Convertible Bonds / Compulsory convertible debentures. How should the same be classified under revised Schedule VI?

B. Revised Schedule VI – Excerpt from Guidance Note

The Ministry of Corporate Affairs (MCA) has issued a revised form of Schedule VI on February 28, 2011. As per the notification 2/6/2008-C.L-V, dated 30-3-2011, the Schedule applies to all companies for the Financial Statements to be prepared for the financial year commencing on or after April 1, 2011. (para 3.1.)

Where compliance with the requirements of the Act including Accounting Standards as applicable to the companies require any change in treatment or disclosure including addition, amendment, substitution or deletion in the head/sub-head or any changes inter se, in the Financial Statements or statements forming part thereof, the same shall be made and the requirements of the Schedule VI shall stand modified accordingly.

As per ICAI Guidance Note on Terms Used in Financial Statements, ‘Capital’ refers “to the amount invested in an enterprise by its owners e.g. paid-up share capital in a corporate enterprise. It is also used to refer to the interest of owners in the assets of an enterprise.” (para 8.1.1.2.)

The said Guidance Note defines ‘Share Capital’ as the “aggregate amount of money paid or credited as paid on the shares and/or stocks of a corporate enterprise.” (para 8.1.1.3.)

 In respect of disclosure requirements for Share Capital, the Revised Schedule VI states that “different classes of preference share capital to be treated separately”. A question arises whether the preference shares should be presented as share capital only or does it mean that a company compulsorily needs to decide whether preference shares are liability or equity based on its economic substance using AS 31 Financial Instruments: Presentation principles and present the same accordingly. The Revised Schedule VI deals only with presentation and disclosure requirements. Accounting for various items is governed by the applicable Accounting Standards. However, since Accounting Standards AS 30 Financial Instruments : Recognition and Measurement, AS 31 and AS 32 Financial Instruments: Disclosures are yet to be notified and Section 85(1) of the Act refers to Preference Shares as a kind of share capital, Preference Shares will have to be classified as Share Capital. (para 8.1.1.4.)

Standards Notified by Ministry of Corporate Affairs

Institute of Chartered Accountants of India (ICAI) has issued 29 Indian Accounting standards before the Convergence to IFRS road map was laid. All these 29 accounting standards are notified by Ministry of Company Affairs (MCA).

As a part of alignment to International Standards, ICAI had issued by the applicable Accounting Standards, AS 30 Financial Instruments: Recognition and Measurement, AS 31 and AS 32 Financial Instruments: Disclosures. However these standards are not notified considering the convergence road map to IFRS.

The MCA has further notified 35 Indian IFRS standards (known as “Ind-AS’), without announcing the applicability date. In its press release dated February 25, 2011, the MCA has stated that Ind-AS will be applied in a phased manner, to ensure smooth transition for all stakeholders.

D. Accounting under Ind AS 32

Para 11

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Para 16

When an issuer applies the definitions in paragraph 11 to determine whether a financial instrument is an equity instrument rather than a financial liability, the instrument is an equity instrument if, and only if, both conditions (a) and (b) below are met.

(a) The instrument includes no contractual obligation:

(i)  to deliver cash or another financial asset to another entity; or

(ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the issuer.

(b)If the instrument will or may be settled in the issuer’s own equity instruments, it is:

(i) a non-derivative that includes no contractual obligation for the issuer to deliver a variable number of its own equity instruments; or

(ii) a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments. For this purpose, rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. Apart from the aforesaid, the equity conversion option embedded in a convertible bond denominated in foreign currency to acquire a fixed number of the entity’s own equity instruments is an equity instrument if the exercise price is fixed in any currency.

E. Understanding Drawn

Objective of Revised Schedule VI is to align the Statutory Format of Financial Statements with that of the Regulatory Framework laid by the Institute of Chartered Accountants of India (ICAI).

As part of the Guidance note issued by ICAI, we can visualize the intent being in line with the Convergence to IFRS framework.

