1 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the separate financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
In the process of applying the Company''''s accounting policies, management has made judgments, which have the most significant effect on the amounts recognized in the financial statements.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
Revaluation of property, plant and equipment
The Company has elected cost model for its PP& E and thus, the revaluation surplus existing as on the transition date under Indian GAAP has been derecognized in the retained earnings on the date of transition. Accordingly, depreciation on revaluation adjusted against revaluation surplus under Indian GAAP have been reversed under Ind AS and charged to statement of profit & loss.
Impairment of non-financial assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset''''s recoverable amount. An asset''''s recoverable amount is the higher of an asset''''s or CGU''''s fair value less costs of disposal and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.
Defined benefit plans
The cost of the defined benefit plan and other post-employment benefits and the present value of such obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
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.
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 Company''''s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.
‘Pursuant to the approval of Board of Directors and members of the Company, w.e.f. 15th November, 2016 (“Record Date”), an equity share of face value of ? 10 sub-divided into five equity shares of face value of ? 2 each.
(b) Terms / rights attached to equity shares
(i) The Company has only one class of equity shares having a par value of ? 2 each (31.03.2016 and 01.04.2015 of ? 10 each). Each holder of equity shares is entitled to one vote per share, the company declares and pays dividend 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.
(ii) 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: i) Capital Reserve:
Capital Reserve standing in books against capital subsidy received against establishing manufacturing unit.
ii) Capital Redemption Reserve:
Capital Redemption Reserve was created for redemption of Preference Shares as per requirement of provisions of Companies Act, 2013. The Company may issue fully paid bonus shares to its members out of the capital redemption reserve account.
iii) Securities Premium Reserve:
Securities premium reserve is created when shares issued at premium. The Company may issue fully paid up bonus shares to its members or can buy back of shares out of the security premium reserve account.
a) Secured by first pari-passu charge by way of mortgage of all immovable properties and by second pari-passu charge by hypothecation of all movable properties and current assets (save and except stocks and book debts and moveable’s of electronic division) both present and future. Loans (including amounts appearing in current maturities of long term debts of Rs, 200.00 lakhs, (31.03.2016 Rs, 988.94 lakhs, 01.04.2015 Rs, 2071.95 lakhs).
b) Secured against hypothecation of Vehicles acquired under Auto Loan Schemes.
c) Secured against machinery acquired, (including amount appearing in current maturity of long term debts Rs, 533.87 lakhs (31.03.2016 Rs, 568.08 lakhs, 01.04.2015 Rs, 441.22 lakhs).
‘Includes Rs, 85.00 lakhs provided to an Indian Subsidiary as margin money with banks in form of fixed deposit.
**Carrying amounts comprise of non-current and current provisions.
#Additional provision made during the year and reversal of unused amount are included in the respective head of accounts.
ii. Nature of provisions:
(a) Provision for export LC discounting represents the amount of export bills discounted with banks.
(b) Bank guarantee amount is held by banks by way of margin money in the form of fixed deposits, for various credit facilities.
(c) Provision for excise duty /customs duty / service tax represents the differential duty liability that is expected to materialize in respect of matters in appeal.
(d) Provision for litigation related obligations represents liabilities that are expected to materialize in respect of matters in appeal.
(e) Corporate Bank guarantee amount represents guarantee given to a foreign bank on behalf of a foreign subsidiary and to MSEB for power supply by way of margin money in the form of fixed deposits provided on behalf of an Indian subsidiary company.
* Includes Rs, 85.00 lakhs provided to an Indian Subsidiary as margin money with banks in form of fixed deposit.
(a) In terms of EPCG Licence issued, the Company has undertaken an export obligation for Rs, 53,669 lakhs, which is to be fulfilled over a period of 8 years. The Company has completed the export obligation to the extent of Rs, 47,719 lakhs till the year end, of which licenses of Rs, 38,722 lakhs redeemed by the DGFT and the application for redemption of license submitted for Rs, 8,997 lakhs. The export obligation for Rs, 5,950 lakhs is to be fulfilled over a period of 8 years.
