# includes 124.589 Lakhs (P.Y.124.589 Lakhs) shares acquired, the title in respect of which is in the process of transfer.
10 crore equity shares of Konaseema Gas Power Ltd have been pledged with various financial institutions as a collateral security against the term loans sanctioned to the said company.
*6172670 Equity shares of Orissa Power Consortium Ltd have been pledged with various financial institutions as a collateral security against the term loans sanctioned to the said company.
Note No. 1. Reasons for Investments in Equity Instruments designated to be measured at Fair Value through Other Comprehensive Income
The Company has elected an irrevocable option of classifying the non current investments under fair value through other comprehensive income as they are not held primarly for trading.
Terms/ rights attached to equity shares
Equity shares have a par value of INR 10 per share. Each holder of equity shares is entitled to one vote per share. The company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the 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.
a) Capital Reserve : Capital reserve represents the subsidy received from the State Government of India.
b) Securities premium: Securities premium represents premium received on issue of shares. The reserve is utilised in accordance with the provisions of Companies Act, 2013.
c) General reserve : The general reserve is created by way of tranfer of part of the profits before declaring dividend pursuant to the provisions of Companies Act, 1956. Mandatory transfer to general reserve is not required under the Companies Act, 2013.
d) Retained earnings : Retained earnings generally represents the undistributed profit/ amount of accumulated earnings of the company
e) Other Comprehensive Income:
Other Comprehensive Income (OCI) represents the balance in equity for items to be accounted under OCI and comprises of: items that will not be reclassified to profit and loss
a. The Company has made an irrevocable election to present the subsequent fair value changes of investments in OCI. This reserve represents the cumulative gains and losses arising on the revaluation of equity instruments measured at fair value including tax effects. The company transfers restated fair value amounts from this reserve to retained earnings when the relevant financial instruments are disposed.
Note No 2: The debit represents storage loss of the raw materials due to the loss of the technical properties and usability of the materials in the production due to passage of time.
Note No 2.1 (a): The company has not provided both Employer’ and Employees’ contribution to Provident fund during the year based on Order no. TS/PTC/ENF/17192/4741 dated 08.05.2015 issued by Regional PF Commissioner-II & Authority under section 7A of EPF & MP Act, treating the establishment as permanently closed after making the assessment up to August 2013.
Note No 2.2 (b): Employee benefit plans:
As per IND AS 19 “Employees Benefits” the disclosure of Employee Benefits as defined in the Accounting Standard are given hereunder:
Defined Contributions Plans:
A. In view of retrenchment of all work men as memorandum of settlement entered into by the company with the workers’ union and termination of services of most of the employees of the company , the liability towards the gratuity of the Skeleton staff on rolls as at the balance sheet date has been computed at the present value, instead of actuarial valuation using the Projected Unit Credit Method. Accordingly the various disclosures required under the Accounting standard could not be made.
Note No: 2.3
“Exceptional item” of debit to the statement of profit & loss of Rs 21,34,74,646, represents the fuel surcharge adjustment (FSA) for the years from 2009.10 to 2012.13, provided in the books of account, as the Hon’ble Supreme Court has dismissed the company’s appeal against the levy of the same.
Note No: 2.4
(a). The company has filed its objections before the various administrative authorities of CPDCL as per the directions given by Forum for Redressal of Consumer Grievances of CPDCL towards load shortfall charges for the period upto 31.03.2015 totaling to Rs 42,60,26,056. . Pending disposal of its objections by the authorities, no provision has been made towards the same.
(b). The company has received demand for fuel surcharge adjustment (FSA) from Central Power Distribution Company of AP Ltd (CPDCL) pursuant to clause 45B of the Andhra Pradesh Electricity Regulatory Commission (Conduct of Business Amendment) Regulations 2003 (FSA Regulations). The levy has been a subject matter of challenge ever since the DISCOMS made their claim in the year 2010 in respect of the period 2008-09 . The challenge with respect to 2008-09 were initially accepted by a single judge of the Andhra Pradesh High Court and the appeals filed with respect to 2008-09 is currently pending before the Supreme Court and a full bench of the Andhra Pradesh High Court respectively. Pending the resolution of the legal course being pursued by the company of the dispute no provision has been made for the said demand in the books of account totaling to Rs 5,28,19,683.
Note No: 2.5
Due to steep increase in the power tariff, the cost of production of Ferro Silicon has far exceeded the market prices, resulting in non recovery of even variable cost of production. Accordingly the company has closed down its production unit at Rudraram Village, Medak district since June 2013. Further the company has entered into a memorandum of settlement with the workers’ union on 30.06.2014 for their retrenchment. However, the books of account are maintained under “going concern” concept, as the company has initiated effective steps to meet its power requirements by setting-up a 120 MW captive thermal power plant at Sirpur Kagaznagar Mandal, Adilabad District through a separate company, by transferring its power unit by way of demerger.
Note No: 2.6
The company operates in only one business Segment of manufacture of Ferro Alloys and there are no geographical segments to be reported.
