1. Company Background

Insilco Limited (the ‘Company') is a subsidiary of Evonik Degussa GmbH, Germany. The Company is domiciled in India and its registered office is located at A-5, UPSIDC Industrial Estate, Bhartiagram, Gajraula, Uttar Pradesh. The Company is a public company and is incorporated under the provisions of the Companies Act, 1956. Its shares are listed on Bombay Stock Exchange. The Company is engaged in the manufacturing and selling of precipitated silica. Insilco produces different grades of precipitated silica, catering to the requirements of customers in different industries.

The financial statements were approved and authorized for issue with a resolution of the Company's Board of Directors on May 28, 2018.

Note 2: Critical estimates and judgements

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Company's accounting policies. This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgements is included in relevant notes together with information about the basis of calculation for each affected line item in the financial statements.

Critical estimates and judgements

The areas involving critical estimates and judgements are:

- Estimation of useful life of property, plant and equipment - Note 3

- Fair value of investment properties - Note 4

- Fair value of investment in mutual funds - Note 9(a)

- Impairment of trade receivables - Note 9(b)

- Estimation of defined benefit obligation - Note 13(a) and 13(b)

- Provision for litigations and contingent liabilities - Note 12 (d) and 28

- Recognition of deferred tax assets and liabilities and tax expense - Note 14 and 26

Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Company and that are believed to be reasonable under the circumstances.

The land had been taken on lease from Uttar Pradesh State Industrial Development Corporation (UPSIDC), for a period of 90 years. The lease has been considered as finance lease and accordingly land is being amortised on straight line basis over the lease term.

(ii) Contractual obligation

Refer to Note 29(a) for disclosure of contractual commitments for the acquisition of property, plant and equipment.

(iii) Capital work-in-progress

Adjustment represents provision / write off of the coal project (Refer note 25).

Capital work-in-progress mainly comprises of expenditure towards the Distributed Control System and a New Dryer roof at Gajraula plant.

(i) Amounts recognised in the statement of profit or loss for investment properties

The Company has not recognised any amount related to investment properties in the Statement of Profit and Loss for the year ended March 31, 2018 and the year ended March 31, 2017.

Estimation of fair value :

The Company obtains independent valuation for its investment property at least annually. The best evidence of fair value is current prices in an active market for similar properties. Where such information is not available, the Company consider information from a variety of sources including:

- current prices in an active market for properties of different nature or recent prices of similar properties in less active markets, adjusted to reflect those differences

- discounted cash flow projections based on reliable estimates of future cash flows

- capitalised income projections based upon a property's estimated net market income, and a capitalisation rate derived from an analysis of market evidence

The fair values of investment properties have been determined by Felix Advisory Private Limited. The main inputs used are the right to sell / transfer / lease the land, demand and prospective buyers for such medium sized plots of land, shape, size, prominence and location of land, the marketability, utility, demand and supply of similar land in the surrounding area, the land rates as evident form the sale Instances of comparable land found upon market enquiry, the land rates prevailing in nearby areas, legal and physical encumbrance on land, freehold and leasehold nature of land etc, usage - freehold land, locational advantages / disadvantages, easements / covenants regarding the usage of land, availability of infrastructure and civic amenities. All resulting fair value estimates for investment properties are included in level 3.

- The Company has given a bank guarantee of Rs. 1,000 (‘000) [31 March 2017 - Rs. 1,000 (‘000), 01 April 2016 - Rs. Nil (‘000) to UP Pollution Control Board against which a fixed deposit of same amount has been made with the bank. Therefore, there is restriction to use these funds.

Amounts recognised in the statement of profit and loss

Write-downs of inventories to net realizable value amounted to Rs. 1,016 (‘000) [31 March 2017 - Rs. 1,985 (‘000)]. These were recognized as an expense during the year and included in ‘changes in value of inventories of work-in-progress and finished goods' in statement of profit and loss.

