Note 1 : Corporate information

Bharat Gears Limited is a public limited company domiciled in India and is incorporated on 23 December, 1971. The registered office of the Company is located at 20 K.M. Mathura Road, P.O. Amar Nagar, Faridabad, Haryana -121003. The Company has three manufacturing locations; two in the state Maharashtra at Mumbra, Thane and Lonand, Satara and one in the state of Haryana at Faridabad. Its shares are listed on two recognized stock exchanges in India. The Company is primarily engaged in the Automotive Gears business and all other activities revolving around the same.

The financial statements were approved by the Board of Directors and authorised for issue on 30 May, 2018.

Note 2 : First-time adoption of Ind AS - mandatory exceptions and optional exemptions:

A. Overall principle:

The Company has prepared the opening Balance Sheet as per Ind AS as of 01 April, 2016 (the transition date) by recognizing all assets and liabilities whose recognition is required by Ind AS, not recognizing items of assets and liabilities which are not permitted by Ind AS, by reclassifying items from previous GAAP to Ind AS as required under Ind AS, and applying Ind AS in measurement of recognized assets and liabilities. However, this principle is subject to certain exceptions and certain optional exemptions availed by the Company as detailed below:

(a) Mandatory exceptions:

(i) Accounting estimates:

The Company’s estimates in accordance with Ind AS at the date of transition are consistent with previous GAAP (after adjustments to reflect any difference in accounting policies) or are required under Ind AS but not under previous GAAP.

(ii) De-recognition of financial assets and financial liabilities:

The Company has applied the de-recognition requirements of financial assets and financial liabilities prospectively for transactions occurring on or after 01 April, 2016 (the transition date).

(iii) Classification and measurement of financial assets:

The Company has determined the classification and measurement of financial assets in terms of whether they meet the amortised cost criteria or the fair value criteria based on the facts and circumstances that existed as on the transition date.

(iv) Impairment of financial assets:

The Company has applied the impairment requirements of Ind AS 109 retrospectively; however, as permitted by Ind AS 101, it has used reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial instruments were initially recognised in order to compare it with the credit risk at the transition date. Further, the Company has not undertaken an exhaustive search for information when determining, at the date of transition to Ind AS, whether there have been significant increases in credit risk since initial recognition, as permitted by Ind AS 101.

(b) Optional Exemptions:

(i) Deemed cost for property, plant and equipment and intangible assets:

Since there is no change in the functional currency, the Company has elected the exemption of previous GAAP carrying value of all its Property, plant and equipment and Intangible assets recognised as of 01 April, 2016 (transition date) as deemed cost.

(ii) Determining whether an arrangement contains a lease:

The Company has applied Appendix C of Ind AS 17 to determine whether an arrangement existing at the transition date contains a lease on the basis of facts and circumstances existing at that date.

B. Standards issued but not effective:

On 28 March 2018, Ministry of Corporate Affairs (“MCA”) has notified the Ind AS 115- Revenue from Contract with Customers and certain amendment to existing Ind AS. These amendments shall be applicable to the Company from 01 April, 2018.

(a) Issue of Ind AS 115 - Revenue from Contracts with Customers:

Ind AS 115 will supersede the current revenue recognition guidance including Ind AS 18 Revenue, Ind AS 11 Construction Contracts and the related interpretations. Ind AS 115 provides a single model of accounting for revenue arising from contracts with customers based on the identification and satisfaction of performance obligations. The Company principally satisfies its performance obligation at a point in time and the amounts of revenue recognized relating to performance obligation satisfied over time are not significant. The accounting for revenue under Ind AS 115 does not, therefore, represent a substantive change from the Company’s current practice of recognising revenue from sale to customers.

(b) Amendment to existing issued Ind AS:

The MCA has also carried out amendments to the following accounting standards. These are:

(i) Ind AS 12 - Income Taxes

(ii) Ind AS 21 - The Effects of Changes in Foreign Exchange Rates

Application of the above standards is not expected to have any significant impact on the Company’s Financial Statements.

