1. General Information

Fomento Resorts and Hotels Limited (“The Company”) is a public limited company incorporated in the state of Goa, India and is engaged in the hotel business. The company’s shares are listed on Bombay Stock Exchange Ltd.

The Ind AS financial statements for the year ended March 31, 2018 were approved by the Board of Directors and authorized for issue on May 30, 2018.

(b) Terms / Rights attached to equity shares

The Company has one class of equity shares having par value of Rs.10 each. Each shareholder is eligible for one vote per share held. The Board of Directors in its meeting on 30th May, 2018, have proposed dividend of Rs.1 per equity share for the financial year ended 31st March, 2018. The proposal is subject to the approval of shareholders in the ensuing Annual General Meeting.

Note: 7.5% redeemable cumulative preference shares which are entirely held by Fomento Resources Private Limited (‘FRPL’) would be redeemable at par after 5 years from the date of allotment i.e. 10th January 2015. These shares would carry a fixed dividend of 7.5% p.a.

*Dividend distribution tax on proposed preference dividend which is subject to the approval of the shareholders in the ensuing Annual General Meeting is considered for calculation of EPS (Basic and Diluted).

2. Sundry Debtors include an amount of Rs.162.65 Lakhs (March, 31 2017- Rs. 124.64 Lakhs, April, 01 2016- Rs.172.60 Lakhs) due from Companies in which one of the Director is common.

3. The estimated amount of contracts remaining to be executed on Capital Account and not provided for is Rs.16,109.62 Lakhs (March, 31 2017- Rs.7,096.30 Lakhs, April, 01 2016- Rs.843.52 Lakhs).

4. Contingent Liabilities:

a) Claims against the company not acknowledged as debt: Rs.202.50 Lakhs (March, 31 2017 Rs.240.94 Lakhs, April, 01 2016 Rs.107.11 Lakhs).

b) Other monies for which the Company is contingently liable:

5. There is a suitable mechanism in place by the company to provide for loss or reversal of loss towards impairment of assets if any. There is no indication of impairment of assets of the company as at the respective year end.

6. Details of Gratuity Plan:

Defined Benefit Plan

Gratuity: The Company offers the gratuity under employee benefit scheme to its employees. Gratuity is paid to a staff member who has put in a minimum qualifying period of 5 years of continuous services on superannuation, resignation, termination or to his nominee on death.

These defined benefit plan expose the company to actuarial risks, such as Salary inflation risk, interest rate risk and market (investment) risk.

Movement of defined benefit obligation and fair value of plan assets

The amounts recognized in the balance sheet and the movements in the net defined benefit obligation over the years are as follows :

Sensitivity Analysis

The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions, if there is change in assumption by 1%:

The sensitivity analysis have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant. In practice, this is unlikely to occur isolation of one another as some of the assumptions may be correlated. When calculating the above sensitivity analysis, the present value of the project benefit obligation has been calculated using the project unit credit method at the end of the reporting period, which is the same method as applied in calculating the projected benefit obligation as recognized in the balance sheet.

There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.

Risk Exposure

The defined benefit obligation have the under mentioned risk exposures:

Interest Rate risk

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

Higher than the expected increases in salary will increase the defined benefit obligation.

Investment risk

The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has relatively balanced mix of investments in government securities, and other debt instruments.

Demographic risk

There 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.

Defined benefit liability and employer contribution

Expected contribution to gratuity plan for the year ended March 31, 2018 is Rs.9.32 Lakhs.

7. The amount due to Micro and Small Enterprises as defined in the MSMED Act 2006 has been determined to the extent such parties have been identified on the basis of information collected by the management and relied upon by the auditors. There are no interest dues or outstanding on the same.

8. Capital Work in Progress mainly comprises of assets under construction, unallocated expenditure and borrowing cost related to new projects under construction in the state of Goa and Maharashtra.

9. Corporate Social Responsibility

As per Section 135 of the Companies Act, 2013, a corporate social responsibility (CSR) committee has been formed by the Company. The areas for CSR activities are promoting education, art and culture, healthcare and destitute care. The gross amount required to be spent during the year as per the Act is Rs.43.83 Lakhs. The Company has spent Rs.44.88 Lakhs.

10. Leases

a) Company as Lessee: The Company entered into non-cancellable operating lease arrangements primarily for office premises and residential premises for its employees.

During the year the Company has recognized lease rental expenditure of Rs.12.07 Lakhs (Previous year Rs.13.16 lakhs)

The future minimum lease payments under Non cancellable leases payable as at the year end are as follows:

b) Company as lessor: The Company entered into non-cancellable operating lease arrangements with respect to shops and offices located at hotel premises.

During the year the Company has recognized lease rental income of Rs.62.50 Lakhs (Previous year Rs.57.30 lakhs) The future minimum lease rentals under Non cancellable leases receivable as at the year are as follows:

11. Capital Management

The Company manages its capital to ensure that it will be able to continue as a going concern, so that they can continue to provide returns for stake holders and benefits for other stake holders.

Consistent with the others in the industry the Company monitors capital on the basis of ‘gearing ratio’. This ratio is calculated as net debt divided by total equity. Net debit is calculated as total borrowing less cash and cash equivalents.

b) Fair Value Hierarchy

Level 1 : Quoted Prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 : Inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 : Inputs for assets or liabilities that are not based on observable market data (unobservable inputs).

Cash and cash equivalents , trade receivables, investments in fixed deposits, other financial assets , trade payables, and other financial liabilities have fair values that approximate to their carrying amounts due to their short-term nature.

Loans have fair values that approximate to their carrying amounts as it is based on the net present value of the anticipated future cash flows based on effective interest method using rates currently available for debt on similar terms, credit risk and remaining maturities.