(ii) Terms/rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs. 10 per share. Each holder of equity shares is entitled to vote. Dividend if declared, then paid in Indian rupees. The dividend proposed by the Board of Directors is subject to approval of the shareholders in the ensuing Annual General Meeting. 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. The distribution will be in proportion to the number of equity shares held by the shareholders.

Nature and purpose of other reserve

The Company uses hedging instruments as part of its management of foreign currency risk associated with its highly probable forecast as described within note 34. For hedging foreign currency risk, the Company uses foreign currency forward contracts and these are designated as cash flow hedges. To the extent these hedges are effective; the change in fair value of the hedging instrument is recognised in the cash flow hedging reserve. Amounts recognised in the cash flow hedging reserve is reclassified to profit or loss when the hedged item affects profit or loss (e.g. sales and interest payments). When the forecast transaction results in the recognition of a non-financial asset (e.g. property, plant & equipment), the amount recognised in the cash flow hedging reserve is adjusted against the carrying amount of the non- financial asset.

(i) Compensated absences

The amount of the provision of Rs. 5,683 (‘000) (31 March 2017 - Rs. 5,441 (‘000), 1 April 2016 - Rs. 5,352 (‘000) is presented as current, since the group does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. The following amounts reflect leave that is not expected to be taken or paid within the next 12 months.

(ii) Post-employment obligations

- Gratuity

Under the gratuity plan, every employee who has completed at least five years of service gets a gratuity on departure at 15 days of last drawn salary for each completed year of service. The completion of continuous service of 5 years shall not be applicable for an employee who attains the age of superannuation or normal age of retirement before completion of the continuous service of 5 years. The Company has funded the gratuity liability with Life Insurance Corporation of India (LIC) except in case of certain new employees, whose gratuity liability is unfunded. Rate of return is as given by the insurance Company. The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

In respect of Employees Gratuity Fund, composition of plan assets is not readily available from LIC of India. The expected rate of return on assets is determined based on the assessment made at the beginning of the year on the return expected on its existing portfolio, along with the estimated increment to the plan assets and expected yield on the respective assets in the portfolio during the year.

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the balance sheet.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.

(j) Risk Exposure

Valuations are performed on certain basic set of pre-determined assumptions and other regulatory frame work which may vary over time. Thus, the Company is exposed to various risks in providing the above gratuity benefit which are as follows:

Interest Rate risk: The plan exposes the Company to the risk of fall in interest rates. A fall in interest rates will result in an increase in the ultimate cost of providing the above benefit and will thus result in an increase in the value of the liability (as shown in financial statements).

Liquidity Risk: This is the risk that the Company is not able to meet the short-term gratuity payouts. This may arise due to non availability of enough cash / cash equivalent to meet the liabilities or holding of illiquid assets not being sold in time.

Salary Escalation Risk: The present value of the defined benefit plan is calculated with the assumption of salary increase rate of plan participants in future. Deviation in the rate of increase of salary in future for plan participants from the rate of increase in salary used to determine the present value of obligation will have a bearing on the plan's liability.

Demographic Risk: The Company has used certain mortality and attrition assumptions in valuation of the liability. The Company is exposed to the risk of actual experience turning out to be worse as compared to the assumptions.

Asset Liability Mismatching or Market Risk: The duration of the liability is longer compared to duration of assets, exposing the Company to market risk for volatilities/fall in interest rate.

Investment Risk: The probability or likelihood of occurrence of losses relative to the expected return on any particular investment.

Maturity Profile of Defined Benefit Obligation

Weighted average duration (based on discounted cash flows) 7 Years

(iii) Defined contribution plans

- Provident Fund: Retirement benefit in the form of provident fund is a defined contribution scheme. The Company has no obligation, other than the contribution payable to the provident fund. The Company recognizes contribution payable to the provident fund scheme as expenditure, when an employee renders the related service.

- Superannuation: The Company has taken group policy with Life Insurance Corporation of India (LIC) to fund its liability towards employee's superannuation. Superannuation fund is administered by LIC and contributions made to the fund are charged to revenue. The Company has no further obligations under the plan beyond its monthly contributions.

