Notes to financial statements

1 CORPORATE INFORMATION

E-land Apparel Limited (“the Company”) is a listed public limited company incorporated in 1997. Its shares are listed on two stock exchanges in India. The Company is primarily engaged in the business of manufacture and sale of garments. The Company caters to both domestic and international markets.

2 BASIS FOR PREPARATION AND PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of preparation and presentation

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 Companies (Indian Accounting Standards) Amendment Rules, 2016, as applicable. For periods up to and including the year ended March 31, 2017, the Company prepared its financial statements in accordance with the then applicable Accounting Standards in India (‘previous GAAP’). These are the Company’s first Ind AS financial statements. The date of transition to Ind AS is April 1, 2016. Refer Note 41 for the explanations of transition to Ind AS.

The financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for leasing transactions that are within the scope of Ind AS 17, and measurements that have some similarities to fair value but are not fair value, such as in value in use in Ind AS 36.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2, or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 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 are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

Level 3 inputs are unobservable inputs for the asset or liability.

2.2 Standards issued but not yet effective

Ind AS 115, Revenue from Contract with Customers:

The Ministry of Corporate Affairs (MCA), on 28 March 2018, notified Ind AS 115 “Revenue from Contracts with Customers” as part of the Companies (Indian Accounting Standards) Amendment Rules, 2018. The said standard is applicable for the accounting periods beginning on or after April 1, 2018. The Company is in the process of assessing the impact of the said standard on its financial statements.

Appendix B to Ind AS 21, Foreign currency transactions and advance consideration:

On 28 March 2018, MCA has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency. The company is in the process of assessing the impact of the said amendment on its financial statements.

2.3 Approval of financial statements

These financial statements were approved for issuance by the Board of Directors of the Company on May 30, 2018.

3 Use of estimates and judgements

In the application of the Company’s accounting policies, which are described in note 2, the directors of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Impairment of investments, Property Plant and Equipment and Intangible Assets

The Company reviews its carrying value of investments, Property, Plant and Equipment and Intangible Assets annually, or more frequently when there is an indication for impairment. If the recoverable amount is less than its carrying amount, the impairment loss is accounted for.

Useful lives of property, plant and equipment

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

The Management is currently implementing a plan to increase turnover, improve profitability and financial position by selling certain non-core assets. As part of the said plan, the above said assets have been held for sale. The impairment loss recognized by the Company on account of fair valuing the assets held for sale is 82.36 lakhs (2016-17 - Nil ) and the same has been recognised in the statement of profit and loss as “Other expenses” under the line item “Impairment of Property, Plant and Equipment”. The fair value measurements with respect to “Assets classified as held for sale” are categorised as Level - 3 in the fair value hierarchy.

(ii) Details of rights, preferences and restrictions attached to each class of shares:

The company has only one class of share capital namely Equity Shares having par value of '10 per share. Each holder of Equity Share is entitled to one vote per share. The company declares and pays dividends in Indian rupees. 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 reserves

Securities Premium

Amounts received on issue of shares in excess of the par value has been classified as securities premium.

General Reserves

The general reserve is created by a transfer from one component of equity to another and is not an item of other comprehensive income, items included in the general reserve will not be reclassified subsequently to profit or loss.

Deficit in the Statement of Profit and Loss

This represents the accumulated losses of the Company.

Revaluation reserves

Revaluation reserves represents the surplus on account of revaluation of land. The balance in revaluation reserves cannot be distributed to the owners.

Capital contribution

Capital contribution represents the benefit that has been passed on by the lenders of interest free loans (i.e., the difference between the actual amount and discounted amount). The said capital contribution is after offsetting the “deemed investment in E-Land Fashion India Private Limited”, a group company, arising on account of fair valuation of the financial guarantee given to the banks in respect of its loans.

ii) Loans from other related parties is interest free and is repayable as per below schedule:

- 10% of the loan amount on or prior to 31 December, 2022

- 20% of the loan amount on or prior to 31 December, 2023

- Balance 70% of the loan amount on or prior to 31 December, 2024

Based on the information available with the Company, there are no outstanding dues in respect of Micro, Small and Medium enterprises at the Balance Sheet date. The above disclosure has been determined to the extent such parties have been identified on the basis of information available with the Company.