12. Risk management framework

The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company has adopted a Risk Management Charter and Policy for self-regulatory processes and procedures for ensuring the conduct of the business in a risk conscious manner.

The Company has exposure to the following risks arising from financial instruments:

- Credit risk ;

- Liquidity risk and

- Market risk

i) Credit risk

Credit risk is the risk of financial loss to the Company is a customer or a counter party to financial instrument fails to meet its contractual obligation. To manage this, the Company periodically assess the financial reliability of customers, taking into account the financial condition, current economic trends, analysis of historical bad debits and aging of accounts receivables. Credit risk arises from cash and cash equivalents, deposits with banks as well as credit exposures to customers, including outstanding receivables.

The Company has established a credit policy under which each new customer is analyzed individually for credit worthiness before entering into contract. Sale limits are established for each customer, reviewed regularly and any sales exceeding those limits require approval from appropriate authority. The Company did not provide for any loss allowance on trade receivables since risk of default is negligible.

The cash and cash equivalents held with banks with good credit ratings. The Company invests its short term surplus funds in bank fixed deposits which carry no / low mark to market risk for short duration, therefore does not expose the company to credit risks.

ii) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without including unacceptable losses or risking damage to Company’s reputation.

Market Risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.

The functional currency of the Company is India Rupee (INR). The Company has exposure in settlementof receivables due from charter Companies for their guest stay in at the Hotel mainly denominated US Dollars (USD).

Exposure to currency risk

The currency profile of financial assets and financial liabilities as at 31st March 2018, 31st March 2017 and 1st April 2016 are as below:

Sensitivity analysis

A reasonably possible strengthening (weakening) of USD against INR at 31st March would have affected the measurement of financial instruments denominated in US dollars and affected profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

b) Interest rate risk

Interest rate risk can be either fair value interest rate risk or cash flow interest rate risk. Fair value interest rate risk is the risk of changes in fair values of fixed interest bearing investments because of fluctuations in the interest rates, in cases where the borrowings are measured at fair value through profit or loss. Cash flow interest rate risk is the risk that the future cash flows of floating interest bearing investments will fluctuate because of fluctuations in the interest rates.

The Company’s approach to manage interest rate risk is to have borrowed funds with fixed interest rate obligation.

c) Price Risk

The Company's exposure to equity securities price risk arises from investments held by the company and classified in the balance sheet either at fair value through OCI or at fair value through profit and loss account. The Company does not have any investment in quoted equity investment and hence the Company is not exposed to any market price risk.

Significant management judgment is required in determining provision for income tax, deferred income tax assets and liabilities and recoverability of deferred income tax assets. The recoverability of deferred income tax assets is based on estimates of taxable income and the period over which deferred income tax assets will be recovered. Any changes in future taxable income would impact the recoverability of deferred tax assets.

13. Reconciliation of income tax expense applicable to accounting profits before tax at the applicable tax rate to recogonised income tax expense for the year.

*adjustment due to reclassification of fixed deposits, based on its maturities, to other financial assets / other bank balances on the adoption of Ind AS with the date of transition as April 01, 2016 . The Fixed deposits were categorized under cash and cash equivalents under Previous GAAP.

Notes to reconciliations between Previous GAAP and Ind AS

a) Redeemable cumulative preference shares

The Company has issued redeemable cumulative preference shares on January 10, 2015.

Under Previous GAAP, the preference shares were classified as equity and dividend payable thereon was treated as distribution of profit.

Under Ind AS,

(i) entire redeemable cumulative preference shares are categorised into financial liability based on the terms of the contract. Since there is no actual cost foregone by the holder of preference shares on account of lower interest rate, there is no equity component which needs to be segregated from the preference shares.

(ii) dividend on preference shares is recognized under finance cost in the statement of profit and loss account, since the entire component is classified under financial liability.

b) Proposed dividend on equity shares and dividend distribution taxes.

Under Previous GAAP, proposed dividends and dividend distribution tax were recognized as a provision in the year to which they relate.

Under Ind AS, dividends and dividend distribution tax are recognized as a liability in the year in which it is approved by the shareholders in the Annual General Meeting of the Company.

c) Loan from related parties

The Company has received interest free loans from two related parties in earlier years. Under Previous GAAP, loan from related parties were recognized at their carrying value. Considering that the loans given were interest free, they have been fair valued using effective interest method, by using rates currently available for debt on similar terms, credit risk and remaining maturities. The differential amount of the carrying value and fair value has been recognized in the retained earnings, on the date of transition. Interest on said loan is charged to the statement of profit and loss, using the effective interest method.

d) Fair Valuation of Security Deposits

Under Previous GAAP, interest free security deposits ( that are refundable in cash on completion of the contract term) are recorded at their transaction value.

Under Ind AS, these financial liabilities are required to be recognized at fair value at initial recognition and subsequently at amortised cost. Accordingly, the Company has fair valued these long term security deposits under Ind AS. Difference between the fair value and transaction value of the security deposit has been recognized as financial cost over the period of the security deposit.

e) Actuarial Gain on retirement benefits

In accordance with Ind AS 19, " Employee Benefits", actuarial gain on retirement benefits are recognized in other comprehensive income as compared to statement of profit and loss under previous GAAP.

f) The figures of the previous years have been regrouped / reclassified, where necessary, to conform with the current year's classification.

14. The final dividend on equity shares is recorded as liability on the date of approval by the shareholders.

15. Balances in Trade receivables, Trade payables and Loans and advances are subject to confirmation.

16. The comparatives given in the financial statements have been compiled after making necessary Ind AS adjustments to the respective audited financial statements under previous GAAP to give true and fair view in accordance with Ind AS.

17. Previous year figures have been regrouped / reclassified wherever necessary to conform to current year’s figures. Notes 1 to 51 form an integral part of the financial statements.