- National Pension Scheme: The Company has registered under the National Pension Scheme to provide post retirement benefit to employees. This is an optional scheme available to employees. The Company has no further obligations under the plan beyond its monthly contributions.

(iv) Other long term employee benefits

- Long Service Award

As per the Company policy, every employee is entitled for Long Service Award. The award is payable upon completion of 10 years and 20 years of continuous service.

Note (i) : Under tax laws, capital gain or loss cannot be set off with profit and gain from business or profession, therefore, deferred tax liability on capital losses has been recognized separately. As it was not probable that the Company will have future capital gain therefore, deferred tax asset was recognized to the extent of deferred tax liability as on 1 April 2016. The amount of deferred tax assets not recorded on the capital loss has been shown as part of ‘Unrecognised deferred tax assets' included in the table below:

Note (ii) : As it is not probable that the Company will have future taxable profit against which deferred tax assets can be realized, hence the deferred tax asset has been recognized on deductible temporary differences only to the extent of deferred tax liability. Further, deferred tax asset has not been recognized in relation to carry forward unused tax losses/ unabsorbed depreciation/MAT credit entitlement. The details of such items on which deferred tax assets has not been recognised is as below:

Goods and service tax (GST) has been effected from 01 July 2017. Consequently excise duty, value added tax, service tax etc. have been replaced with GST. Until 30 June 2017 “Sale of products” included the amount of excise duty recovered on sale. With effect from 01 July 2017 sale of products excludes the amount of GST recovered. Accordingly, revenue from sale of products for the year ended 31 March 2018 is not comparable with that of the previous year. The following additional information is being provided to facilitate such understanding:

The exceptional items for the year ended March 31, 2017 includes expense of Rs. 14,163 (‘000) on account of provision for expenses incurred on coal project and carried forward as ‘Capital work-in-progress'. As the Company was also analyzing/ evaluating alternate source of energy and based on current position, there was strong view that based on feasibility of alternate options, coal project will be dropped. Therefore, keeping in view the current circumstances expenses incurred in respect of Coal project till March 31, 2017 was provided, which had been approved by the Company's Board of Directors in their meeting on May 16, 2017. Further, during the year ended March 31, 2018 the entire expense incurred on coal project was written off after approval from Company's Board of Directors in their meeting held on December 04, 2017. The additional expenditure of Rs. 886 (‘000) has been charged of to the statement of profit and loss under “Other Expenses”, being amount incurred during the year ended March 31, 2018.

The Company had received an advance of Rs.12,500 (‘000) against a total contract value of Rs. 13,000 (‘000) for the transfer of leasehold rights in residential flats at Patalganga for two set of properties. During the year ended March 31, 2017 the Company got necessary approvals from local authorities/executed necessary documents in relation to one set of properties accordingly transfer of the said flats in the name of buyer was completed and recognised income from sale of fixed assets of Rs. 10,000 (‘000). The transfer of leasehold rights in second set of properties i.e. worker's flat is still subject to necessary approval from the authorities. However, the Company had executed an ‘Agreement of Assignment’ (which is not registered with local authority due to non-availability of required documents) for transfer of Leasehold Rights and had also given possession of the said worker's flat. Accordingly, the advance consideration for the same of Rs. 2,500 (‘000) had been disclosed under head “Advance received against disposal of fixed assets” under Other Current Liabilities (Refer note 16) in the financial statements. The said Worker's flat were fully depreciated in earlier years and were carried in books at a nominal value.

