1. Corporate information Nature of operations
PC Jeweller Limited (the ‘Company’) was incorporated on 13 April 2005. The Company is engaged in the business of manufacturing, sale and trading of gold jewellery, diamond studded jewellery and silver items. The Company’s shares are listed on the National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange (BSE).
General information and statement of compliance with Ind AS
The standalone financial statements of the Company have been prepared in accordance with Ind AS notified by the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016. Accordingly, the standalone financial statements for the year ended 31 March 2017 are the Company’s first Ind AS standalone financial statements. For periods up to and including the year ended 31 March 2016, the Company prepared its standalone financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013 (the ‘Act’), read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Indian GAAP). Refer note 43 for the explanation of transition from previous GAAP to Ind AS.
The standalone financial statements for the year ended 31 March 2017 were authorised and approved for issue by the Board of Directors on 25 May 2017.
2. Application of new and revised Indian Accounting Standard (Ind AS)
All the Ind AS issued and notified by the Ministry of Corporate Affairs under the Companies (Indian Accounting Standards) Rules, 2015 (as amended) till the standalone financial statements are authorised have been considered in preparing these standalone financial statements.
3. Standards issued but not effective
In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7 ‘Statement of cash flows’ and Ind AS 102 ‘Share-based payment’. These amendments are in accordance with the recent amendments made by International Accounting Standards Board (‘IASB’) to IAS 7 ‘Statement of cash flows’ and IFRS 2 ‘Share-based payment’, respectively. The amendments are applicable to the Company from 1 April 2017.
a) Amendment to Ind AS 7: The amendment to Ind AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the balance sheet for liabilities arising from financing activities, to meet the disclosure requirement.
b) Amendment to Ind AS 102: The amendment to Ind AS 102 provides specific guidance to measurement of cash-settled awards, modification of cash-settled awards and awards that include a net settlement feature in respect of withholding taxes. It clarifies that the fair value of cash-settled awards is determined on a basis consistent with that used for equity-settled awards. Market-based performance conditions and non-vesting conditions are reflected in the “fair values”, but non-market performance conditions and service vesting conditions are reflected in the estimate of the number of awards expected to vest. Also, the amendment clarifies that if the terms and conditions of a cash-settled share-based payment transaction are modified with the result that it becomes an equity-settled share-based payment transaction, the transaction is accounted for as such from the date of the modification. Further, the amendment requires the award that include a net settlement feature in respect of withholding taxes to be treated as equity-settled in its entirety. The cash payment to the tax authority is treated as if it was part of an equity settlement. This amendment does not have a material impact on the Company
The Company is evaluating the requirements of the amendment and the effect on the financial statements is being evaluated.
Note 4: Equity share capital
a) Authorised share capital
* The Company has issued compulsorily convertible preference shares (‘CCPS’) in the current year. CCPS are compound financial instruments and in accordance with Ind AS, the Company has bifurcated amount so received into equity and liability component. The liability component amounts to Rs.28.48 crores, which is reflected in borrowings (refer note 17) and equity component (net of transaction cost of Rs.2.57 crores) amounts to Rs.226.32 crores, which is reflected in other equity (refer note 16).
b) Terms and rights attached to equity shares
The Company has only one class of equity shares having a par value of Rs.10 each. 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, holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of all preferential payments.
The distribution will be in proportion to the number of equity shares held by the equity shareholders.
Terms and rights attached to preference shares
Each CCPS has a par value of Rs.10 and would be converted into equity shares of the Company within 12 months from the date of issuance. The conversion shall happen at the price of Rs.382.54 per share. As such, the preference shares will get converted into 6,728,000 equity shares of the Company. The preference shareholders shall receive a mandatory dividend of 13% per annum, which shall be paid on 30 September, for each preceding financial year. The voting rights of the investors holding CCPS shall be in accordance with the provisions of Section 47 of the Companies Act, 2013 (including any statutory amendments thereto or reenactments thereof for the time being in force). The preference shares will rank ahead of equity shares in case of liquidation.
c) Shares reserved for issue under options
(i) 2,679,330 equity shares are reserved for the issue under the Employees’ stock option plan of the Company. Information relating to Employees’ stock option plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the reporting period, is set out in note 36.
(ii) Company has issued compulsorily convertible debentures (‘CCD’) in the current financial year. The conversion shall happen at the price of Rs.380 per share. As such, the debentures will get converted into 11,236,800 equity shares of the Company within 18 months from the date of issuance.
d) Details of shareholders holding more than 5% of the shares of the Company1
*As per the records of the Company, including its register of shareholders/members and other declarations, if any, received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownership of shares.
e) The Company has not issued any shares pursuant to contract without payment being received in cash, or allotted as fully paid up by way of bonus shares or bought back any shares during the period of five years immediately preceding the date of balance sheet.