It is understood from the exposure draft of the guidance note to Revised Schedule VI read with the guidance issued by ICAS in April 2011 for adoption of AS 30, 31 and 32, that the entity can classify a Redeemable Preference Shares as “Liability” if the entity follows the measurement and classification requirements of AS 30, 31, and 32 so far that they do not over rule the requirements of existing accounting standards.

However, the final version of guidance note came out with a caveat of notification and thus AS 30 principles would not apply while presenting balance sheet under Revised Schedule VI.

It is to be noted that on one side AS 30, 31 and 32 are not notified but Ind AS 32 and 39 are notified by the MCA on February 25, 2011.

Adopting the principles of Ind AS which are notified standards under MCA, would be in line with the intent of the final draft satisfying the criteria of being notified by MCA and thus reporting the substance.

F.  Disclsoure

Entities may reclassify them from liabilities and bring it with Shareholders' funds after Reserves & Surplus".

Alternatively, the same can be separately classified on the face sheet below Shareholders Funds and before Non current liabilities.

Since Revised Schedule VI is not a rigid format, an appropriate disclosure along with complete note justifying such substance of equity may well be considered.

Note: These are personal views and not of any firm or organisation.

Sanjay Chauhan   

Saturday, 5 May 2012

International Financial Reporting Standard (IFRS): Principle based Standard:

IFRS are considered a "principles based" set of standards that establish broad rules for accounting.

Rules-based standards such as US GAAP have an accounting rule for almost every type transaction. There are various oversight bodies whose objective is to roll out accounting for every new transaction based on its materiality very now and then. It though minimizes confusion and the need to apply professional judgment in areas of accounting and reporting, these exhaustive rules and exceptions with various materiality limits, typically result in an increased level of complexity and lead to divergent accounting treatments for similar transactions. Another factor is that the Companies focus on mere technical compliance rather than on the objectives underlying the rules. The accountants restrict their application of mind only till finding a particular rule instead of conceptually addressing the unique transaction. Sometimes it may so happen that the accountant may not be aware of some rule that may have been written for a particular transaction and thus may account it in a regular manner in the absence of an overseeing principle.

Principle standards, on the other hand, define guidelines on a broad parameters or boundaries. It thus requires implementation team to exercise significant judgment and thought process to go to the underlying basis of conclusions. The structure of these standards giving a clear insight as to why the standard is introduced, what are its objectives, its scope of area, accounting guidelines, basis of conclusion with dissenting opinion of the board members and also the illustrative examples. Thus it provokes thoughts and establishes conceptual principles that can be applied universally and hence improving comparability. IFRS thus brings out the economic substance of the transaction.
No single set of rules is likely to eliminate the need for accounting professionals to make occasional judgment calls. A principles-based system, however, remedies several of the ills of other standards and minimizes opportunities for companies to meet a standard's technical requirements while ignoring its underlying objective. 

Some examples of Principles are as follows:

1.       Continuous involvement with the asset:
This is one of the principle test applied when an entity has to consider whether it can book the transaction as sold or not. This can be seen very commonly in factoring i.e. discounting bills receivable. If the discounting of bills or receivable is done with recourse, then the transaction does not allow the entity to derecognize receivable and book cash in balance sheet. Instead the said flow of funds from discounting is considered as a borrowing from the bank. This is because, if the debtor fails, the lender will come to the entity for recovery of the underlying receivable.

2.       Splitting  time value of money:
Any transaction that has a credit period different from that of similar transaction is considered to have an inbuilt finance arrangement / benefit to either party. Take for example if an entity has received a non interest bearing long term advance for delivery of goods or services over next two years, the opportunity interest of those funds is considered as financial benefit received by the entity. Thus the advance is present valued using the market interest rate of deposits for initial recognition and the difference is considered as deferred revenue on balance sheet. The advance is then accreted with interest expense through profit & loss account and deferred revenue on the balance sheet is unwound by crediting the revenue as and when goods are delivered or services rendered.