(d) Transfer Pricing Note

The Company has established a comprehensive system of maintenance of information and documents as required by the transfer pricing legislation under sections 92-92F of the Income Tax Act, 1961. For this purpose, the Company has appointed an independent consultant for conducting a Transfer Pricing study (the ‘study') for the Assessment Year 2018 -19. In the unlikely event that any adjustment is required consequent to completion of the study for the year ended March 31, 2018, the same would be made in the subsequent year. However, management is of the opinion that its international transactions are at arm's length so that the aforesaid legislation will not have any material impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

Goods were sold to related party during the year based on the price and terms that would be available to third parties. Transactions relating to SAP license, Lotus Notes, Microsoft license fee, reimbursement of training and other expenses were on the basis of cost to cost reimbursement.

All other transaction were made on normal commercial terms and conditions and at market rates. All outstanding balances are unsecured and are repayable in cash.

(a) It is not practicable for the company to estimate the timings of cash outflows, if any, in respect of the above pending resolution of the respective proceedings.

(b) The Company does not expect any reimbursements in respect of the above contingent liabilities.

The Company has entered into Lease deed with Uttar Pradesh State Industrial development Corporation Limited (UPSIDC) for its land at Gajraula plant on March 20, 1991 for a period of 90 years. The lease deed, inter-alia, establishes various terms and conditions such as obtaining prior approval of UPSIDC for transfer/ relinquish / mortgage or assign the interest of the Company etc. The Company has made upfront payment of Rs. 12,371 (‘000) as per contract and is under the obligation to pay annual lease rent.

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices (in active market) the closing Net Asset Value (NAV) of which the Company can access as on measurement date. The mutual funds are measured using the closing NAV.

Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Valuation technique used to determine fair value

The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date

There are no transfers between levels 1 and 2 during the year.

The Company's policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.

The carrying amounts of trade receivables, trade payables, capital creditors, cash and cash equivalents, other bank balances, other financial assets and other financial liabilities are considered to be the same as their fair values, due to their short-term nature.

Majorly, the security deposits are redeemable on demand and hence the fair values of security deposits are approximately equivalent to the carrying amount.

The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified as level 3 fair values in the fair value hierarchy since significant inputs required to fair value an instrument are observable. There is no material difference between carrying amount and fair value of non-current borrowings (Finance lease obligation) as on 31 March 2018, 31 March 2017 and 1 April 2016.

The fair values of loan to employees are based on discounted cash flows using a current perquisite valuation tax rate. They are classified as level 3 fair values in the fair value hierarchy since significant inputs required to fair value an instrument are not observable. There is no material difference between carrying amount and fair value of loan to employees as on 31 March 2018, 31 March 2017 and 1 April 2016.

Note 3 : Financial risk management

The Company's activities expose it to liquidity risk, credit risk and market risk (forex and price). In order to minimise any adverse effects on the financial performance of the group, derivative financial instruments, such as foreign exchange forward contracts, are entered to hedge certain foreign currency risk exposures. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments.

(A) Credit risk

Credit risk arises from cash and cash equivalents and deposits with banks and other financial assets as well as credit exposures to customers.

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables from customers and deposits with banking institutions. The carrying amounts of financial assets represent the maximum credit risk exposure. The Company considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk the Company compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportive forwarding-looking information.

A default on a financial asset is when the counterparty fails to make contractual payments within 180 days when they fall due. This definition of default is determined by considering the business environment in which entity operates and other macro-economic factors.

Assets are written off when there is no reasonable expectation of recovery, such as a debtor declaring bankruptcy or failing to engage in a repayment plan with the Company. The Company categorises a loan or receivable for write off when a debtor fails to make contractual payments greater than 3 years past due. Where loans or receivables have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivable due. When recoveries are made, these are recognised in profit or loss.

Where there have not been significant increase in credit risk in financial assets (other than trade receivables) expected credit loss is measured on 12 months ECL approach. In case of significant increase in credit risk lifetime expected credit loss approach is used. For trade receivables, expected credit loss is calculated using lifetime credit loss approach (simplified approach).

(a) Credit risk management

Cash & cash equivalents and bank deposits

Credit risk related to cash and cash equivalents and bank deposits is managed by only accepting highly rated banks and diversifying bank deposits account in different banks across the country. Also, no impairment loss has been recorded in respect of fixed deposits that are with recognised commercial banks and are not past due.