Note 5: Non-current financial liabilities - borrowings
(i) Vehicle loans are secured by way of hypothecation of assets, thus purchased.
(ii) Term loans from banks (including current maturities) aggregating to Rs.86.75 crores (31 March 2016: Rs.86.73 crores; 1 April 2015: nil) are secured against first and exclusive registered mortgage charge on immovable properties belonging to a body corporate. These loans are further fully secured by personal guarantees of promoter directors and their certain relatives and corporate guarantees of the said body corporate.
(iii) Liability component of compulsorily convertible preference shares (‘CCPS’) represents the mandatory payments required under the terms of the CCPS, discounted at the effective interest rate. Mandatory dividend is payable at the rate of 13% per annum. Such dividend is payable on 30 September for the preceding financial year.
(iv) Liability component of compulsorily convertible debentures (‘CCD’) represents the mandatory payments required under the terms of the CCD, discounted at the effective interest rate. Interest is payable on CCD at the rate of 13% per annum (16.25% per annum inclusive of tax deducted at source). The interest payments commenced from 04 July 2016 and are payable every quarter thereafter till conversion date of the CCD.
Note 5: Current Financial Liabilities - Borrowings
(i) Cash credit facilities, packing credit facilities, post shipment credit facilities, demand loans and commercial papers are secured against first pari passu charge on current assets, fixed assets and fixed deposits of the Company. These loans are further fully secured by personal guarantees of promoter directors and their relatives and corporate guarantees and collateral securities of other companies.
The Company has three factory units which are located in Special Economic Zone, namely, unit I, unit II and unit III. Unit III is fully exempt from income tax till 31 March 2021. Remaining units, i.e., unit I and unit II are partly exempted till 31 March 2022 and 31 March 2025 respectively under the provisions of Section 10AA of the Income-tax Act, 1961.
The Company’s manufacturing unit located in Dehradun is eligible for the deduction of 100% of the profits and gains of the unit for the first 5 consecutive years and 30% for the next 5 consecutive years under Section 80 IC of the Income - tax Act, 1961 till 31 March 2019.
These assumptions were developed by the management with the assistance of independent actuarial appraisers. Discount factors are determined close to each year end by reference to government bonds of relevant economic markets and that have terms to maturity approximating to the terms of the related obligation. Other assumptions are based on management’s historical experience.
The significant actuarial assumptions for the determination of the defined benefit obligation are the discount rate, the salary growth rate and the average life expectancy. The calculation of the net defined benefit liability is sensitive to these assumptions. The following table summarises the effects of changes in these actuarial assumptions on the defined benefit liability at 31 March 2017.
The present value of the defined benefit obligation calculated with the same method (projected unit credit) as the defined benefit obligation recognised in the balance sheet. The sensitivity analysis is based on a change in one assumption while not changing all other assumptions. This analysis may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in the assumptions would occur in isolation of one another since some of the assumptions may be co-related.
Based on historical data, the Company expects contributions of Rs.2.13 crores in the next 12 months.
The weighted average duration of the defined benefit obligation at 31 March 2017 is 15 years (31 March 2016: 13 years).
The leave obligations cover the Company’s liability for sick and earned leaves. The Company does not have an unconditional right to defer settlement for the obligation shown as current provision balance above. However, based on past experience, the Company does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months, therefore, based on the independent actuarial report, only a certain amount of provision has been presented as current and balance as non-current.
Defined contribution plans
The Company has certain defined contribution plans. Contributions are made to provident fund in India for employees at the rate of 12% of basic salary as per regulations. The contributions are made to registered provident fund administered by the Government. The obligation of the Company is limited to the amount contributed and it has no further contractual or any constructive obligation. The expense recognised during the period towards defined contribution plan is Rs.2.96 crores (31 March 2016 Rs.2.63 crores).
Note 6: Employee Stock Option Plan
PC Jeweller Limited Employee Stock Option Plan 2011
During the year ended 31 March 2012, the Company had formulated Employee Stock Option Scheme referred to as PC Jeweller Limited Employees’ Stock Option Plan 2011 (the ‘Plan’) for all eligible employees/directors of the Company except an employee who is a promoter or belongs to the promoter group or a director who either by himself or through his relatives or through and body corporate, directly or indirectly, holds more than 10% of outstanding equity shares of the Company.
