Bosch Ltd.

Project Report on BOSCH Ltd

Table of Contents:
i. Introduction. 2
ii. Trend analysis of the balance sheet. 2
iii. Critical analysis of cash flow statement. 3
iv. Analysis of Ratio of BOSCH Ltd. 5
v. Compare the book value and market value of share. 6
vi. The manner of disclosure of the accounting 7
Policies adopted by the company.
vii. The method of revenue recognition followed 7
by the company.
viii. The manner of recording of assets and the 8
depreciation policies adopted.
ix. The inventory valuation method of the company. 10
x. The manner of recording of long term and 10
short term investments.
xi. Classification and treatment of extraordinary items. 10
xii. Accounting for benefits provided to the employees. 11
xiii. Accounting for and treatment of borrowing costs. 12
xiv. References. 14

1
Bosch Ltd.

Introduction:

Bosch is a multinational engineering and electronics company headquartered

in Stuttgart, Germany in 1866. Bosch entered India in 1922 and operated for 30
years as an imports company. About 30 years later, it started its own manufacturing
company in 1951 and they have been growing ever since. Bosch India has a
turnover of $2billion and over 26000 employees spread over 10 locations and 7
application development centers. In India, Bosch has its industry in Bangalore which
is the second largest after its home in Germany. They provide multiple products and
services in mobility, household and industries. Today, it is a BSE and NSE listed
company and holds the share value of Rs.20,790 and Rs. 20809 as of 10th
September 2018.

As of December 2017, their revenue was EUR 78 Billion,their operating

income was EUR 5.3 Billion, net income was EUR 4.1 billion, total assets were EUR
83.87 billion, total equity was EUR 36.08 billion. The number of employees by the
end of 2017 were 400,500.

1 a. Trend Analysis of the Balance Sheet:

2018-17 2017-16 2016-15 2015-14 2014-13

Equity and
Liabilities
Sources of funds
Owner's fund
Equity share capital 97.13376 97.13376 100 100 100
Reserves & surplus 158.8849 140.0166 151.7428 116.8085 100
Secured loans 0 0 48.14815 100
Unsecured loans 0 0 11.55935 42.0481 100
current liabilities &
provisions 158.1413 120.234 115.5372 121.3602 100
Asset
Net block 121.6395 140.646 122.4496 103.1447 100
Capital work-in-
progress 107.1804 70.75306 72.08844 60.42032 100

Investments 239.8243 179.6989 203.6291 132.2411 100

Current assets,
loans & advances 132.1108 116.6517 121.7947 117.9061 100

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Bosch Ltd.
1 b. Trend Analysis of the Income Statements:

Trend Analysis of The Income Statement

200

150

100

50

0
2013 2014-2015 2015-16 2016-17 2017-18

Sales Of which Export Sales

Profit Before Tax Less : Provision for Tax on Income
Profit After Tax

2. Critical Analysis of Cash Flow Statement:

Cash Flow from Operating Activities

Cash Flow from operating activities is derived by indirect method.

S. No. Activities (Year 2017-18)

1. Non- Cash Items
a) Depreciation or amortization expenses The depreciation and
amortization of tangible
and intangible assets is
4672 million rupees
2. Non – Operating Items
a) Dividend from equity investments The earnings of the
designated at FVOCI company from this
investment was 71 million
rupees.
b) Profit/Loss on sale of fixed assets The company earned a
profit of 32 million rupees
on the sale of fixed
assets.

c) Interest Income The company earned

2720 million rupees from
the interest.
d) Net gain on financial assets measured at The company earned
FVTPL 2185 million rupees on
the sale of financial
assets.
3. Increase/decrease in trade receivables The company trade
receivables got increased
to 4844 million rupees
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Bosch Ltd.
Because of these operation activities, the company has generated net cash of
24,048 million rupees which means the company can maintain and grow its
operation activities.

Cash flow from investing activities

S. No. Activities (Year 2017 -18)

1. Additions to property, plant and equipment The company has
invested in buying the
fixed assets of value 4925
million rupees
2. Purchase of Investments The company has
invested in new
investment activities of
value 26705 million
rupees
3. Proceeds from sale of investments There is a cash inflow
from the sale of
investment activities of
value 17000 million
rupees
4. Inter corporate deposit given The company has made a
new investment of 7900
rupees of in the inter
corporate deposit
5. Investment in deposit accounts (original The company has
maturity of more than 3 months) opened new deposit
accounts of value 16850
million rupees.
6. Maturity of deposit accounts (original There is a cash inflow of
maturity of more than 3 months) 17480 million rupees from
the maturity of the
company’s’ pre – existing
accounts.