Note:

The Company, in the year 2012, had applied for the restructuring of its debts through Corporate Debt Restructuring (CDR) Mechanism as envisaged under the Reserve Bank of India (RBI) guidelines. Pursuant to the same, based on approval of the CDR cell, the Company entered into a Master Restructuring Agreement in September 2012. In 2016, the Company and its fellow subsidiary i.e., E-Land Fashion India Private Limited (“EFIPL”) had applied for One Time Settlement (OTS) with all the banks in the consortium, pursuant to which, approval was received during the year from all the banks for the OTS in respect of the borrowings of both the entities. Based on receipt of the approval for OTS from the consortium of lenders, the Company utilized Export Advances received from E-Land Asia Holdings Pte, the Holding Company, to repay the borrowings from banks and also the borrowings from EFIPL to ensure that the Company complies with the OTS. This has resulted in an accelerated unwinding of the notional interest (net of deemed guarantee commission income Rs 261.74 lakhs) on the interest-free borrowings from EFIPL of Rs.3,872.67 lakhs.

During the year, the OTS formalities, including reconciliation of balances, settlement of dues, final approval from CDR, receipt of ‘No Dues Certificate’ from banks etc. have been completed and accordingly, an amount of Rs.157.61 lakhs has been recorded in the Statement of Profit and Loss towards the benefit arising on account of the OTS. Further, the Company has also reversed the provision for right of recompense amounting to Rs. 104.04 lakhs made in the books in the previous periods.

4. Segment reporting Disclosure on Operating segments

The Company is engaged in the business of manufacturing and sale of garments. The Chief Operating Decision Maker reviews the operations of the Company as a unit of manufacturing and sale of garments, which is considered to be the only reportable segment by the Management.

Geographical information:

The company predominantly operates in India. Revenue earned with in India and outside India are as follows:

5. Employee benefit plans Defined contribution plans

The Company makes Provident Fund and Employee State Insurance Scheme contributions which are defined contribution plans, for qualifying employees. Under the said schemes, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The Company recognises the amount paid / payable to such funds in the Statement of Profit and Loss. The contributions made by the Company towards these schemes are as follows:

Defined benefit plans

The Company offers gratuity, a defined employee benefit scheme to its employees. The said plan typically exposes the Company to actuarial risks such as: interest rate risk, longevity risk and salary risk

Interest risk

The defined benefit obligation calculated uses a discount rate based on government bonds. If bond yields fall, the defined benefit obligation will tend to increase.

Longevity risk

This is the risk of variability of results due to unsystematic nature of decrements that include mortality, withdrawal, disability and retirement. The effect of these decrements on the defined benefit obligation is not straight forward and depends upon the combination of salary increase, discount rate and vesting criteria. It is important not to overstate withdrawals because in the financial analysis the retirement benefit of a short career employee typically costs less per year as compared to a long service employee.

Salary risk

Higher than expected increases in salary will increase the defined benefit obligation No other post-retirement benefits are provided to these employees.

The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected unit credit method.

These sensitivities have been calculated to show the movement in defined benefit obligation in isolation and assuming there are no other changes in market conditions at the accounting date. There have been no changes from the previous periods in the methods and assumptions used in preparing the sensitivity analyses.

6. Financial Instruments Capital management

The Company manages its capital to ensure that it will be able to continue as going concern while maximising the return to stakeholders. The capital structure of the Company consists of net debt and total equity of the Company. The management of the Company reviews the capital structure on a semi-annual basis.

Financial risk management objectives

The Company’s risk management is carried out by Treasury department under policies laid down by the management. The Company’s activities expose it to market risk (which includes currency risk, interest rate risk and equity price risk), credit risk and liquidity risk. Treasury department monitors the risk exposures on a periodical basis and reports to the Board of directors on the risks that it monitors and policies implemented to mitigate risk exposures.

Foreign currency risk management

The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise.

The carrying amounts of the Company’s foreign currency denominated monetary liabilities (Trade payables) and Assets (Trade receivables) at the end of the reporting period are as follows.

Foreign currency sensitivity analysis

The Company is mainly exposed to USD on account of outstanding trade receivables and trade payables.

The following table details the Company’s sensitivity to a 5% increase and decrease in INR against the USD. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. The amounts given below are the impact on loss and equity where the INR weakens 5% against USD. Positive number indicates decrease in loss / increase in equity whereas negative number indicates increase in loss / decrease in equity.

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The Company monitors its trade receivables on case to case basis, depending on the ageing of days the receivables are due. Credit risk also arises from cash and cash equivalents, financial instruments and deposits with banks.