Footnotes:

(i) The cost of inventories recognised as an expense during the year Rs. 23603.88 lacs (Year ended 31 March, 2017: Rs. 18587.05 lacs).

(ii) The cost of inventories recognized as an expense includes Rs. 62.72 lacs (Year ended 31 March, 2017: Rs. 87.68 lacs) in respect of provision for slow and non moving inventory and write-down (net) of inventory to net realisable value.

(iii) The mode of valuation of inventories has been stated in Note 2.7

(iv) For details of inventories provided as security for borrowings Refer Note 19.

Footnotes:

(i) The Company has only one class of Equity shares having a face value of Rs. 10 each. Every member shall be entitled to be present, and to speak and vote and upon a poll the voting right of every member present in person or by proxy shall be in proportion to his share of the paid-up equity share capital of the Company. The Company in General Meeting may declare dividends to be paid to members according to their respective rights. While no dividends shall exceed the amount recommended by the Board, the Company in General Meeting may declare a smaller dividend.

(ii) In the event of liquidation of the Company, the holders of Equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts.

(iii) In terms of shareholders approval obtained by way of a postal ballot on 21 October, 2017, the Company has, on 03 November, 2017 allotted 3,25,000 equity shares of face value of Rs. 10/- each to a promoter at a price of Rs. 157.32 per share (including a premium of ‘147.32 per share), aggregating to Rs. 511.29 lacs on Preferential Allotment basis. Pursuant to this allotment, the share premium account stands increased by Rs. 469.30 lacs net of share issue expenses of Rs. 9.49 lacs.

(iv) Details of shares held by each shareholder holding more than 5% shares:

Footnotes:

(i) Description of nature and purpose of reserve

(a) Capital redemption reserve:

Capital redemption reserve was created pursuant to the redemption of preference shares issued in earlier years.

The capital redemption reserve account may be applied by the Company, in paying up unissued shares of the Company to be issued to shareholders of the Company as fully paid bonus shares.

(b) Securities premium account:

Where the Company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the premium received on those shares shall be transferred to “Securities Premium account”. The Company may issue fully paid-up bonus shares to its members out of balance lying in securities premium account and the Company can also use this reserve for buy-back of shares.

(c) General reserve:

General Reserve is created out of the profits earned by the Company by way of transfer from surplus in the Statement of Profit and Loss. The Company can use this reserve for payment of dividend and issue of fully paid-up shares.

(ii) The disaggregation of changes in each type of reserve, retained earnings and other comprehensive income are disclosed in Statement of Changes in Equity.

Footnotes:

(i) Term loans from banks:

(A) Rupee loan from state Bank of India:

Rs. Nil (As at 31 March, 2017: Rs. 357.27 lacs, As at 31 March, 2016: Rs. 594.53 lacs): fully repaid during the year.

(B) Rupee loan from IDBI Bank Limited:

Rs. Nil (As at 31 March, 2017: Rs. 622.31 lacs, As at 31 March, 2016: Rs. 871.15 lacs): fully repaid during the year.

(C) Rupee loan from HDFC Bank Limited:

Rs. 497.72 lacs (As at 31 March, 2017: Rs. 685.10 lacs; As at 01 April, 2016: Rs. Nil): Secured by exclusive charge on office premises situated at Nariman Point, Mumbai. Repayable in forty eight monthly installments by 20 March, 2021 and carries an interest rate of 12.00% p.a.

(ii) Term loans from others:

(A) Rupee loan from Export-Import Bank of India:

(a) Rs. Nil (As at 31 March, 2017: Rs. 200.00 lacs, As at 31 March, 2016: Rs. 600.00 lacs): fully repaid during the year.

(b) Rs. Nil (As at 31 March, 2017: Rs. 525.00 lacs, As at 31 March, 2016: Rs. 825.00 lacs): fully repaid during the year.

(c) Rs. Nil (As at 31 March, 2017: Rs. 1800.00 lacs, As at 31 March, 2016: Rs. 2400.00 lacs): fully repaid during the year.

