1. Corporate Information
PPAP AUTOMOTIVE LIMITED (“PPAP” or “the Company”) is a limited Company domiciled in India and was incorporated on 18th October, 1995. The registered office of the Company is located at 54, Okhla Industrial Estate, Phase-III New Delhi-110020, India.
PPAP is a leading manufacturer of automotive sealing systems, interior and exterior automotive parts in India. The Company’s state of the art manufacturing facilities are located in Noida (U.P.), Greater Noida (U.P.), Vallam Vadagal (Tamil Nadu), Pathredi (Rajasthan) and Viramgam (Gujarat). The Company was listed on the Indian Stock Exchange (BSE / NSE) in 2008. The financial statements of the Company for the year ended 31st March, 2018 were authorized for issue in accordance with a resolution of the Directors on 21st May, 2018.
I n 2012, the Company has ventured into EPDM Rubber based automotive sealing systems by establishing a Joint Venture with its Technology Partner Tokai Kogyo Co. Limited-Japan.
2. Significant Accounting Policies
2.1 Basis of preparation
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 and the Companies (Indian Accounting Standards) (Amendment) Rules, 2016.
For all periods up to and including the year ended 31st March, 2017, the Company has prepared its financial statements in accordance with Indian GAAP including accounting standards notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Indian GAAP). These financial statements for the year ended 31st March, 2018 are the first being prepared in accordance with Ind AS.
The financial statements have been prepared on a historical cost basis, except for the certain assets and liabilities which have been measured at different basis and such basis has been disclosed in relevant accounting policy.
The financial statements are presented in INR and all values are rounded to the nearest lacs (INR 00,000), except as when otherwise indicated.
2.2 Significant accounting judgements, estimates and assumptions
The preparation of the Company’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures and the disclosure of contingent liabilities at the date of the financial statements. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
In particular, the Company has identified the following areas where significant judgements, estimates and assumptions are required. Further information on each of these areas and how they impact the various accounting policies are described below and also in the relevant notes to the financial statements. Changes in estimates are accounted for prospectively.
Judgements
In the process of applying the Company’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognized in the financial statements.
Contingencies
Contingent liabilities may arise from the ordinary course of business in relation to claims against the Company, including legal, contractor, land access and other claims. By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence and potential quantum, of contingencies inherently involves the exercise of significant judgments and the use of estimates regarding the outcome of future events.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market change or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur
(a) Impairment of Non-Financial Assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
I n assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.
(b) Defined Benefit Plans
The cost of the defined benefit plan and other post-employment benefits and the present value of such obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
(c) Fair Value Measurement of Financial Instruments
When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
(d) Impairment of Financial Assets
The impairment provisions for financial assets are based on assumptions about risk of default and expected loss rates. The Company uses judgments in making these assumptions and selecting the inputs to the impairment calculation, based on Company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.
Derivative instruments at fair value through profit or loss
Derivative instruments at fair value through profit or loss reflect the positive change in fair value of those foreign exchange forward contracts that are not designated in hedge relationships, but are, nevertheless, intended to reduce the level of foreign currency risk for expected sales and purchases.
Bank deposits (having maturity more than 12 months)
Bank deposits are held as security against letter of credit and bank guarantees.
B. Terms / Rights attached to equity shares
The Company has only one class of equity share having face value of Rs. 10/- per share. The holder of the equity shares is entitled to receive dividend as declared from time to time. The dividend proposed by the Board of Directors is subject to the approval of shareholders in ensuing annual general meeting. The holder of share is entitled to voting rights proportionate to their shareholding.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive assets of the Company remaining after settlement of all liabilities. The distribution will be in proportion to the number of equity shares held by the shareholders.
Note I:
Term loans are secured by 1st charge on all movable assets (present and future) of the Company. Term loans are further secured by way of equitable mortgage on factory land and building of the Company situated at Kasna, Greater Noida. The charges are ranked pari-passu with the charges shared with other bankers.