The plan is to be implemented by the Nomination and Remuneration Committee constituted by the Company under the policy and framework laid down by the Company and/ or the Board of Directors of the Company, in accordance with the authority delegated to the Nomination and Remuneration Committee in this regard from time to time and subject to the amendments, modifications and alterations to the plan made by the Company and/or the Board of Directors in this regard. The issuance of the shares will be under the guidance, advice and directions of the Nomination and Remuneration Committee.
The Company has granted 726,300 stock options to the eligible employees of the Company on 14 May 2015. Each stock option entitles the grantee thereof to apply for and be allotted one equity share of the Company upon vesting. Vesting of the options shall take place over a period of 4 years with a minimum vesting period of 1 year from the grant date.
(a) The vesting schedule is set forth as follows:
The options granted shall vest so long as the employee continues to be in employment with the Company, i.e., the options will lapse if the employment is terminated prior to vesting. Even after the options are vested, un-exercised options may be forfeited if the services of the employee are terminated for reasons specified in the Plan.
(b) Set out below is a summary of options granted under the Plan:
*No options have lapsed or forfeited during the period covered in the table above.
(c) Exercise price and expiry dates of share options outstanding at the end of the year:
(d) The fair value of the options granted has been calculated on the date of grant using Black Scholes option pricing model with the following assumptions:
The volatility used in the Black Scholes Option Pricing Model is the annualized standard deviation of the continuously compounded rate of return of the stock over a period of time. Informal tests and preliminary research tends to confirm that estimates of the expected long-term future volatility should be based on historical volatility for a period that approximates the expected life of the options being valued. The Company was listed on BSE & NSE stock exchanges on 27 December 2012. The volatility is determined by taking into account the period since the listing of the Company.
Note 7: Related party transactions:
In accordance with the requirement of Indian Accounting Standard (Ind AS) 24 “Related Party Disclosures”, name of the related parties, related party relationships, transactions and outstanding balances including commitments where control exist and with whom transactions have taken place during the reported period are as follows:
Note 8: Hedging activity and derivatives
The Company enters into foreign currency forward contracts to hedge against the foreign currency risk relating to payment of foreign currency payables. The Company does not apply hedge accounting on such relationships. Further, the Company does not enter into any derivative transactions for speculative purposes.
Fair value hedge of gold price risk in inventory
The Company enters into contracts to purchase gold wherein the Company has the option to fix the purchase price based on market price of gold during a stipulated time period. The prices are linked to gold prices. Accordingly, these contracts are considered to have an embedded derivative that is required to be separated. Such feature is kept to hedge against exposure in the value of inventory of gold due to volatility in gold prices. The Company designates the embedded derivative in the payable for such purchases as the hedging instrument in fair value hedging of inventory. The Company designates only the spot-to-spot movement of the gold inventory as the hedged risk. The carrying value of inventory is accordingly adjusted for the effective portion of change in fair value of hedging instrument. There is no ineffectiveness in the relationships designated by the Company for hedge accounting.
Disclosure of effects of fair value hedge accounting on financial position:
Hedged item - Changes in fair value of inventory attributable to change in gold prices
Hedging instrument - Changes in fair value of the option to fix prices of gold purchases, as described above
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. The Company enters into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item, and so a qualitative assessment of effectiveness is performed. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the Company uses the hypothetical derivative method to assess effectiveness. There was no hedge ineffectiveness in any of the periods presented above.
Note 9: Financial instruments i) Fair values hierarchy
Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity specific estimates.
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
(ii) Valuation process and technique used to determine fair value
Specific valuation techniques used to value financial instruments include:
(a) The use of quoted market prices for investments in mutual funds.
(b) Use of market available inputs such as gold prices and foreign exchange rates for option to fix prices of gold in purchase contracts and foreign currency forward contracts.
Note 10: Financial risk management
i) Financial instruments by category
* Trade payables include value of the option to fix prices on gold purchases (embedded derivative) that is carried at fair value through P&L. The value of such embedded derivative which is financial asset of Rs.8.43 crores as at 31 March 2017 (31 March 2016: Rs.2.00 crores; 1 April 2015: Rs.2.63 crores) is offset against the value of the trade payables (as discussed further below).
(a) The carrying value of trade receivables, securities deposits, insurance claim receivable, loans given, cash and bank balances and other financial assets recorded at amortised cost, is considered to be a reasonable approximation of fair value.
(b) The carrying value of borrowings, trade payables and other financial liabilities recorded at amortised cost is considered to be a reasonable approximation of fair value.