(B) Rupee loan from Hero FinCorp Limited:

Rs. Nil (As at 31 March, 2017: Rs. Nil, As at 31 March, 2016: Rs. 448.45 lacs) was fully repaid as at 31 March, 2017

(C) Rupee loan from Tata Capital Financial services Limited:

Rs. Nil (As at 31 March, 2017: Rs. 1269.32 lacs, As at 31 March, 2016: Rs. 1489.38 lacs): fully repaid during the year.

(D) Rupee loan from KKR India Financial services Private Limited:

Rs. 7905.00 lacs (As at 31 March, 2017: Rs. Nil; As at 01 April, 2016: Rs. Nil): Secured by first pari passu charge created on Fixed Assets of the Company located at Mumbra plant, Faridabad plant and Satara plant. Repayable in quarterly installments commencing from 31 March, 2019 and carries an interest rate of 13% p.a.p.m.

(iii) Finance leases:

Rs. Nil (As at 31 March, 2017: Rs. Nil, As at 31 March, 2016: Rs. 12.43 lacs): fully repaid as at 31 March, 2017.

(iv) Loan from Director - Unsecured

Rs. Nil (As at 31 March, 2017: Rs. 500 lacs, As at 31 March, 2016: Rs. Nil): fully repaid during the year.

Footnote:

Loans repayable on demand from banks are secured by hypothecation of stocks of raw materials, stock in process, semi finished and finished goods, loose tools, general stores and book debts and all other moveables, both present and future, and by joint mortgage created for all immoveable properties of the Company located at Mumbra, Faridabad and Satara plants together with all buildings, plant and machinery thereon which rank second subject and subservient to charges created in favour of loans referred to in footnote (ii)(D) of Note 15.

(B) Defined Benefit Plans

A general description of the Employees Benefit Plans:

(i) Gratuity (Funded)

The Company operates a defined benefit final salary gratuity plan which covers qualifying employees. The benefit payable is the amount calculated as per the Payment of Gratuity Act, 1972 or maximum gratuity payable under the said Act, which ever is lower. The benefit vests upon completion of five years of continuous service and once vested it is payable to employees on retirement or on termination of employment. In case of death while in sevice, the gratuity is payable irrespective of vesting. The gratuity benefits payable to the employees are based on the employee’s service and last drawn salary at the time of leaving. The employees do not contribute towards this plan and the full cost of providing these benefits are met by the Company.

The Company has set up an income tax approved irrevocable trust fund to finance the plan liability. The trustees of the trust fund are responsible for the overall governance of the plan. The plan is funded under Group Gratuity Scheme which is administered by LIC. The Company makes annual contribution to the plan. There are no minimum funding requirements. The trustees of the gratuity fund have a fiduciary responsibility to act according to the provisions of the trust deed and rules. Since the fund is income tax approved, the Company and the trustees have to ensure that they are at all times fully compliant with the relevant provisions of the Income Tax Act and Rules.

The plan is of a final salary defined benefit in nature which is sponsored by the Company and hence it underwrites all the risks pertaining to the plan. In particular, there is a risk for the Company that any adverse salary growth or demographic experience or inadequate returns on underlying plan assets can result in an increase in cost of providing these benefits to employees in future. Since the benefits are lump sum in nature, the plan is not subject to any longevity risks.

(ii) Terminal Ex-gratia (Unfunded)

The Company has an obligation towards Terminal Ex-gratia, an unfunded defined benefit retirement plan covering eligible employees. The plan provides for lump sum payment which varies depending upon the number of completed years of service to vested employees on completion of employment. Vesting occurs upon the completion of 15 years of service. Since the benefits are lump sum in nature, the plan is not subject to any longevity risks.

The following tables summarise the components of net benefit expense recognised in the Statement of Profit and Loss and the funded status and amounts recognised in the Balance Sheet :

The discount rate is based on the prevailing market yields of Government of India securities as at the Balance Sheet date for the estimated term of the obligations.

The estimate of future salary increases considered, takes into account the inflation, seniority, promotion, increments and other relevant factors.