Note II:
Loan from State Owned Corporation viz. The Pradeshiya Industrial & Investment Corporation of U.P. Limited is secured by bank guarantee equivalent to 100% of loan amount.
Note III:
Secured by hypothecation of inventories, book debts, other current assets, factory land and building at B-206A, Sector-81, Phase-II, Noida.
3. Earnings Per Share (EPS)
Basic and Diluted EPS amounts are calculated by dividing the profit for the year attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year. Diluted EPS are calculated by dividing the profit for the year attributable to the equity holders of the Company by weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on conversion of all the dilutive potential equity shares into equity shares.
The following reflects the income and share data used in the basic and diluted EPS computations:
4. Employee Benefit Plans
Defined contribution plans - general description
Retirement benefits in the form of provident fund, superannuation fund and national pension scheme are defined contribution schemes. The Company has no obligation, other than the contribution payable to the provident fund. The Company’s contribution to the povident fund is Rs. 195.22 lacs (31st March, 2017: Rs. 170.90 lacs)
Defined benefit plans - general description Gratuity
The Company has a defined benefit gratuity plan. Gratuity is computed as 15 days salary, for every completed year of service or part thereof in excess of 6 months and is payable on retirement / termination / resignation. The benefit vests on the employee completing 5 years of service. The Company makes provision of such gratuity asset / liability in the books of accounts on the basis of actuarial valuation as per the projected unit credit method.
The following tables summarise the components of net benefit expense recognised in the statement of profit & loss and the funded status and amounts recognised in the balance sheet for the gratuity plan:
Changes in the present value of the defined benefit obligation are as follows:
The sensitivity analyses above have been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. Sensitivities due to mortality and withdrawals are insignificant and hence ignored. Sensitivities as to rate of inflation, rate of increase of pensions in payments, rate of increase of pensions before retirement & life expectancy are not applicable being a lump sum benefit on retirement.
Company’s best estimate of expense for the next annual reporting period is Rs. 140.33 lacs.
The weighted average duration of the defined benefit plan obligation at the end of the reporting period is 17.23 years (31st March, 2017: Rs. 16.83 years)
5. Leases
Operating leases taken
The Company has taken certain building on operating lease arrangements. The lease expense recognized in the statement of profit and loss is Rs. 196.97 lacs (31st March, 2017: Rs. 184.28 lacs). The future minimum lease payments under non-cancellable operating leases are as follows:
Operating leases given
The Company has given certain properties on operating lease arrangements. The lease income recognized in the statement of profit and loss is Rs. 88.17 lacs (31st March, 2017: Rs. 82.41 lacs). The future minimum lease payments under non-cancellable operating leases are as follows:
6. Commitments
(i) Retention charges and capital commitments (net of advances) are Rs. 302.67 lacs (31st March, 2017: Rs. 791.59 lacs; 1st April, 2016: Rs. 541.02 lacs)
Notes :-
(i) A demand of Rs. 29.40 lacs has been raised for the assessment year 2010-11. The Hon’ble CIT(A) has partly allowed the appeal in our favour. However department has filed the appeal with ITAT(Delhi) against the order of the allowability of the royalty amount. Balance liability of Rs. 10.63 lacs has been accepted and paid by the Company. ITAT has referred back the case to assessing officer for recomputation of income.
(ii) A demand of Rs. 2.43 lacs has been raised for the assessment year 2011-12. The Hon’ble CIT(A) has decided the case in our favour. However department has filed the appeal with ITAT(Delhi) against the order of the allowability of the royalty amount. The case has been decided in our favour and ITAT has deleted the demand.
(iii) A demand of Rs. 3.00 lacs has been raised for the assessment year 2012-13. The Hon’ble CIT(A) has decided the case in our favour. The department has filed an appeal with ITAT (Delhi).