The company net investing activities is -11703 million rupees which is negative, this
implies that the company has invested in new activities.

Cash flow from financing activities

S. No. Activities Year (2017-18)

1. Dividends paid The company paid the
dividends of 2736 million
rupees.

The company net cash flow from the financing activities is -3246 which is negative
which shows that it’s not having any fresh liabilities.

Cash in hand

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Bosch Ltd.
The company is having a cash of 9099 in its’ hand which can be utilized in its’
expansion.

3. Analysis of Ratio of BOSCH Ltd:

 Profitability Ratio-

Gross Margin Ratio – Company’s gross margin ratio is 76%. It indicates that the
company can make a reasonable profit on sales, if it keeps overhead costs in control.
Investors will tend to pay more for the company as it has higher gross profit.

Operating profit Margin Ratio – Company’s operating profit margin is 18%. It

indicates that for every rupee of income only 18% remain after operating expense is
paid.

Net profit margin Ratio – Company’s net profit margin ratio is 12%. It indicates only
12% of sales is made up of net income. The company need to concentrate on lowering
their operating and non-operating expense.

Return on Asset – Company’s ROA is 10%. Higher ratio is more favorable to

investors because it shows that the company is more effectively managing its assets
to produce greater amounts of net income. The company need to work on that.

Return on Capital Employed – Company’s return on capital employed is 13%. This

indicate for every rupee of capital employed the company made 13% of profit.

Return on Equity – Company’s ROE is 14%. However higher the ROE, more lucrative
the company would become for investment.

EPS – Rs 449.14

 Efficiency Ratio –

Inventory Turnover- Company inventory turnover is 2.27. A good ratio shows that
the company is highly liquid. A high ratio implies either strong sales or large discounts

Inventory Turnover days – 158.41 days

Accounts Receivable Turnover – Company accounts receivable turnover is 8.13. It

indicates the company is efficient in collection of cash from its customer.

Accounts Receivable Turnover days – 44.27 days (assuming all sales to be credit
sales)

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Bosch Ltd.
Accounts Payable Turnover – Company’s accounts payable ratio is 1.63.This ratio
helps creditors to analyse the liquidity of a company by gauging how easily a company
can pay off its current suppliers and vendors.

Accounts Payable Turnover days – 0.82

Operating Cycle – Company’s operating cycle is 8.78. It can be interpreted that the
company has good operating cycle, as a result the company have essential levels of
cash for survival.

 Liquidity Ratio –

Current Ratio – Company’s current ratio is 2.08. A company having a 2:1 current ratio
is a good indication for its stakeholderss

Quick Ratio – Company’s quick ratio is 1.74. This show that the company is
moderately liquid. It can improve its liquidity to further enhance its operation.

Solvency Ratio –

Debt to equity Ratio – Company’s debt to equity ratio is 0.40. A lower debt to equity
ratio implies a more financially stable business. A good indicator for the company.

4. Compare the Book Value and Market Value of Share:

Book Value Market Market /Book Value

Year/Activities Value
2013 2949 10767.1 3.6
2014-2015 2613 25421.35 9.7
2015-2016 2895 20784.5 7.2
2016-2017 2407 20751.25 8.6
2017-2018 2062 20790 10.1

Book Value and Market Value of Shares

30000

25000

20000

15000

10000

5000

0
2013 2014-2015 2015-2016 2016-2017 2017-2018

Book Value Market Value

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Bosch Ltd.
 Return on equity is 14% so the shareholders are generating 14% on their
employed capital.
 ROCE is 13% company can generate more return on capital than cost of
borrowing.

5. The manner of disclosure of the accounting policies adopted by

the company:

 Compliance with Ind AS:

The financial Statements of the company follows the Ind AS notified under section
133 of the companies act, 2015 and other relevant provisions of the Act. Up to March
31st, 2016, the financial statements complies with the accounting standards rules,
2006 and other relevant provisions of the act.

 Historical cost convention:

Preparation of the financial statements is based on a historical cost basis

exceptions including:

- certain financial assets and liabilities (including derivative instruments) that are
measured at

fair value; and

- defined benefit plans (plan assets measured at fair value)

 The assets and liabilities are classified into current and non-current assets
according to company’s normal operating cycle and other criteria in the schedule III
to the companies Act, 2013. The company has an operating cycle of 12 months for
the purpose of current and non-current classification of assets and liabilities.