Other financial assets measured at amortised cost

Other financial assets measured at amortised cost includes security deposits and others. Credit risk related to these other financial assets is managed by monitoring the recoverability of such amounts continuously.

Credit risk refers to risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. Credit risk arises primarily from financial assets such as trade receivables, investment in mutual funds, other balances with banks, loans and other receivables.

The Company has developed guidelines for the management of credit risk from trade receivables. The Company's primary customers are with good credit ratings. Clients are subjected to credit assessments as a precautionary measure, and the adherence of all clients to payment due dates is monitored on an on-going basis, thereby practically eliminating the risk of default.

Credit risk arising from investment in mutual funds and other balances with banks is limited and there is no collateral held against these because the counterparties are banks and recognized financial institutions with high credit ratings assigned by the international credit rating agencies.

The average credit period on sales of products is 30 - 90 days. Credit risk arising from trade receivables is managed in accordance with the Company's established policy, procedures and control relating to customer credit risk management. Credit quality of a customer is assessed and accordingly individual credit limits are defined/modified.

(B) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding to meet obligations when due. Management monitors rolling forecasts of the company's liquidity position and cash and cash equivalents on the basis of expected cash flows.

Maturities of financial liabilities

The table below analyses the group's financial liabilities into relevant maturity groupings based on their contractual maturities for:

- all non-derivative financial liabilities and

- gross settled derivatives financial instruments for which the contractual maturities are essential for an understanding of the timing of the cash flows.

(i) The limits under the facilities 2 to 4 above are inter-changeable at the Bank's discretion, subject to total utilisation not to exceed an aggregate limit of Rs. 20,000 (‘000) [2017: The limits under the facilities 2 to 4 above are interchangeable at the Bank's discretion, subject to total utilisation not to exceed an aggregate limit of Rs. 20,000 (‘000), 2016: ‘The limits under the facilities 1, 5 to 7 above are inter-changeable at the Bank's discretion, subject to total utilisation not to exceed an aggregate limit of Rs. 5,000 (‘000) ].

(ii) The facilities listed at 1 to 4 (2017- 1 to 3 ; 2016- 1 to 7) above shall be secured by first pari passu charge on stocks and book debts, with a margin of 25%.

(iii) The facility listed at 4 above (2017) shall be secured by 100% cash/fixed deposit margin from the Borrower.

(C) Market risk

(i) Foreign currency risk

The Company operates internationally and is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to Euro and USD. Foreign exchange risk arises from future commercial transactions and recognized assets and liabilities denominated in a currency that is not the Company's functional currency (INR). However, the Company does not have significant foreign currency exposure as major import and export are done in functional currency except for few immaterial transactions. Accordingly, the Company, generally does not take any financial instrument to hedge its foreign exchange currency risk exposure. However, in one particular transaction of firm commitment for import of an item of property, plant and equipment, as the amount was significant, therefore, the Company had taken a foreign exchange forward contract to hedge foreign currency risk exposure and applied hedge accounting.

(iii) Price risk

The Company's exposure to price risk arises from mutual funds held by the Company and classified in the Balance Sheet as fair value through profit or loss. To manage its price risk arising from investments in mutual funds, the Company invests in Government Interest Liquidity Funds, which are highly rated.

Sensitivity

The table below summarises the impact of increases/decreases of the NAV on the Company's profit for the period. The analysis is based on the assumption that the Mutual fund NAV had increased / decrease with all other variables held constant. Further there is no change in assumptions from last year.

Note 4 : Segment Information:

Description of segments and principal activities

The Company is engaged in the manufacture of a single product viz. precipitated Silica.

Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Maker (CODM) of the Company. The Company has identified Board of Directors as CODM. The CODM is responsible for allocating resources and assessing performance of the operating segments. The Company has monthly review and forecasting procedure in place and CODM reviews the operations of the Company as a whole, hence there are no reportable segments as per Ind AS 108 “Operating Segments”.