(b) In terms of advance license obtained for import of raw materials the Company has undertaken an export obligation for USD 18.950 Mn., which is to be fulfilled over a period of 2 years. The Company has completed the obligation to the extent of USD 15.441 Mn. The license redeemed by the DGFT amounting to USD 12.708 Mn. The balance obligation of USD 3.508 Mn. is to be fulfilled over a period of 2 year.
(c) Under the package scheme of incentives of Government of Maharashtra for Mega Projects, the Company was eligible for VAT and Electricity duty refund benefits. However, if it contravenes any of the conditions of the scheme or eligibility certificate of entitlement or agreement, it shall repay forthwith the entire benefits drawn / availed along with interest thereon together with costs, charges and expenses thereon.
(d) No provision has been made in the accounts towards electricity duty on electricity generated for captive use during the period 01.04.2000 to 30.04.2005 amounting to Rs, 292.07 lakhs (31.03.2016 Rs, 292.07 lakhs,
01.04.2015 Rs, 292.07 lakhs) excluding interest, as the company has won the case against MSEDCL vide order number 2204 of 2007 dated 07.11.2009 of the Hon''''ble High Court of Jurisdiction at Mumbai whereby it was decided that no such duty is payable. MSEDCL has taken up this matter before Supreme Court with condo nation of delay and matter is yet to be heard. As the matter is subjudice, the management feels that no provision is necessary.
2. RELATED PARTY DISCLOSURES
Related party disclosures as required by IND-AS 24 “Related Party Disclosures” are given below:
i) Key Management Personnel
1. Shri Anil Kumar Jain Executive Chairman
2. Shri Mohit Jain Managing Director (w.e.f. 09.05.2016)
3. Shri R. N. Gupta Joint Managing Director (upto 09.05.2016)
4. Shri K. R. Lalpuria Executive Director
5. Shri Kamal Mitra Director (Works)
6. Shri P. N. Shah Independent Director
7. Shri R. Anand Independent Director
8. Shri Dilip Thakkar Independent Director
9. Shri Prem Malik Independent Director
10. Shri Sushil Kumar Jiwarajka Independent Director
11. Dr. (Mrs.) Vaijayanti Pandit Independent Director
ii) Relatives of Key Management Personnel
1. Smt. G. D. Jain
2. Smt. Shikha Jain
iii) Parties where Control Exists
1. Pranavaditya Spinning Mills Ltd.
2. Indo Count Retail Ventures Pvt. Ltd.
3. Indo Count Global Inc., (USA)
4. Indo Count UK Ltd.; (United Kingdom)
1. Unic Consultants
2. A. K. Jain HUF
1. Indo Count Foundation
3. It is management''''s opinion that since the Company is exclusively engaged in the activity of manufacture of textile products which are governed by the same set of risks and returns. The same are considered to constitute a single reportable segment in the context of Indian Accounting Standard (IND AS) 108 on “Operating Segments” issued by the Institute of Chartered Accountants of India.
4. EXPENDITURE ON CORPORATE SOCIAL RESPONSIBILITIES (CSR)
The particulars of expenditure are as follows:
a) Gross amount required to be spent by the Company during the year was Rs, 463.05 lakhs (previous year Rs, 237.11 lakhs).
Defined benefit plans:
The Company provides for gratuity, a defined benefit retirement plan covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount equivalent to 15 days salary for each completed year of service. Vesting occurs upon completion of five continuous years of service in accordance with Indian law.
The Company makes annual contributions to the Life Insurance Corporation of India, which is funded defined benefit plan for qualifying employees.
Leave Encashment benefit
The Company provides for leave encashment, a defined benefit retirement plan covering eligible employees. The Leave Encashment Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount equivalent to 12 days salary for each completed year of service, subject to maximum of 90 days till retirement.
The Company makes annual contributions to the Life Insurance Corporation of India, which is funded defined benefit plan for qualifying employees.
Expected contribution to the defined benefit plan for the next annual reporting period
(i) The actuarial valuation of plan assets and the present value of the defined benefit obligation were carried out at 31st March, 2017. The present value of the defined benefit obligation and the relate current service cost and past service cost, were measured using the Projected Unit Credit Method.
(ii) Discount rate is based on the prevailing market yields of Indian Government securities as at the balance sheet date for the estimated term of the obligations.