6. The method of revenue recognition followed by the company:

Bosch recognizes revenue when the amount of revenue can be reliably

measured, probability of flow of future economic benefits to the entity and specific
criteria have been met for each of the company’s activities as mentioned below:

(i) Significant risks and rewards of ownership of the goods are to be transferred to the
buyer (terms and conditions followed) to recognize the sale of products and the revenue
generated depends on the price deal made with the customers. Revenue amounts
disclosed as revenue are inclusive of excise duty, cash discounts, sales incentives,
sales tax, etc.

(ii) Sale of services with respect to fixed price contracts is recognised based on
agreements/ arrangements with the concerned parties using the proportionate
completion method and revenue with respect to time-and-material contracts is
recognised as and when the related services are performed.

(iii) The rental income from lease of investment properties is accounted on accrual
basis with a contract with the lessee and is disclosed under other operating revenue in
P and L statement.
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Bosch Ltd.
7. The manner of recording of assets and the depreciation policies
adopted:

Investments and other financial assets:

(i) Classification

Financial assets of the company are classified under the following measurement
categories:

- The assets measured subsequently at fair value through other comprehensive

income (FVOCI) or fair value through profit and loss (FVTPL), and

- The assets measured at amortised cost.

The entity’s business model for managing the financial assets and the contractual terms
are the reasons this classification depends on.

Assets measured at fair value, gains and losses will be recorder in P&L statement or
other

comprehensive income. This depends on the type of investment made i.e., debt
investments or equity investments. Debt investments are reclassified only when its
business model needs managing those asset changes.

(ii) Initial recognition and measurement.

Recognition of all financial assets are recognized initially at its fair value plus the
value through profit or loss, if the value is not recorded at fair value and transaction
costs that are attributable to the acquisition of financial asset. Financial assets that are
transacted at fair value through profit and loss are expensed in profit and loss.

(iii) Subsequent measurement

Amortization is measured on financial assets that are held for contractual cash
flows which represent payments of principal and interest. The financial assets that are
held for contractual cash flows and for selling the financial assets are measured at
FVOCI. With the exception of investments in subsidiary/associate, which is measures at
cost, all equity investments are measured at fair value through other comprehensive
income. Changes in the fair value of financial assets are recognised in statement of
other comprehensive income. A gain or loss on such assets are recognized and
presented in the Profit and loss statement within other income in the period.

(iv) Impairment of financial assets

Impairment losses on equity investments measured at FVOCI are not reported

separately from other changes in fair value. Assessment of the expected credit losses
associated with its assets is carried at amortized cost. The impairment methodology
applied depends on whether there has been a significant increase in credit risk.

(v) Derecognition of financial assets

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Bosch Ltd.
The Company derecognises a financial asset when the contractual right to the
cash flows from the financial asset expire or it transfers substantially all risk and
rewards of ownership of the financial asset. A gain or loss on such financial assets that
are subsequently measured at amortised cost is recognised in profit or loss when the
asset is derecognised.

(vi) Income recognition Interest income

Effective interest rate method is used to recognize the interest income measured at
amortized cost and are disclosed in the Profit and Loss statement. Dividends from
equity instruments are recognised as other income in statement of profit and loss only
when the right to receive payment is established.

 Property, plant and equipment:

All the items of property, plant and equipment including capital spares are stated
at cost of acquisition or construction less accumulated depreciation when the future
economic benefits associated with the item might flow to Bosch can be used for more
than a year when a reliable measurement of the cost can be done, whereas freehold
land is carried at historical cost.

Subsequent costs are either included in the asset’s carrying amount or

recognised as a separate asset, as appropriate, only when it meets the recognition
criteria as mentioned above and is derecognised when replaced. All other repairs and
maintenance are charged to profit or loss during the reporting period in which they are
incurred. Gains and losses on disposal are determined by comparing proceeds with
carrying amount and are included in profit or loss within other income or expense.
Written down value method is used for providing depreciation on property, plant and
equipment. As required under Schedule II to the Companies Act 2013, the Company
periodically assesses the estimated useful life of its tangible assets based on the
technical evaluation considering anticipated technological changes and actual usage of
the assets. The estimated useful life is either equal to or lower than those prescribed
under Part C of Schedule II to the Companies Act, 2013. In respect of specific assets
including second hand plant and machinery, capital spares which are estimated to have
a lower residual life than envisaged above, depreciation is provided based on the
estimated lower residual life, where required. Low value assets not exceeding INR
15,000/- per unit and all Research and Development assets (except for Buildings) are
depreciated at 100% in the quarter of addition. In respect of additions, depreciation is
provided on pro-rata basis from the quarter of addition and in respect of disposals, the
same is provided upto the quarter prior to disposal. Transition to Ind AS On transition to
Ind AS, the Company has elected to continue with the carrying value of all its property,
plant and equipment recognised as at April 1, 2015 measured as per the previous
GAAP and use that carrying value as the deemed cost of the property, plant and
equipment.