(iv) Central sales tax assessment for the assessment year 2004-05 was completed and a balance demand of Rs. 0.45 lacs was raised by the department. Appeal against the same is pending before the Joint Commissioner of sales tax (Appeals) and stay granted vide order no F/PA/Jt. Comm. (KDU) /02/Stay/ 410-411 dated 18.08.06.
(v) Joint commissioner has demanded entry tax of Rs. 5.24 lacs on stock transfer of iron and steel for job work for the assessment year 2011-12. We have filed an appeal before the Additional Commissioner (Appeals) against the said demand. Additional Commissioner (Appeals) granted stay of 50% of demand. We have filed an appeal against the order of Additional Commissioner (Appeals) before Commercial Tax Tribunal (Noida, U.P.).
(vi) Joint Commissioner has demanded Rs. 31.16 lacs towards shortfall of Form C and Rs. 4.43 lacs towards central sales tax on stock transfer of iron and steel for job work for the assessment year 2012-13. We filed an appeal before the Additional Commissioner (Appeals) against the said demand. Additional Commissioner (Appeals) granted stay of 50% of total demand. We have filed an appeal against the order of Additional Commissioner (Appeals) before Commercial Tax Tribunal (Noida, U.P.).
(vii) Joint Commissioner has demanded Rs. 2.69 lacs towards reversal of input tax credit on consumable goods for the assessment year 2013-14. We have filed an appeal before the Additional Commissioner (Appeals) against the said demand. Additional Commissioner (Appeals) has granted stay of 50% of total demand.
(viii) A demand of Rs. 84.55 lacs had been raised by BSES Rajdhani Limited for making payments of arrears for the misuse of electricity. The Company had filed a suit against BSES with District Court and won the case in its favour. However, BSES had filed an appeal with Hon’ble High Court. The case has been decided in our favour and the Hon’ble High Court set aside the said demand.
(ix) Demand of excise duty of Rs. 1.06 lacs along with penalty of Rs. 1.06 lacs was imposed on the Company by Additional Commissioner, Central Excise, Delhi, for cenvat credit taken on payment of duty through DEPB license, under the Central Excise Act, 1944. The Company had filed an appeal against the aforesaid order with Commissioner of Central Excise, Okhla. The Commissioner of central excise has rejected the appeal. Thereafter, the Company has filed the appeal with the Central Excise & Service Tax Appellate Tribunal (CESTAT) and the appeal is pending.
(x) Demand of excise duty of Rs. 42.11 lacs along with penalty of Rs. 42.11 lacs was imposed on the Company by Additional Commissioner, Central Commissionerate, Noida, for cenvat credit taken on payment of duty through DEPB license, under the Central Excise Act, 1944. The Company filed before the Commissioner (Appeals), Central Excise, Noida. The Commissioner (Appeals) rejected the appeal. The Company has filed the appeal with the Central Excise & Service Tax Appellate Tribunal (CESTAT) which has been decided in favor of the Company. The department approached the Allahabad High Court against the order of CESTAT. The High Court remanded the case back to Allahabad CESTAT for hearing it again.
(xi) Demand of excise duty of Rs. 35.36 lacs along with penalty of Rs. 35.36 lacs was imposed on the Company by Additional Commissioner, Central Excise, Delhi, for cenvat credit taken on payment of duty through DEPB license, under the Central Excise Act, 1944 and was outstanding as on 31.03.2016. The Company had filed the appeal with the Central Excise & Service Tax Appellate Tribunal (CESTAT) and CESTAT has decided the case in favour of Company and set aside the demand. The Company approached the Delhi High Court against the order of CESTAT and the High Court has remanded the case back to CESTAT for hearing it again.
(xii) RIICO has raised a demand of Rs. 103.57 lacs towards additional cost of land due to delay in commencement of production activities at its plant at Pathredi.
7. Segment information
According to Ind AS 108, identification of operating segments is based on Chief Operating Decision Maker (CODM) approach for making decisions about allocating resources to the segment and assessing its performance. Based on the consideration of dominant sources and nature of risk & returns, the Company is considered as an automotive components manufacturer. Most of the activities are revolving around this business and accordingly has only one reportable segment. The geographical location of its main operations and the internal organization / reporting and management structure supports such treatment.