Note 35 : Capital management

For the purpose of the Company's capital management, capital includes issued capital and all other equity reserves attributable to the equity shareholders of the Company. The primary objective of the Company when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure so as to maximize shareholder value.

The Company has only one class of equity shares and has no debt. Consequent to such capital structure, there are no externally imposed capital requirements. In order to maintain or achieve an optimal capital structure, the Company allocates its capital for re-investment into business based on its long term financial plans.

Note 5 : The Company was informed by the Uttar Pradesh Pollution Control Board (UPPCB) that pursuant to the order of Hon'ble National Green Tribunal (NGT) dated April 26, 2017 in the matter of ‘M. C. Mehta Vs. Union of India and Others' relating to cleaning of river Ganga, 15 industrial units of 13 companies in Gajraula including unit of Insilco Limited, in the catchment of the river Bagad which leads to the river Ganga, had been ordered to be shut down. In compliance with the same, the Company had shut down its Plant at Gajraula. The matter was again heard on May 8, 2017, where the Company's plant was allowed to resume its operations with certain directions and the Company restarted its plant on May 9, 2017. The directions of NGT, inter-alia, included that the Company would put forward its case before a Joint Inspection Team (JIT) and the JIT will submit its report within two weeks from May 8, 2017. Pursuant to such directions, the JIT visited the plant of the Company on May 23, 2017 and the Company demonstrated and put its case before the said team. The JIT has not yet submitted its report to the NGT for river Bagad. The Company has filed a Caveat in NGT so that no orders are passed without giving the Company an opportunity of being heard. On July 13, 2017, NGT pronounced its detailed judgement, which has, inter-alia, given powers to the JIT to issue directions to various companies under the provisions of the Water (Prevention and Control of Pollution) Act, 1974 and Environment (Protection) Act, 1986. In response to the Company's application for renewal of water and air consent for its plant, the Company received a letter dated January 12, 2018 from UPPCB, pursuant to observations from the inspection of the JIT, asking the Company, inter-alia, to recalculate the dosing of magnesium sulphate to meet prescribed Sodium Absorption Ratio (SAR), in a time bound manner to discontinue present chemical addition and further dilution of effluent with ground water to meet SAR value or instead the unit may switch over to Zero Liquid Discharge (ZLD) system. The letter also states that closure of unit may be considered if the unit fails to provide a time bound action plan for achieving ZLD. The Company has filed its response thereto, a summary of which was sent to Bombay Stock Exchange vide the Company's letter dated January 22, 2018. Management believes that the Company has a strong case in its favour, as the Company continues to comply with all the current pollutions norms applicable to it as per consent letter. However, it is possible that the pollution authorities may come up with fresh requirement(s) for compliance in the conditions of consent letter, which will then have to be examined and considered.

Meanwhile, the Company has received UPPCB's approval vide an e-mail dated May 11, 2018 against the application for renewal of water and air consent for its plant. The physical consent letter from UPPCB along with detailed conditions to operate, is yet to be received by the Company.

Note 6 : Trade receivables as at March 31, 2018 include Rs 517 (‘000) which were due for more than 9 months in respect of sales made to foreign companies. Reserve Bank of India (‘RBI') master direction on export of goods and services vide FED Master Direction No. 16/2015-16 dated January 1, 2016 requires that the export realisations should be completed not later than 9 months from the date of export. The outstanding amount could not be received due to guidelines issued by Office of Foreign Assets Control (OFAC) on Asian Clearing Union (ACU) transactions in respect of Company's export to Bangladesh. In view of the management this amount is doubtful and accordingly the Company has filed an application for obtaining permission from RBI to write off the same.

Note 7 : First-time adoption of Ind AS

Transition to Ind AS

These are the Company's first financial statements prepared in accordance with Ind AS.