 Investment properties:

Investment property is the property that is owned by the company and is held for
rental income and is not occupied by the company itself. These properties are
measured initially at cost including related transaction cost. It is amounted to Carried at
cost less accumulated depreciation. All the repairs and maintenance costs are
expensed when incurred. Land is valued at historical cost, and buildings are
depreciated using the written down value method over their estimated useful lives.
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 Bosch Ltd.
 Intangible assets

Intangible assets are recognized at cost of acquisition less accumulated

amortisation. Amortisation on intangible assets is provided using the written down value
method based on estimated useful life determined by management. Expenditure in
research is considered as an expense incurred. Development related expenditure is
capitalised as an internally intangible asset if it meets the IND AS 38 on intangible
assets. The company elected to continue with all its tangible assets recognized as at
April 1, 2015 measured as per the previous GAAP.

 Trade receivables:

Trade receivables are recognised initially at fair value and subsequently measured at
amortised cost less provision for impairment.

8. The inventory valuation method of the company:

(h) Inventories:

Inventories are valued at lower of cost and net realisable value. The cost of the
inventory is decided based on the weighted average method. The cost of finished goods
and work in progress comprises raw materials, direct labour, other direct costs and
related production overheads. Selling price in the ordinary course of business less the
estimated costs necessary to make the sale gives the net realisable value. On finished
goods lying in the factories, excise duty is considered for the inventory. Obsolete/ slow
moving inventories are adequately provided for.

9. The manner of recording of long term and short term

investments:

 Recording long term investment:

Land being carried at historical cost while plant, equipment and capital spares are
recorded at the cost of acquisition. Low value assets less than INR 15,000/- per unit and
all R & D assets (except for Buildings) are depreciated at 100% in the quarter of
addition.

 Recording short term investment:

Inventories are valued at lower of cost and net realisable value. The cost of finished
goods and work in progress comprises raw materials, direct labour, other direct costs
and related production overheads. Obsolete/ slow moving inventories are adequately
provided for.

10. Classification and treatment of extraordinary items:

Extra ordinary expenditure of the company are noted under the equity per
share division. The EPS is noted before the extra ordinary and after the
extraordinary in the yearly results of the company. In March, 2018, there were no

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Bosch Ltd.
extraordinary expenses and as a result the EPS before Extra-ordinary and the EPS
before the extra ordinary were the same amounting to 449.10 crores.

11. Accounting for benefits provided to the employees:

Employee benefits:

(i) Short term employee benefits:

These include salaries, wages, short term compensated absences and

performance incentives, these are expected to be paid when the liabilities are settled. In
general these are supposed to be settled within twelve months after the end of the
period in which the employees render the related service. The liabilities are presented
as current employee benefit obligations in the balance sheet and are recognised as
expenses in the period in which the employee renders the related service.

(ii) Post-employment benefits:

Defined contribution schemes are the contributions towards Superannuation

Fund, Pension Fund and government administered Provident Fund(PF). Bosch has no
further obligations beyond its monthly contributions when it comes to contributions
made to government administered

Provident Fund and these are recognised as expense in the period in which the
employee renders related service. PF contributions made to the company administered
Trusts are treated as defined benefit plan and the interest payable to those members
cannot be lower than the statutory rate of

interest declared by the Central Government under the Employees’ Provident

Funds and Miscellaneous Provisions Act, 1952 and shortfall, if any, shall be made good
by the Company. Bosch also provides for post-employment defined benefit in the form
of Gratuity. Unit credit method, with actuarial valuation being carried out at each
balance sheet date projected is used to determine the cost of defined benefit. Actuarial
gains and losses in respect of the same are charged to the Other Comprehensive
Income (OCI).

(iii) Other long term employee benefits:

All employee benefits other than post-employment benefits and termination benefits,
which do not fall due wholly within twelve months after the end of the period in which the
employees render the related service, including long term compensated absences,
service awards, and ex-gratia are determined based on actuarial valuation carried out at
each balance sheet date. Estimated liability on account of long term employee benefits
is discounted to the present value using the yield on government bonds as the
discounting rate for the term of obligations as on the date of the balance sheet. Actuarial
gains and losses in respect of the same are charged to the statement of profit and loss.