(iii) The salary escalation rate is arrived after taking into consideration the seniority, the promotion and other relevant factors, such as, demand and supply in employment market.
5. FINANCIAL INSTRUMENTS - ACCOUNTING CLASSIFICATIONS AND FAIR VALUE MEASUREMENTS
The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair values:
a) Fair value of cash and short-term deposits, trade and other short term receivables, trade payables, other current liabilities, short term loans from banks and other financial institutions approximate their carrying amounts largely due to the short-term maturities of these instruments.
b) Financial instruments with fixed and variable interest rates are evaluated by the Company based on parameters such as interest rates and individual credit worthiness of the counterparty. Based on this evaluation, allowances are taken to account for the expected losses of these receivables.
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1 : quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2 : other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
6. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Company''''s financial risk management is an integral part of how to plan and execute its business strategies. The Company''''s financial risk management policy is set by the Board of Directors.
Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including investments and deposits, foreign currency receivables, payables and loans and borrowings.
The Company manages market risk through a treasury department, which evaluates and exercises independent control over the entire process of market risk management. The treasury department recommends risk management objectives and policies, which are approved by Senior Management and the Audit Committee. The activities of this department include management of cash resources, implementing hedging strategies for foreign currency exposures, borrowing strategies, and ensuring compliance with market risk limits and policies.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. In order to optimize the Company''''s position with regards to
interest income and interest expense and to manage the interest rate risk, treasury performs a comprehensive corporate interest rate risk management by balancing the proportion of fixed rate and floating rate financial instruments in its total portfolio.
The Company is not exposed to significant interest rate risk as at the respective reporting dates.
Foreign Currency Risk
The Company operates internationally and portion of the business is transacted in several currencies and consequently the Company is exposed to foreign exchange risk through its sales in overseas and purchases from overseas suppliers in various foreign currencies.
Foreign currency exchange rate exposure is partly balanced by purchasing of goods, commodities and services in the respective currencies.
The Company evaluates exchange rate exposure arising from foreign currency transactions and the Company follows established risk management policies, including the use of derivatives like foreign exchange forward contracts to hedge exposure to foreign currency risk.
Credit risk arises from the possibility that counter party may not be able to settle their obligations as agreed. To manage this, the Company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends, and analysis of historical bad debts and ageing of accounts receivables. Individual risk limits are set accordingly.
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 reasonable and supportive forward-looking information such as:
- Actual or expected significant adverse changes in business,
- Actual or expected significant changes in the operating results of the counterparty,
- Financial or economic conditions that are expected to cause a significant change to the counterparty''''s ability to meet its obligations,
- Significant increase in credit risk on other financial instruments of the same counterparty,
- Significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements.
Financial assets are written off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the Company. Where loans or receivables have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, they are recognized in profit or loss.
The Company measures the expected credit loss of trade receivables and loan from individual customers based on historical trend, industrial practices and the business environment in which the entity operates. Loss rates are based on actual credit loss experience and past trends. Based on historical data, loss on collection on receivable is not material hence no additional provision considered.
During the year the Company has recognized loss allowance of '''' Nil Under 12 months expected credit loss model.
No significant changes in estimation techniques or assumptions were made during the reporting period. Liquidity risk
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 treasury department is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management. Management monitors the Company''''s net liquidity position through rolling forecasts on the basis of expected cash flows.
Maturity profile of financial liabilities
The table below provides details regarding the remaining contractual maturities of financial liabilities at the reporting date based on contractual undiscounted payments.
For the purposes of the Company''''s capital management, capital includes issued capital and all other equity reserves. The primary objective of the Company''''s Capital Management is to maximize shareholder value. The company manages its capital structure and makes adjustments in the light of changes in economic environment and the requirements of the financial covenants.
The company monitors capital using gearing ratio, which is total debt divided by total capital plus debt.
48. DETAILS OF LOANS GIVEN, INVESTMENTS MADE AND GUARANTEE GIVEN COVERED UNDER SECTION 186(4) OF THE COMPANIES ACT, 2013.
There are no loans given, covered under section 186(4) of the Companies Act, 2013, and investments made are given under the respective heads.