(h) sensitivity analysis:

Gratuity is a lump sum plan and the cost of providing these benefits is typically less sensitive to small changes in demographic assumptions. The key actuarial assumptions to which the benefit obligation results are particularly sensitive to are discount rate and future salary escalation rate. The following table summarizes the impact in percentage terms on the reported defined benefit obligation at the end of the reporting period arising on account of an increase or decrease in the reported assumption by 50 basis points.

(i) Funding Arragements & Policy:

The money contributed by the Company to the fund to finance the liabilities of the plan has to be invested. The trustees of the plan have outsourced the investment management of the fund to an insurance company. The insurance company in turn manages these funds as per the mandate provided to them by the trustees and the asset allocation which is within the permissible limits prescribed in the insurance regulations. Due to the restrictions in the type of investments that can be held by the fund, it is not possible to explicitly follow an asset-liability matching strategy to manage risk actively.

There is no compulsion on the part of the Company to fully pre fund the liability of the Plan. The Company’s philosophy is to fund the benefits based on its own liquidity and tax position as well as level of under funding of the plan.

The expected contribution payable to the plan next year is Rs. 87,57,534/-.

(D) Notes:

(i) Key Management Personnel compensation does not include provision for gratuity and leave encashment, which is determined for the Company as a whole.

(ii) All transactions with related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances for receivables, payables are unsecured, interest free and settlement occurs in cash. The Company has not recorded any impairment of balances relating to amounts owed by related parties during the year ended 31 March, 2018 (31 March, 2017: Rs. Nil; 1 April, 2016: Rs. Nil). The assessment is undertaken each financial year through evaluating the financial position of the related party and the market in which the related party operates.

(a) The Company is primarily engaged in the Automotive Gears business and all other activities revolving around the same. Information reported to and evaluated regularly by the Chief Operational Decision Maker (CODM) i.e. Chairman and Managing Director for the purpose of resource allocation and assessing performance focuses on the business as a whole. Accordingly, there is no other separate reportable segment as defined by Ind AS 108 “Operating Segments”.

(b) Information about Geographical area:

The revenue of the Company from the external customers are attributed to (i) the Company’s country of domicile i.e. India and (ii) all foreign countries in total from which the Company derives revenue. Details are as follows:

I Capital management

The Company manages its capital to ensure that the Company will be able to continue as going concern while maximising the return to shareholders through the optimisation of the debt and equity.

The Company manages its capital structure and makes adjustments in the light of changes in economic conditions and the requirements of the financials covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payments to shareholders, return capital to shareholders or issue new shares. The capital structure is monitored on the basis of net debt to equity and maturity profile of the overall debt portfolio of the Company.

In order to achieve the overall objective, the Company’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the banks/lenders to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest bearing loans and borrowings in the current year.

No changes were made in the objectives, policies and processes for managing capital during the years ended 31 March, 2018 and 31 March, 2017.

II Financial Risk Management Framework

The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk. In order to manage the aforementioned risks, the Company operates a risk management policy and a program that performs close monitoring of and responding to each risk factors.

(A) Credit risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks, foreign exchange transactions and other financial instruments.

(i) Trade receivables

Customer credit risk is managed by the Company subject to the Company’s established policy, procedures and control relating to customer credit risk management. Credit quality of a customer is assessed based on payment performance over the period of time and wherever required a detailed financial analysis. Outstanding customer receivables are regularly monitored. At 31 March, 2018, the Company had 5 customers (31 March 2017: 4 customers; 01 April, 2016: 4 customers) that owed the Company more than Rs. 500 lacs each and accounted for approximately 56.93% of all the receivables outstanding (31 March, 2017: 46.03%; 01 April, 2016: 45.66%).

An impairment analysis is performed at each reporting date on an individual basis for each customers. The Company does not hold collateral as security.

(ii) Financial instruments and cash deposits:

Credit risk from balances with banks and financial institutions is managed by the Company in accordance with the Company’s policy. The credit risk is limited because counter parties are banks/institutions with high credit ratings.

(B) Liquidity risk

(i) Liquidity risk management

The Company manages liquidity risk by maintaining adequate reserves, banking facilities/borrowings and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

(ii) Maturities of financial liabilities

The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The amount disclosed in the tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The table include both interest and principal cash flows.