(iv) Termination benefits:

When an employee is terminated by Bosch before the normal retirement date, or

when an employee accepts voluntary retirement Termination benefits are given.

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Bosch Ltd.
The termination benefits are recognised by Bosch at the earlier of the following dates
when:

(a) It can’t withdraw the offer of those benefits any further.

(b) It recognises costs for a restructuring which is within the scope of Ind AS 37 and
insists on the payment of termination benefits. It depends on the number of employees
who would be accepting the offer in case of voluntary retirement scheme.

12. Accounting for and treatment of borrowing costs:

Borrowing cost:

As per ICAI “Borrowing Costs are interest and other costs incurred by an
enterprise in connection with the borrowing of funds.”The following points should be
taken into consideration for borrowing costs:

a. Interest on short term loans or long-term debts should be included as part of

borrowing cost. Ex: Interest paid to financial institutions for loan taken to acquire the
asset.

b. If an enterprise has incurred any discounts or premiums related to the borrowing

cost, then it will also be amortised. Ex: Amount paid to the financial institutions as
loan processing cost.

c. If an enterprise has incurred any finance/ancillary cost in connection with the

borrowings, then it will also be amortised. Ex: Amount to the professionals for
preparation of project reports, etc.

d. If an enterprise has acquired any asset under finance lease or any other similar
arrangement, then those finance cost will also be amortised. Ex: Leasing cost paid to
the lessor every year.

e. If an enterprise has taken any borrowing in foreign currency, then the exchange
rate fluctuation will also be amortised to the extent they are regarded as an
adjustment of interest costs. Ex: An enterprise has taken a loan from foreign financial
institutions when the rate of US $ was 64, while at the end of the financial year the
rate of US $ was 65. The rate difference of US $ 1 will be treated as Borrowing Cost.

Types of borrowing costs:

a. Specific borrowing: The amount to be capitalized is:

Actual Borrowing Cost incurred during the period - Any income on temporary
investment of borrowed funds(Ex: The excess money invested in Fixed Deposit
will have interest gain).
b. General borrowings: The amount to be capitalized involves few steps:
a. Calculate Capitalization Rate. It will be weighted average of borrowing cost.
b. Cost to be capitalized = Capitalization rate * Amount spent on qualifying asset
out of general borrowing Note: Amount of borrowing cost capitalized during a
period should not exceed the amount of borrowing cost incurred during the
period.
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Bosch Ltd.
Commencement of capitalization:

The Commencement of Capitalization of borrowing cost should commence

when all the conditions below are fulfilled:

a. Expenditure for the acquisition, construction or production of a qualifying asset is

being incurred. Here expenditure includes those expenditure in the nature of cash or
transfer of any asset or the assumption of interest bearing liabilities

b. Borrowing Costs are being incurred.

c. Activities that are necessary to prepare the asset for its intended use or sale are in
progress. The activities here need not be the physical activities, but the technical and
administrative work related to the assets is also taken into consideration.

Suspension of capitalization:

Capitalization of borrowing cost are commenced when the above mentioned 3 points
are satisfied. However, if there is a temporary delay in which the active necessary
developments are interrupted then then there will be a suspension of capitalization.

However, if the temporary delay is necessary part of the process of getting an asset
ready for its intended use or sale, then there will be no suspension of capitalization.

Cessation of capitalization:

Capitalization of borrowing cost ceases when all the activities necessary to prepare
the qualifying assets are complete. If an asset has been completed in parts and a
completed part is capable of being used while the construction for the other part
continues then the capitalization for that completed part will cease.

Example: A business park consists of several buildings and each building can be
treated as an individual part.

Examples:

Suppose bosch obtained a loan from a bank for Rs. 50 lakhs on 30 th April 2017.
Bosch utilized the money:

Construction of Shed: Rs 50 Lakhs

Purchase of Machinery: Rs 40 Lakhs

Working Capital: Rs 20 lakhs

Advance for purchase of truck: Rs. 10 Lakhs

Construction of shed was completed in March 2018. The Machinery was installed on
the same day. Truck was not yet received. Total interest charged by the bank for the
year ending 31-03-2018 was Rs 18 lakhs.

The treatment will be:

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Bosch Ltd.
Qualifying Asset as per AS 16 = Rs 50 Lakhs (Construction of Shed)

Borrowing Cost to be capitalized = 18 * 50/120 = Rs. 7.5 Lakhs

Interest to be debited to profit or loss account = (18-7.5) Lakhs = Rs. 10.50 Lakhs

References:
https://www.moneycontrol.com/annual-report/bosch/accounting-policy/B05 (as on
11/09/18)

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