8. Dues to Micro and Small Enterprises
The dues to Micro and Small Enterprises as required under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act, 2006) to the extent information available with the Company is given below:
(ii) Fair value hierarchy
All financial instruments for which fair value is recognized or disclosed are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurements as a whole.
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: valuation techniques for which the lowest level inputs that has a significant effect on the fair value measurement are observable, either directly or indirectly.
Level 3: valuation techniques for which the lowest level input which has a significant effect on fair value measurement is not based on observable market data.
The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities, other than those whose fair values are close approximations of their carrying values.
Financial assets and liabilities measured at fair value-recurring fair value measurements for which fair values are disclosed at 31st March, 2018:
There have been no transfers between Level 1 and Level 2 during the period.
Valuation technique used to determine fair value:
(i) For cash and cash equivalents, trade receivables, loans other financial assets, short term borrowings, trade payables and other current financial liabilities the management assessed that they approximate their carrying amounts largely due to the short-term maturities of these instruments.
(ii) The fair values of the Company’s investments in mutual funds has been determined by multiplying the number of units held at the year end to the closing NAV
(iii) The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date.
(iv) The fair value of security deposits is determined using discounted cash flow analysis.
9. Financial risk management objectives and policies
The Company’s principal financial liabilities, comprise borrowings, trade payables, and creditors for expenses. The Company’s principal financial assets include investments, long term deposits, trade receivables, cash and short-term deposits / loan that derive directly from its operations. The Company also holds FVTPL investments in quoted mutual funds.
The Company is exposed to market risk, credit risk and liquidity risk. The Company’s senior management oversees the management of these risks. The Company’s senior management is supported by the Board of Directors that advises on financial risks and the appropriate financial risk governance framework for the Company. The Board provides assurance to the Company’s management that the Company’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company’s policies and risk objectives. The management reviews and agrees policies for managing each of these risks, which are summarized below.
I. Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include, deposits and FVTPL investments.
The sensitivity analyses of the above mentioned risk in the following sections relate to the position as at 31st March, 2018 and 31st March, 2017.
The analyses exclude the impact of movements in market variables on: the carrying values of gratuity and other post-retirement obligations; provisions; and the non-financial assets and liabilities.
The following assumptions have been made in calculating the sensitivity analyses:
- The sensitivity of the relevant profit or loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at 31st March, 2018 and 31st March, 2017.
A. Interest rate risk
I nterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s debt obligations with floating interest rates.
B. Foreign currency sensitivity
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities (when revenue or expense is denominated in a foreign currency). Foreign currency risk sensitivity is the impact on the Company’s profit before tax is due to changes in the fair value of monetary assets and liabilities. The following tables demonstrate the sensitivity to a reasonably possible change in USD, JPY and EURO exchange rates, with all other variables held constant. The Company’s exposure to foreign currency changes for all other currencies is not material.
The movement in the pre-tax effect on profit and loss is a result of a change in the fair value of monetary assets and liabilities denominated in foreign currency.
II. 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 and financial institutions.
Credit risk from investments with banks and other financial institutions is managed by the treasury functions in accordance with the management policies. Investments of surplus funds are only made with approved counterparties who meet the appropriate rating and / or other criteria and are only made within approved limits. The management continually re-assess the Company’s policy and update as required. The limits are set to minimize the concentration of risks and therefore mitigate financial loss through counterparty failure.
Customer credit risk is managed by each business unit 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 an extensive credit review and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored.
At the year end the Company does not have any significant concentrations of bad debt risk other than disclosed in note 11.
The maximum credit risk exposure relating to financial assets is represented by the carrying value as at the Balance Sheet date.
III. Liquidity risk
The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts.
The table below summarizes the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments.