The accounting policies set out in note 1 have been applied in preparing the financial statements for the year ended 31 March 2018, the comparative information presented in these financial statements for the year ended 31 March 2017 and in the preparation of an opening Ind AS balance sheet at 1 April 2016 (the date of transition). In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (Previous GAAP). An explanation of how the transition from previous GAAP to Ind AS has affected the Company's financial position, financial performance and cash flows is set out in the following tables and notes.

A. Exemptions and exceptions availed

Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.

1. Ind AS optional exemptions

(a) Deemed cost-Property, plant and equipment, Intangible assets, Investment property.

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 recognised 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. 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.

The Company has availed the option to continue with the Previous GAAP carrying value of Property, Plant and Equipment, Intangible Assets and Investment Properties and use that as its deemed cost as at the date of transition.

(b) Fair value measurement of financial assets and liabilities at initial recognition:

The Company has exercised the option to consider ‘initial recognition' gains and losses to transactions entered into on or after the date of transition to Ind AS.

2. Ind AS mandatory exceptions

(a) Classification and measurement of financial assets:

The Company has applied the exception to assess classification and measurement of financial assets (Security deposits, Investment in Mutual Funds and Loan to Employee etc.) on the basis of the facts and circumstances that exist at the date of transition to Ind AS.

(b) Impairment of financial assets:

The Company has availed this exception to analyse credit risk of the financial assets as on the date of transition instead of the date of initial recognition, loss allowance to be provided at an amount equal to lifetime expected credit losses at each reporting date until de-recognition.

(c) Estimates :

The Company estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with Previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

Ind AS estimates as at 1 April 2016 are consistent with the estimates as at the same date made in conformity with Previous GAAP The Company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under Previous GAAP:

- Impairment of financial assets based on expected credit loss model

- Finance lease obligation

- Loan to employees

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

Ind AS 101 requires a first-time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101 allows a firsttime adopter to apply the de-recognition requirements in Ind AS 109 retrospectively from a date of the entity's choosing, provided that the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions.

The Company has elected to apply the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS.

I) Reconciliations between Previous GAAP and Ind AS

Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for prior periods. The following tables represent the reconciliations from Previous GAAP to Ind AS.

- Fixed deposits with banks amounting to Rs. 45,200 (‘000) having an original maturity period of more than three months were classified and presented under ‘Cash and cash equivalents' both in the balance sheet and in the cash flow statement for the year ended March 31, 2017, prepared under the Previous GAAP This has been rectified in the comparative financial information included in these financial statements and the impact on each affected financial statement line item and cash flow statement is disclosed above.

Notes to first-time adoption:

Note 1: Fair valuation of investment in mutual funds

Under the Previous GAAP, investments in mutual funds were classified as current investments based on the intended holding period and realisability. Current investments were carried at lower of cost and fair value. Under Ind AS, these investments are required to be recognised at fair value. Consequent to this change, the amount of current investments as at 31 March, 2017 increased by Rs. 34,800 (‘000) with corresponding impact in the statement of profit and loss and current investments as at 1 April, 2016 increased by (Rs. 55,123 (‘000) with a corresponding impact in retained earnings.

Note 2: Deferred tax

Previous 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, “Income taxes”, requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the Balance Sheet and its tax base. The application of Ind AS 12 has resulted in recognition of deferred tax on new temporary differences, which was not required under Previous GAAP In addition, the various transitional adjustments lead to additional temporary differences. Consequently, net deferred tax liabilities as on March 31, 2017 increased by Rs.655 (‘000) with a corresponding impact on statement of profit and loss. No change in net deferred tax liabilities as at 1 April 2016.

Note 3: Cash discount

Under Ind AS, all cash discounts are netted off from revenue, whereas in Previous GAAP, cash discounts were shown as part of other expenses. This change has resulted in decrease in total revenue and total expenses by Rs. 3,141 in the year ended 31 March 2017. There is no impact on total equity and profit.