Note No: 2.7
In the opinion of the board of directors of the company the diminition in the value of certain investments is temporary in nature and hence no provision towards diminition in the value of investments is considered necessary.
Note No: 2.8
According to an internal technical assessment, there is no impairment in the carrying cost of cash Generating assets of the Company in terms of Accounting for Impairment of Asset (IND AS 36) of Companies (Indian Accounting Standard) Rules, 2015.
Note No: 2.9
Balances lying in the lenders’, sundry creditors, like, suppliers’, service providers’, employees’ and customers’ accounts are subject to confirmation.
Note No: 2.10
In accordance with IND AS - 12: “Income Taxes” issued by Ministry of Corporate Affairs and mandated under Sec 133 of Companies Act, 2013, the Company has not recognised in the books of account as there is no virtual certainty of realisation of the same in future years.
Note No: 2.11
Previous year figure were regrouped wherever necessary to make them comparable with current year figures.
Note. 3 Significant accounting 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 financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the company. Such changes are reflected in the assumptions when they occur.
3.1 Property, Plant and Equipment
Property, plant and equipment represent a significant proportion of the asset base of the Company. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. The useful lives and residual values of company’s assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology.
3.2 Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the company is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes.
3.3 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 judgment in making these assumptions and selecting the inputs to the impairment calculation based on the company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.
3.4 Taxes
Management’s judgment is required for the calculation of provision for income taxes and deferred tax assets/liabilities.
Estimation of Current tax expense and payable - Significant judgments are involved in determination of taxability of certain income and deductibility of certain expenses during the estimation of the provision for income taxes.
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management’s judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. The Company reviews at each balance sheet date the carrying amount of deferred tax assets/ liabilities.
The factors used in estimates may differ from actual outcome which could lead to significant adjustment to the amounts reported in the financial statements.
3.5 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. Judgments 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.
3.6 Contingencies:
Management’s judgment is required for estimating the possible inflow/outflow of resources, if any, in respect of contingencies/claims/litigations against the Company/by the Company as it is not possible to predict the outcome of pending matters with accuracy.
4.1 Fair Valuation Techniques
The fair values of the financial assets and liabilities are included at the amount that, in the opinion of the Board of Directors would be received on sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
A) The following methods and assumptions were used to estimate the fair values
The fair value of cash and cash equivalents, trade receivables and payables, financial liabilities and assets approximate their carrying amount largely due to the short-term maturities of these instruments. The management considers that the carrying amounts of financial assets and financial liabilities recognised at nominal cost/amortised cost in the financial statements approximate their fair values. The fair value of unquoted equity investments designated and recognised through Other Comprehensive Income has been determined by using the net assets method.
B) Fair value hierarchy
The fair value of financial instruments as referred to above note have been classified into three categories depending on the inputs used in the valuation technique. The hierarchy gives the highest priority to quoted prices in active markets for identified assets or liabilities [Level 1 measurements] and lowest priority to unobservable inputs [Level 3 measurements].
Level 1: Level 1 hierarchy includes inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2: Inputs that are observable either directly or indirectly for the asset or liability, other than quoted prices included within level 1.
Level 3: Inputs for the asset or liability which are not based on observable market data (unobservable inputs).
D) Management’s approach to determine the fair value under Level 3 hierarchy:
Net Asset Value method is the valuation technique used for determination of the fair value of the unquoted equity instruments. Net asset value has been arrived by calculating the total assets of the company and deducting there from all the liabilities including contingent liabilities, if any, as per the latest audited balance sheet of the company available at the measurement date. The Net Asset Value is divided by the total number of outstanding equity shares to arrive at the fair value per share.
4.2 Financial risk management framework
A) The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Board of Directors monitors the compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company.
The risk management framework aims at,
i) Improve financial risk awareness and risk transparency
ii) Identify, control and monitor key risks
iii) Identify risk accumulations
iv) Provide management with reliable information on the Company’s risk situation
v) Improve financial returns
a) Credit risk:
i) 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), from cash and cash equivalents, deposits with banks. The management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis
ii) Financial assets that are neither past due nor impaired
Cash and cash equivalents, deposits with banks, security deposits are neither past due nor impaired.
Cash and cash equivalents, deposits are held with banks which are reputed and credit worthy banking institutions. Hence the expected credit loss is negligible.
iii) Financial assets that are past due but not impaired
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. The average credit period on sales of products is less than 45 days. All trade receivables are reviewed and assessed for default on a quarterly basis. For trade receivables, as a practical expedient, the Company computes credit loss allowance based on a provision matrix. The provision matrix is prepared based on historically observed default rates over the expected life of trade receivables and is adjusted for forward-looking estimates. The provision matrix at the end of the reporting period is as follows:
b) Liquidity risk:
i) Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at a reasonable price. The Company’s objective is to maintain optimum level of liquidity to meet it’s cash and collateral requirements at all times. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit line to meet obligations . As the company has not carried any business during the last five years, due to operational reasons, its liquidity risk is very high.
ii) Maturities of financial liabilities
As the company has not carried any business during the last five years, due to operational reasons, the company’s entire financial liabilities have matured and have become due as at 01.04.2016
c) Market Risk
i) Interest Rate Risk
Generally the interest rate risk arises from borrowings with variable rates which expose the company to cash flow interest rate risk. The Company’s debt funds are mostly interest free and unsecured. It pays interest on long term borrowings from two parties which carries fixed rate of interest. Accordingly, the company is maintaining its interest rate risk at zero level.
ii) Commercial risk
The commercial risk is the risk due to the change in market prices of raw materials and finished goods. As the company has not carried any business during the last five years, due to operational reasons, the commercial risk regarding selling price of its products, purchase price of its raw materials can not be quantified.