IV. Excessive risk concentration
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Company’s performance to developments affecting a particular industry. The Company is in automotive components manufacturing business and the management have assessed risk concentration as low.
10 . Capital Management
The objective of the Company’s capital management structure is to ensure that there remains sufficient liquidity within the Company to carry out committed work programme requirements. The Company monitors the long term cash flow requirements of the business in order to assess the requirement for changes to the capital structure to meet that objective and to maintain flexibility.
The Company manages its capital structure and makes adjustments to it, in light of changes to economic conditions. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital, issue new shares for cash, repay debt, put in place new debt facilities or undertake other such restructuring activities as appropriate. No changes were made in the objectives, policies or processes during the year ended 31st March, 2018.
11. Balance confirmation
Debit and credit balance of trade payables and trade receivables to the extent not confirmed are subject to confirmation and reconciliation with parties.
12. In the opinion of the Board of Directors and to the best of their knowledge and belief, the aggregate value of current assets on realization in the ordinary course of business will not be less than the amount at which these are stated in the Balance Sheet.
13. Disclosure of movement in provisions during the year as per Ind AS- 37, ‘Provisions, Contingent Liabilities and Contingent Assets:
14. Disclosure under Ind AS 7 ‘Statement of Cash Flows’
Effective 1st April, 2017, the Company adopted the amendment to Ind AS 7, which require the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the Balance Sheet for liabilities arising from financing activities.
15 First time adoption of Ind AS
The financial statements, for the year ended 31st March, 2018, are the Company’s first financial statements prepared in accordance with Ind AS. For periods up to and including the year ended 31st March, 2017, the Company has prepared its financial statements in accordance with accounting standards notified under Section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Previous GAAP). Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for periods ending on 31st March, 2018, together with the comparative period data as at and for the year ended 31st 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 1st April, 2016, the Company’s date of transition to Ind AS. This note explains exemptions availed by the Company in restating its previous GAAP financial statements, including the balance sheet as at 1st April, 2016 and the financial statements as at and for the year ended 31st March, 2017.
Exemptions applied:
1. Mandatory exceptions;
a) Estimates
The estimates at 1st April, 2016 and at 31st March, 2017 are consistent with those made for the same dates in accordance with previous GAAP (after adjustments to reflect any differences in accounting policies) apart from impairment of financial assets based on expected credit loss model where application of previous GAAP did not require estimation.
The estimates used by the Company to present these amounts in accordance with Ind AS reflect conditions at 1st April, 2016, the date of transition to Ind AS and as of 31st March, 2017
b) De-recognition of financial assets
The Company has applied the de-recognition requirements in Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS.
c) Classification and measurement of financial assets Financial Instruments
Financial assets like security deposits received and security deposits paid, has been classified and measured at amortized cost on the basis of the facts and circumstances that exist at the date of transition to Ind AS. Since, it is impracticable for the Company to apply retrospectively the effective interest method in Ind AS 109, the fair value of the financial asset or the financial liability at the date of transition to Ind AS by applying amortized cost method, has been considered as the new gross carrying amount of that financial asset or the financial liability at the date of transition to Ind AS.
d) Impairment of financial assets: (Trade receivables and other financial assets)
At the date of transition to Ind AS, the Company has determined that estimation of significant increase in credit risk since the initial recognition of a financial instrument would require undue cost or effort, the Company has recognized a loss allowance at an amount equal to lifetime expected credit losses at each reporting date until that financial instrument is derecognized (unless that financial instrument is low credit risk at a reporting date).
2. Optional exemptions
a. Deemed cost Previous GAAP carrying amount: (PPE and Intangible)
Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognized in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets and investment property covered by Ind AS 40 Investment Properties.