Note 4: 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. This change has resulted in an increase in total revenue and total expenses for the year ended 31 March 2017 by Rs. 91,427 (‘000). There is no impact on the total equity and profit.

Note 5: Foreign exchange forward contracts

Under the Previous GAAP, the Company had adopted the hedge accounting principles in accordance with guidance note on accounting for derivative contracts used for hedging foreign exchange risk related to firm commitment for purchase transaction. In accordance with guidance note, the Company had taken the effective portion of cash flow hedge in relation to firm commitment amounting to Rs. 1,067 (‘000) to hedging reserve under reserve and surplus as at 31 March 2017.Under Ind AS, effective portion of cash flow hedge are accumulated within equity and are adjusted against the carrying value of the hedged item. Consequently, the deferred costs amounting to Rs. 1,067 (‘000) have been reclassified within equity from retained earnings to cash flow hedging reserve through other comprehensive income as at 31 March 2017.

Note 6: Investment property

Under the Previous GAAP, investment properties were presented as part of Property, plant and equipment. Under Ind AS, investment properties are required to be separately presented on the face of the Balance Sheet. There is no impact on the total equity or profit as a result of this adjustment.

Note 7: Remeasurements of post-employment benefit obligations

Under Ind AS, remeasurements i.e. actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognised in other comprehensive income instead of the statement of profit or loss. Under the Previous GAAP, these remeasurements were recognized in statement of profit and loss. As a result of this change, the profit for the year ended March 31, 2017 increased by Rs. 1,563 (‘000). There is no impact on total equity as at 31 March 2017.

Note 8: Loan to employees

Under the Previous GAAP, interest free loan to employees (that are refundable in cash on completion of the loan term) were recorded at their transaction value. Under Ind AS, all financial assets are required to be initially recognised at fair value. Accordingly, the Company has fair valued these loans under Ind AS. Difference between the fair value and transaction value of the loans has been recognised as deferred employee cost. Consequent to this change, the equity as on 1 April, 2016 and 31 March, 2017 increased by Rs. 14 (‘000) and Rs. 30 (‘000), respectively and other income and other expenses for the year ended March 31, 2017 increased by Rs. 88 (‘000) and Rs. 71 (‘000), respectively.

Note 9: Finance lease obligation - leasehold land

Under Previous GAAP, lease of land was specifically excluded from the scope of Accounting Standard - 19. However under Ind AS, land is included within the scope of Ind AS-17. The change has resulted in land to be classified as a finance lease. Consequent to this change, the equity as on 1 April, 2016 and 31 March, 2017 decreased by Rs. 38 (‘000) and Rs. 40 (‘000), respectively and expenses recognised in the statement of profit and loss for the year ended March 31, 2017 increased by Rs. 2 (‘000).

Note 10: Capitalisation of spare parts

Under Previous GAAP spares were recognised as property, plant and equipment (PPE) when they meet the recognition criteria under Revised AS 10 (these were similar to the requirement under Ind AS). Accordingly the Company had recognised additional depreciation amounting to Rs. 5,119 (‘000) for the year ended 31 March, 2017 (including depreciation on spare existing on 1 April, 2016 amounting to Rs. 3,457 (‘000)). In accordance with transitional provisions of Ind AS, depreciation expense on spares existing as at 1 April, 2016 should be recognised in retained earning. Consequently, profit and equity for the year ended 31 March, 2017 increased by Rs. 3,457 (‘000) with corresponding increase in total equity. While total equity as on 1 April, 2016 decreased by Rs. 3,457 (‘000) consequent to this change.

Note 11: Retained earnings

Retained earnings as at 1 April, 2016 has been adjusted consequent to the above Ind AS transition adjustments.

Note 12: Other comprehensive income

Under Ind AS, all items of income and expense recognised 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 recognised in profit or loss but are shown in the statement of profit and loss as ‘other comprehensive income' includes remeasurements of defined benefit plans and deferred gains/losses on cash flow hedges. The concept of other comprehensive income did not exist under Previous GAAP.