Interest rate sensitivity:

The sensitivity analysis below have been determined based on the exposure to interest rates for non-derivative instruments at the end of the reporting period. For floating variable rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 100 basis point increase or decrease is used for the purpose of sensitivity analysis.

If interest rates had been 100 basis points higher/lower and all other variables held constant, the Company’s profit for the year ended 31 March, 2018 would decrease/increase by Rs. 135.52 lacs (loss for the year ended 31 March, 2017 decrease/increase by Rs. 112.33 lacs). This is mainly attributable to the Company’s exposure to interest rate on its variable rate borrowings.

The amounts included above for variable interest rate instruments for both non-derivative financial liabilities is subject to change if changes in variable interest rates differ to those estimates of interest rates determined at the end of the reporting period.

(C) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

(i) Currency Risk

The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. The Company’s exposure to currency risk relates primarily to the Company’s operating activities and borrowings when transactions are denominated in a different currency from the Company’s functional currency.

The Company manages its foreign currency risk by effective monitoring movement in foreign currency rates and seeks to minimize the effect of currency risk by using non derivative financing instrument to hedge risk exposures.

The carrying amounts of the Company’s unhedged foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows:

(ii) Foreign currency sensitivity

The following table demonstrates the sensitivity in the USD, Euro and other currencies to the functional currency of the Company, with all other variables held constant. The impact on the Company’s profit before tax is due to changes in the fair value of the monetary assets and liabilities including currency derivatives.

(ii) Interest rate risk

Refer comment given above in maturities of financial liabilities under liquidity risk.

(iii) Raw material price risk

The Company does not have significant risk in raw material price variations. In case of any variation in price, the same is passed on to customers through appropriate adjustment to selling prices.

Note 3 : Fair value

Note Particulars

A Fair value measurement:

All the financial assets and financial liabilities of the Company are carried at amortised cost.

The management assessed that financial instruments such as trade receivables, cash and cash equivalents, other bank balances, other financial assets (except security deposits), trade payables, other financial liabilities (except current maturities of long term debts) approximate their carrying value largely due to the short-term maturities of these instruments.

B Fair value hierarcy:

Quantative disclosure fair value measurement hierarchy:

Note 4 : First-time adoption of Ind AS

The Company has prepared financial statements which comply with Ind AS applicable for periods ending on 31 March 2018, together with the comparative period data as at and for the year ended 31 March 2017, as described in the summary of significant accounting policies. In preparing these financial statements, the Company’s opening balance sheet was prepared as at 01 April 2016, the Company’s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the balance sheet as at 01 April 2016 and the financial statements as at and for the year ended 31 March 2017.

Note: Under previous GAAP, total comprehensive income was not reported. Therefore, the above reconcilitaion starts with loss under the previous GAAP.

(v) Under Ind AS, bank overdrafts which are repayable on demand and form an integral part of an entity’s cash management system are included in cash and cash equivalents for the purpose of presentation of the Statement of Cash Flows. Whereas under previous GAAP, there was no similar guidance and hence bank overdrafts were considered similar to other borrowings and the movements therein were reflected in cash flows from financing activities. The effect of this is that the bank overdrafts of Rs. 2853.31 lacs as at 31 March, 2017 and Rs. 2578.49 lacs at 01 April, 2016 have been considered as part of cash and cash equivalents under Ind AS for the purpose of presentation of the Statement of Cash Flows. Consequently, the cash outflow from financing activities as per the Statement of Cash Flows for the year ended 31 March, 2017 prepared as per Ind AS is lower to the extent of this net movement of Rs. 274.82 lacs.

Footnotes to reconciliations:

1. Under the previous GAAP, leasehold land was considered as part of property, plant and equipment and was amortised over the period of the lease. Under Ind AS, interest in leasehold land is considered as lease as per the definition and classification criteria in Ind AS 17. The Company has a leasehold land at Faridabad, which was revalued. This leasehold land has a carrying value of Rs. 280.62 lacs and revaluation reserve of Rs. 291.27 lacs as at 01 April, 2016. Accordingly, the carrying value of the leasehold land has been adjusted against the revaluation reserve as at 01 April, 2016, resulting in an excess revaluation reserve of Rs. 10.65 lacs which has been transferred to retained earnings.