Liquidity risk

Liquidity risk is the risk that the company could be unable to meet its short term financial demands. Ultimate responsibility for liquidity risk management rests with the management, which has established an appropriate liquidity risk management framework for the management of the Company’s short-term, medium-term and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual short term and long term cash flows, and by matching the maturity profiles of financial assets and liabilities.

Liquidity analysis for non derivative financial liabilities-

The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The table have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company is required to pay. The contractual maturity is based on the earliest date on which the Company would be required to pay.

Equity Price Risk

The Company is exposed to equity price risks arising from equity investments. If equity prices had been 5% higher/ lower, loss for the year ended March 31, 2018 would increase/decrease by Rs. 1.14 lakhs (for the year ended March 31, 2017: increase/decrease by Rs. 1.87 lakhs) as a result of the changes in fair value of equity investments.

The management considers that the carrying amount of financial assets and financial liabilities recognised in these financial statements approximate their fair values

7 Related Parties Disclosure:

Name of Related Parties and Description of relationship:

A) Key Management Personnel Relationship

Mr. Yangweon Yoo Managing Director (upto February 14, 2017)

Mr. Jae Ho Song Managing Director (w.e.f May 30, 2017)

Mr. Jung Ho Hong Whole Time Director

Mr. Kwang Hyuck Choi Whole Time Director

Mr. Yi Byoung Hoon Chief Financial Officer (from May 30, 2014 to Oct 3, 2016)

Mr. Haeoi Choi Chief Financial Officer (w.e.f. February 14, 2017)

B) Ultimate Holding Company E Land World Co. Ltd.

C) Holding Company

E Land Asia Holdings Pte Ltd

D) Fellow Subsidiary Companies *

E Land Accessories Trading (Shanghai) Co. Ltd.

E Land Fashion India Private Ltd.

E Land Fashion (Shanghai) Co. Ltd E Land Retail Ltd

E.Land International Fashion (Shanghai) Co., Ltd E-Land Fashion Hong Kong Limited Wish Fashion (Shanghai) Co.Ltd WHOAU Holdings Inc.

Wish Trading (Shanghai) Co. Ltd.

(i) The above amount is based on the notice of demand / Assessment Orders by the tax authorities and the Company is contesting these claims. Outflows, if any, arising out of these claims would depend on the outcome of the decisions of the appellate authorities and the Company’s rights for future appeals before the judiciary. No reimbursements are expected.

8. The Company has incurred losses of 7,842.49 lakhs (before other comprehensive income) for the year ended March 31, 2018 ( Previous year 8,021.03 lakhs) and the accumulated losses amounting to 58,171.19 lakhs (Previous year 50,392.38 lakhs) exceeds the paid up capital and reserves as on that date. These conditions indicate the existence of material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern and, therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business. The Management is currently implementing a plan to increase turnover, improve profitability and financial position, sell certain non-core assets and has assessed that it will be able to meet the working capital requirements for the next 12 months based on its cash flow projections. The Holding company has also confirmed financial support to the Company to continue as a going concern. The Company is therefore being viewed as a going concern and the financial statements have been prepared under the going concern assumption.

9. During the year ended 31 March, 2014, the Company had entered into a tripartite agreement with E-Land Asia Holdings Pte Ltd, its holding Company and Mr. Murarilal Agarwal, Mr. Ravindra Agarwal and Mr. Vishwambharlal Bhoot (erstwhile Promoters) whereby the loan outstanding to the erstwhile promoters had been directly paid by the Holding Company on behalf of the Company. The Company had made an application under the applicable provisions of the Foreign Exchange Management Act,1999 (“FEMA”) and the rules and regulations there under for regularising the payment made by the Holding Company. During 2015-16, the Company received approval from the Reserve Bank of India (‘RBI’), treating the liability as External Commercial Borrowing. During the previous year, the Company had received compounding order from the RBI, levying a penalty of 7.40 lacs and the same has been charged to the Statement of Profit and Loss for the year ended 31 March, 2017.

10. During 2015-16, there were certain allegations made by an employee of the Company relating to the disposal of assets and statutory non-compliances for which the Company had appointed an external agency to conduct an investigation. During the previous year, the audit committee / board of directors have considered their report and concluded the investigation and noted that there is no financial or other impact with regard to the alleged matters and no further action was required.