Corporate guarantee given by the Company in respect of loans as at 31st March, 2017:
49. FIRST-TIME ADOPTION OF IND AS
These financial statements, for the year ended 31st March 2017, are the first the Company has prepared in accordance with Ind AS. For periods up to and including the year ended 31st March 2016, the Company prepared its financial statements in accordance with Indian GAAP, including accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014.
Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for periods ending on or after 31st March 2017, together with the comparative period data as at and for the year ended 31st March 2016, as described in the summary of significant accounting policies. In preparing these financial statements, the Company''''s opening balance sheet was prepared as at 1st April 2015, the Company''''s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the balance sheet as at 1st April 2015 and the financial statements as at and for the year ended 31st March 2016.
Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions:
a) Leasehold land and buildings, and plant, were carried in the balance sheet prepared in accordance with Indian GAAP on the basis of valuations performed in earlier years . The Company has elected to regard those values as deemed cost at the date of the transition since they were broadly comparable to fair value.
b) Appendix C to Ind-AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind-AS 17, this assessment should be carried out at the inception of the contract or arrangement. However, the Company has done the assessment of lease contracts based on conditions prevailing as at the date of transition.
c) The Company has elected to apply previous GAAP carrying amount of its investment in subsidiaries as deemed cost as on the date of transition to Ind AS.
The following mandatory exceptions have been applied in accordance with Ind AS 101 in preparing the financial statements.
The estimates at 1st April, 2015 and 31st March, 2016 are consistent with those made for the same dates in accordance with Indian GAAP (after adjustments to reflect any differences if any, in accounting policies) apart from the following items where application of Indian GAAP did not require estimation:
- 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 as at the transition date and as of 31st March, 2016.
b) Derecognition of financial assets and financial liabilities
The Company has elected to apply the derecognition requirements for financial assets and financial liabilities in Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS.
c) Classification and measurement of financial assets
The Company has classified the financial assets in accordance with Ind AS 109 on the basis of facts and circumstances that exist at the date of transition to Ind AS.
Footnotes to the reconciliation of equity as at 1st April, 2015 and 31st March, 2016 and profit or loss for the year ended 31st March 2016:
(a) Derivative instruments
The fair value of forward foreign exchange contracts is recognized under Ind AS, and was not recognized under Indian GAAP. The contracts, which were designated as hedging instruments under Indian GAAP, have been designated as at the date of transition to Ind AS as fair value hedging instrument of expected future sales for which the Company has firm commitments. The corresponding adjustment has been recognized as a separate component of current financial asset. On the date of transition, derivative asset was debited by '''' 1,664.09 lakhs on 1st April, 2015 and net movement of '''' 801.32 lakhs during the year ended on 31st March, 2016 was recognized in statement of profit & loss and subsequently taken to derivative asset.
(b) Defined benefit obligation
Both under Indian GAAP and Ind AS, the Company recognized costs related to its post-employment defined benefit plan on an actuarial basis. Under Indian GAAP, the entire cost, including actuarial gains and losses, are charged to profit or loss. Under Ind-AS, remeasurements (comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the
AS proposed dividend is recognized as a liability in the period in which it is declared by the Company, usually when approved by shareholders in Annual General meeting, or paid.
Therefore, the dividend liability (proposed dividend) including dividend distribution tax liability amounting to '''' 475.17 lakhs has been derecognized in the retained earnings as on date of transition.
(k) Cash Discount & claims paid
Under Indian GAAP, cash discount of Rs, 1,926.68 lakhs and claims paid of Rs, 301.11 lakhs were recognized as part of other expenses which has been adjusted against the revenue under Ind AS during the year ended 31st March, 2016.
(l) Interest component in revenue
Under Indian GAAP, invoice amounts were considered as revenue, irrespective of different credit terms with different customers adjusted against revenue under Ind AS during the year ended 31st March, 2016.
(m)Long Term Security Deposits
Under Indian GAAP the interest free security deposits, with fixed terms, were considered at cost basis. Under Ind-AS these financial assets have been adjusted to be carried at mortised cost, resulting in impact of the present value being treated as cost and the interest accrual recorded to restate the asset balance over its term.