The net effect of this change is Rs. Nil as at 31 March, 2017 (as at 01 April, 2016 decrease in total equity by Rs. 280.62 lacs) and there is no change in loss for the year ended 31 March, 2017.

Further, Accounting Standard (AS) 10 ‘Property, plant and equipment’ amended by the Central Government, became applicable to the Company from 01 April, 2016. In accordance with the transitional provisions prescribed in the said AS, the Company has adopted the cost model as its accounting policy. Accordingly, Revaluation reserve of Rs. 156.76 lacs pertaining to freehold land and buildings was adjusted against the carrying value of the respective items (Gross block of Rs. 409.06 lacs and accumulated depreciation of Rs. 255.91 lacs) and excess Revaluation reserve of Rs. 2.41 lacs was transferred to General reserve as at 01 April, 2016. The Company has elected to continue with the carrying values under previous GAAP for all the items of property, plant and equipment and intangible assets as deemed cost at the date of the transition. Accordingly, the same has been reinstated.

The net effect of these changes is increase in loss by Rs. 0.81 lac (net of deferred tax of Rs. 0.39 lac) for the year ended 31 March, 2017.

2. Under previous GAAP, interest free loans to employees were carried at the undiscounted amount. Under Ind AS, such loans are to be measured initially at discounted amounts, if the effect of time value of money is material. Accordingly, the Company has identified loans to employees which qualify as financial assets and has discounted such loans to their present value at the reporting dates. After initial recognition, the loans are being measured at amortised cost i.e. interest based on the market rate has been recognised under the effective rate method as part of interest income. The prepayments are charged to the Statement of Profit and Loss on the straight line basis over the period of loans given.

The net effect of these changes are:

Reduction in loan balances is of Rs. 38.90 lacs (Rs. 30.15 lacs from non-current and Rs. 8.75 lacs from current assets) and corresponding increase in prepayments under other non-current assets and other currents assets by Rs. 36.19 lacs and Rs. 6.45 lacs respectively as at 31 March, 2017 [Rs. 36.34 lacs (Rs. 27.77 lacs from non current and Rs. 8.57 lacs from current assets) and corresponding increase in prepayments under other non-current assets and other currents assets by Rs. 30.91 lacs and Rs. 5.43 lacs respectively as at 01 April, 2016].

Increase in employee benefits expense of Rs. 6.27 lacs and increase in other income of Rs. 10.01 lacs which resulted in net decrease in loss before tax of Rs. 3.74 lacs for the year ended 31 March, 2017.

3. Under previous GAAP, interest free security deposits given were at the undiscounted amount. Under Ind AS, such deposits are to be measured initially at discounted amounts, if the effect of time value of money is material. Accordingly, the Company has identified deposits which qualify as financial assets and has discounted such deposits to their present value at the reporting date. After initial recognition, the deposits are subsequently measured at amortised cost i.e. interest based on the market rate has been recognised under the effective rate method as part of interest income. The prepayments are charged to the Statement of Profit and Loss on the straight line basis over the period of security deposit.

Decrease of deposit balances by ‘11.83 lacs (Rs. 10.76 lacs from non-current and Rs. 1.07 lacs from current assets) and corresponding increase in prepayments under other non-current assets and other currents assets by Rs. 1.74 lacs and Rs. 7.66 lacs respectively as at 31 March, 2017 (Rs. 20.16 lacs (Rs. 10.76 lacs from non-current and Rs. Nil from current assets) and corresponding increase in prepayments under other non-current assets and other currents assets by Rs. 9.40 lacs and Rs. 7.66 lacs respectively and corresponding impact of Rs. 3.10 lacs has been adjusted in retained earnings as at 01 April, 2016).

Increase in rent expenses of Rs. 7.66 lacs and increase in other income of Rs. 8.33 lacs which resulted in net decrease in loss before tax of Rs. 0.67 lac for the year ended 31 March, 2017.