11. In respect of the Company’s leasehold land at Doddaballapura, the Company had entered into a lease cum sale agreement with the Karnataka Industrial Areas Development Board (KIADB) wherein the Company has to develop the land, construct building and set up a manufacturing unit of readymade garments and will provide employment opportunities as per the terms mentioned in the agreement. The Company is in the process of complying with the aforesaid conditions.

12. In view of the accumulated losses and in accordance with Ind AS 12 - “Income Taxes”, the Management believes that there is no reasonable certainty supported by convincing evidence for recognising deferred tax asset on carry forward losses.

Cash flow statement:

There were no significant reconciliation items between cash flows prepared under Indian GAAP and those prepared under Ind AS.

Explanatory Notes

13.1 The Company has received interest free borrowings from “E-Land Asia Holdings Pte Limited” (the holding company) and “E-Land Fashion Indian Private Limited” (a group company). These loans were recorded at face value (i.e., equal to amount received) under the Indian GAAP.Under Ind AS, these borrowings are recognized at fair value on initial recognition and subsequently, carried at amortized cost by applying effective interest rate method. The said method requires the loan to be recognised at present value using applicable discount rate. The benefit that has been passed on by the lenders of interest free loans, i.e., the difference between the actual amount and discounted amount of the loan is recognized as deemed capital contribution as it signifies or indicates infusion by the lenders of interest free loans into the Company. Subsequently, notional interest expense is computed on the discounted amount of the loan and the same is charged to the Statement of Profit and Loss as “Interest expense”.

Further, the Company has given guarantee to banks towards the term loans and working capital facilities availed by “E-Land Fashion India Private Limited”. The total amount of loans and working capital facilities with respect to which the Company has given guarantee to banks is Rs. 40,000 lakhs. Under the previous GAAP, the Company disclosed the said guarantee as Contingent liability in accordance with “AS 29-Provisions, Contingent Liabilities and Contingent Assets”. Under Ind AS, the fair value of the said guarantee is recognised as liability by recognising the corresponding “deemed investment in E-Land Fashion India Private Limited” in accordance with “Ind AS 109 Financial Instruments”. Subsequently, the Company has recognised guarantee commission income as and when it is discharged of its liability towards guarantee on account of repayment of loans by “E-Land Fashion India Private Limited”.Also, “E-Land Fashion India Private Limited” has given guarantee for the working capital facilities availed by the Company from Banks. Under Ind AS, the Company has recognised “deemed guarantee commission expense” towards the same.The amount of impact disclosed above is after offsetting the impact on account of discounting of interest free borrowings and recognition of financial guarantee (given and received).

13.2 Under the previous GAAP, lease deposits given (that are refundable in cash on completion of the lease term) are recorded at their transaction value. Under Ind AS, all financial assets and financial liabilities are required to be recognised at fair value at the initial recognition. Accordingly, the Company has discounted these deposits for the respective lease period. Difference between the discounted value (fair value) and the transaction value of security deposit has been recognised as prepaid rent.The prepaid rent is amortised over the lease term and interest income is recorded on the fair value of the security deposit at the interest rate which was used for discounting of the security deposit. The difference in rent expense and interest income has been adjusted with retained earnings as at April 1, 2016 and with loss for the year ended March 31, 2017.

13.3 Under the previous GAAP, current investments were measured at lower of cost or fair value. Under Ind AS, these financial assets have been measured at Fair Value Through Profit & Loss (FVTPL) on the date of transition and subsequent reporting periods. The fair value changes are recognised in Statement of Profit and Loss as “Gain / (loss) on account of fair valuation of equity investments measured through fair value through profit and loss” under “Other Income”.

13.4 Under previous GAAP, during the financial year 2016-17, the Company had recognised impairment loss of Rs. 1,270.65 lakhs with respect to assets that have been previously revalued, by offsetting the same with revaluation reserves. On transition to Ind AS, i.e., on April 1, 2016, as the Company has transferred the balance outstanding in “revaluation reserves” to retained earnings (i.e., Surplus/ (deficit) in the Statement of Profit and Loss), the Company has charged the said impairment loss to the Statement of Profit and Loss.

13.5 Under the previous GAAP, actuarial gains and losses were recognised in the Statement of Profit or Loss. Under Ind AS, the actuarial gains and losses are recognised in other comprehensive income.

13.6 Under the previous GAAP, the surplus on account of revaluation of an asset is recognised directly in equity as “Revaluation reserves”. However, under Ind AS such revaluation surplus is recognised in other comprehensive income.