Accordingly, the Company has elected to measure all of its property, plant and equipment, capital work-in-progress and intangible assets at their previous GAAP carrying value.
b. Lease
Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. Ind AS 101 provides an option to make this assessment on the basis of facts and circumstances existing at the date of transition to Ind AS, except where the effect is expected to be not material. The company has elected to apply this exemption for such contracts / arrangements.
c. Investment in subsidiaries, jointly controlled entities and associates in standalone financial statements At transition date, entity may choose to account for its investment at:
- Cost as per Ind AS 27 determined at transition date.
- Fair value as per Ind AS 113 (only on transition date).
- Previous GAAP carrying amount.
- Fair value as per Ind AS 109 (recurring fair valuation without recycling).
The Company has elected to apply previous GAAP carrying amount exemption.
Reconciliations between previous GAAP and Ind AS
Ind AS 101 requires an entity to reconcile total equity and total comprehensive income for prior periods. The following tables represent the reconciliations from previous GAAP to Ind AS.
Note-1
De-recognition of proposed dividend
Under the Indian GAAP, dividends proposed by the board of directors after the balance sheet date but before the approval of the financial statements were considered as adjusting events. Accordingly, provision for proposed dividend was recognized as a liability. Under Ind AS, such dividends are recognized when the same is approved by the shareholders in the general meeting.
Note-2
Reversal of amortization of leasehold land classified as finance lease
Under Indian GAAP, the leasehold land was recognized as property, plant and equipment and the same was amortized during the tenure of the lease. Under Ind AS, the leasehold land has been classified as finance lease and hence the amortization is reversed as land is considered to have infinite useful life.
Note-3
Fair valuation of current investments
Under Indian GAAP, the mutual funds classified as current investments were valued at lower of cost and fair value. Under Ind AS the same are classified as financial assets and are valued at FVTPL.
Note-4 Measurement of certain financial assets at amortized cost
Under previous GAAP, the security deposits paid for lease rent are shown at the transaction value whereas under Ind AS, the same are initially discounted and subsequently recorded at amortized cost at the end of every financial reporting period. Accordingly, the difference between the transaction and discounted value of the security deposits paid towards lease rent is recognized as deferred lease expense and is amortized over the period of the lease term. Further, interest is accreted on the present value of the security deposits paid for lease rent.
Note-5
Measurement of certain financial liabilities at amortized cost Interest free loan-Government grant
Under the previous GAAP, interest free loan from the government has been presented in the Balance Sheet by showing it as a part of borrowings. Under Ind AS the benefit of a government loan at a below-market rate of interest is treated as a government grant. The benefit of the below-market rate of interest shall be measured as the difference between the initial carrying value of the loan determined by discounted cash flow analysis and the proceeds received.
Other long term borrowings:
Under the previous GAAP, the transaction costs relating to long term borrowings were charged to profit or loss as and when incurred. However, under Ind transaction costs incurred towards origination of borrowings to be deducted from the carrying amount of borrowings on initial recognition. These costs are recognized in the profit or loss over the tenure of the borrowing as part of the interest expense by applying the effective interest rate method.
Note-6
Provision for expected credit loss on trade receivables
Under Indian GAAP, the Company created provision for impairment of receivables consists only in respect of specific amount for incurred losses. Under Ind AS, impairment allowance has been determined based on Expected Loss model (ECL).
Note-7
Remeasurement of defined benefit obligations reclassified to other comprehensive income (OCI)
Both under Indian 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, are 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 other equity through OCI.
Note-8
Excise duty
Under the previous GAAP, revenue from sale of products was presented exclusive of excise duty. Under Ind AS, revenue from sale of goods is presented inclusive of excise duty. The excise duty paid is presented on the face of the statement of profit and loss as part of expenses. There is no impact on the total equity and profit.
Note-9
Other comprehensive income
Under Ind AS, all items of income and expense recognized in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognized in profit or loss but are shown in the statement of profit and loss as ‘other comprehensive income’ includes remeasurements of defined benefit plans. The concept of other comprehensive income did not exist under previous GAAP,
Re-classification
The previous GAAP figures have been reclassified to conform to Ind AS presentation requirements for the purposes of this note.
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