4. Under the previous GAAP, long-term borrowings were carried at at the undiscounted amount and upfront fee and processing/other charges paid were charged off to the Statement of Profit and Loss. Under Ind AS, such borrowings are to be recorded net of the aforesaid charges. Accordingly, existing borrowings as at reporting dates have been re-stated by computing the revised interest charge using the effective interest rate method.

The net effect of these changes are:

Decrease in borrowings by Rs. 20.42 lacs as at 31 March, 2017 [Rs. 21.87 lacs and corresponding increase in retained earnings of Rs. 14.64 lacs (net of deferred tax of Rs. 7.23 lacs) as at 01 April, 2016].

Increase in loss before tax of Rs. 1.45 lacs for the year ended 31 March, 2017.

5. Under previous GAAP, sale of goods was presented as net of excise duty. However, under Ind AS, sale of goods includes excise duty. Excise duty on sale of goods is separately presented on the face of the Statement of Profit and Loss. Thus, sale of goods under Ind AS has increased by Rs. 2759.28 lacs with a corresponding increase in other expenses.

6. Under previous GAAP, there is no concept of Other Comprehensive Income (OCI). Under Ind AS specified items of income, expenses, gains and losses are required to be presented in OCI.

Both under previous GAAP and Ind AS, the Company recognized costs related to its post-employment defined benefit plan on an actuarial basis. Under Indian GAAP, the entire cost, including actuarial gains and losses, were charged to profit or loss. Under Ind AS, remeasurements comprising of actuarial gains and losses are recognized immediately in the Balance Sheet with a corresponding debit or credit to retained earnings through Other Comprehensive Income. Consequently, the tax effect of the same has also been recognized in other comprehensive income under Ind AS instead of the Statement of Profit and Loss. The actuarial gain for the year ended 31 March, 2017 was Rs. 33.84 lacs and the tax effect thereon Rs. 11.19 lacs. This change does not affect total equity, but there is an increase in loss before tax of Rs. 33.84 lacs and loss for the year ended 31 March, 2017 of Rs. 22.65 lacs.

7. Under previous GAAP, the Company de-recognized invoices discounted/factored of trade receivables with lenders and disclosed the same as contingent liablities. However, under Ind AS, based on evaluation of risks and rewards and control, the same does not meet the criteria for de-recognition. Accordingly, the same has been recognized as borrowings as at 31 March, 2017 (Rs. 2396.92 lacs) and 01 April, 2016 (Rs. 1693.18 lacs).

8. Indian GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12 requires accounting for deferred taxes using the balance sheet approach, which focuses on temporary difference between the carrying amount of an asset or liability in the balance sheet and its tax base. The application of Ind AS 12 approach has resulted in recognition of deferred tax on new temporary differences which was not required under Indian GAAP. In addition, the various transitional adjustments lead to temporary differences and the Company has accounted for such differences. Deferred tax adjustment are recognized in correlation to the underlying transaction either in retained earnings or a separate component in equity.

MAT credit entitlement is to be presented under loans and advance in accordance with Guidance Note on ‘Accounting for Credit available in respect of MAT under the Income tax Act, 1961’ issued by the Institute of Chartered Accountants of India. However, as per Ind AS, MAT credit entitlement is recognized as a deferred tax asset with a corresponding deferred tax benefit in the statement of profit and loss. Accordingly, the Company has reclassified the MAT credit entitlement from loans and advances to deferred tax assets.

Due to transition to Ind AS from previous GAAP, following adjustments were made to deferred tax asset (net) as at 31 March, 2017 and 01 April, 2016.

Note 5 : Previous year’s figures

The comparative financial information of the Company for the year ended 31 March, 2017 prepared in accordance with Ind AS included in this Financial Statements is based on Financial Statements audited under Indian GAAP by predecessor auditor M/s. Deloitte Haskins & Sells, Chartered Accountants vide their report dated 23 May, 2017.

Previous GAAP figures have been reclassified/regrouped wherever necessary to confirm with Financial Statements prepared under Ind AS.