4.3 Capital management
The company’s objectives when managing capital is to safeguard their ability to continue as a going concern, maintain healthy capital ratios in order to support its business and provide adequate return to shareholders through continuing growth and maximise the shareholders value. The company sets the amount of capital required on the basis of annual business and long term operating plans which include capital and other strategic investments. The funding requirements are met through a mixture of equity, internal fund generation and borrowed funds. The company tries to maintain an optimal capital structure to reduce cost of capital and monitors capital on the basis of debt-equity ratio.
5. First time adoption of Ind -AS
5.1 Transition to Ind AS
These are the company’s first financial statements prepared in accordance with Ind AS. For the purpose of transition to Ind AS, the Company has followed the guidance prescribed in Ind AS 101 - First Time adoption of Indian Accounting Standard. The transition to Ind AS has resulted in changes in the presentation of the financial statements, disclosures in the notes thereto and accounting policies and principles.
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 as at 1 April 2016 (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 or Indian 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 note 5.2. Exemptions availed on first time adoption of Ind AS in accordance with Ind AS 101 have been set out in note 5.1.1.
5.1.1 Exemptions availed on first time adoption of Ind AS 101
(i) Deemed cost
a. Property, Plant & Equipment
The company may 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 as per paras D5 and D6 of Ind AS 101. Accordingly, the company has opted this exemption for all of its property, plant and equipment.
b. Investments in Associates
The company may elect to continue with the carrying value for all of its investments in associates 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 as per para D15 of Ind AS 101. Accordingly, the company has opted this exemption for all of its investments in associates.
(ii) Designation of previously recognised financial instruments
"Under Ind AS 109, at initial recognition of a financial asset, an entity may make an irrevocable election to present subsequent changes in the fair value of an investment in an equity instrument in other comprehensive income. Ind AS 101 allows such designation of previously recognized financial assets, as ' fair value through other comprehensive income' on the basis of the facts and circumstances that existed at the date of transition to Ind AS.
Accordingly, the Company has designated its investments in certain equity instruments at fair value through other comprehensive income on the basis of the facts and circumstances that existed at the date of transition to Ind AS."
(iii) Fair value measurement of financial instruments at initial recognition
"Under Ind AS 109, at initial recognition of financial instruments, an entity shall measure a financial instrument at its fair value i.e the transaction price. Ind AS 101 allows to apply such requirements prospectively to transactions entered into on or after the date of transition to Ind AS.
Accordingly, the company has opted this exemption . Therefore, transactions that occured prior to the date of transition to Ind AS have not been retrospectively restated."
(iv) Estimates
The estimates as at 1st April 2016 and at 31st March 2017 are consistent with those made for the same dates in accordance with Indian GAAP (after adjustments to reflect any differences in accounting policies) apart from the following items where application of Indian GAAP did not require estimation:
- Unquoted equity instruments measured at FVTOCI.
- Debt instruments measured at fair value.
- Impairment of financial assets based on expected credit loss model
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.
Notes to the reconciliations:
a) Fair value of investments
Under previous GAAP, long-term investments in equity were measured at cost less diminution in value other than temporary in nature. Under Ind AS, these investments have been classified as fair value through other comprehensive income (FVTOCI). On the date of transition to Ind AS, these investments are measured at their fair value which is lower than carrying value as per previous GAAP, resulting in an increase in the carrying amount by Rs 267.14 Lakhs as at 1st April, 2016 and increase by Rs 259.06 Lakhs as at 31st March, 2017. These changes do not affect profit before tax or total profit for the year ended 31st March, 2017 because the investments have been classified as fair value through other comprehensive income.
b) Other income
"The company has adopted cost model to measure its Property, Plant and equipment as at 1st April 2016 (Date of transition). So the revaluation reserve is transferred to retained earnings as on the date of transition. The revaluation reserve credited to profit and loss account on sale of land under previous GAAP has been adjusted in accordance with Ind AS. The profit on sale of investments, which are measured at FVTOCI has been adjusted through OCI."
c) Other comprehensive income
Under the previous GAAP, the Company did not present total comprehensive income and other comprehensive income. Hence, it has reconciled the previous GAAP profit to profit as per Ind AS. Further, the previous GAAP profit is reconciled to other comprehensive income and total comprehensive income as per Ind AS.
d) Other Equity
Adjustments to retained earnings and other comprehensive income has been made in accordance with Ind AS, for the above mentioned items.
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