The following table presents the option to fix prices on gold purchases that are offset with trade payables, as at 31 March 2017, 31 March 2016 and 1 April 2015.
Option to fix prices on gold purchases is an embedded derivative that will be settled together with the trade payables. Accordingly, such amounts are offset but are shown separately in the table above.
ii) Risk management
The Company’s activities expose it to market risk, liquidity risk and credit risk. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the related impact in the financial statements:
The Company’s risk management is carried out by a central treasury department of the Company under policies approved by the Board of Directors. The Board of Directors provide written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, market risk, credit risk and investment of excess liquidity.
A) Credit risk
Credit risk is the risk that a customer or counterparty to a financial instrument will fail to perform or pay amounts due to the Company causing financial loss. It arises from cash and cash equivalents, deposits with banks and financial institutions, security deposits, loans given and principally from credit exposures to customers relating to outstanding receivables. The Company’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at reporting date.
The Company continuously monitors defaults of customers and other counterparties, identified either individually or by the Company, and incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The Company’s policy is to deal only with creditworthy counterparties.
In respect of trade and other receivables, the Company is not exposed to any significant credit risk exposure to any single counterparty or any company of counterparties having similar characteristics. Trade receivables consist of a large number of customers in various geographical areas. The Company has very limited history of customer default, and considers the credit quality of trade receivables that are not past due or impaired to be good.
The credit risk for cash and cash equivalents, mutual funds, bank deposits, loans and derivative financial instruments is considered negligible, since the counterparties are reputable organisations with high quality external credit ratings.
Company provides for expected credit losses on financial assets by assessing individual financial instruments for expectation of any credit losses. Since the assets have very low credit risk, and are for varied natures and purpose, there is no trend that the company can draws to apply consistently to entire population. For such financial assets, the Company’s policy is to provides for 12 month expected credit losses upon initial recognition and provides for lifetime expected credit losses upon significant increase in credit risk. The Company does not have any expected loss based impairment recognised on such assets considering their low credit risk nature, though incurred loss provisions are disclosed under each sub-category of such financial assets.
B) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due. Due to the nature of the business, the Company maintains flexibility in funding by maintaining availability under committed facilities.
Management monitors rolling forecasts of the Company’s liquidity position and cash and cash equivalents on the basis of expected cash flows. The Company takes into account the liquidity of the market in which the entity operates. In addition, the Company’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.
Contractual maturities of financial liabilities
The tables below analyse the Company’s financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying amounts as the impact of discounting is not significant.
C) Market risk - foreign exchange
The Company is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to US Dollar. Foreign exchange risk arises from recognised assets and liabilities denominated in a currency that is not the Company’s functional currency. The Company, as per its overall strategy, uses forward contracts to mitigate its risks associated with fluctuations in foreign currency, and such contracts are not designated as hedges under Ind AS 109. The Company does not use forward contracts and swaps for speculative purposes.
The sensitivity to profit or loss from changes in the exchange rates arises mainly from financial instruments denominated in USD. In case of a reasonably possible change in INR/USD exchange rates of /- 4% (previous year /-5%) at the reporting date, keeping all other variables constant, there would have been an impact on profits of Rs.28.03 crores (previous year Rs.61.48 crores).
D) interest rate risk
The Company’s policy is to minimise interest rate cash flow risk exposures on long-term financing. At 31 March 2017, the Company is exposed to changes in market interest rates through bank borrowings at variable interest rates.
Interest rate risk exposure
Below is the overall exposure of the Company to interest rate risk:
The sensitivity to profit or loss in case of a reasonably possible change in interest rates of /- 50 basis points (previous year: /- 50 basis points), keeping all other variables constant, would have resulted in an impact on profits by Rs.1.24 crores (previous year Rs.2.41 crores).
The Company’s financial assets are carried at amortised cost and are at fixed rate only. They are, therefore, not subject to interest rate risk since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.
E) Price risk
Exposure from investments in mutual funds:
The Company’s exposure to price risk arises from investments in mutual funds held by the Company and classified in the balance sheet as fair value through profit or loss. To manage its price risk arising from investments in mutual funds, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Company.
The sensitivity to profit or loss in case of an increase in price of the instrument by 5% keeping all other variables constant would have resulted in an impact on profits by Rs.0.31 crores (previous year Rs.0.26 crores).
Exposure from trade payables:
The Company’s exposure to price risk also arises from trade payables of the Company that are at unfixed prices, and, therefore, payment is sensitive to changes in gold prices. The option to fix gold prices are classified in the balance sheet as fair value through profit or loss. The option to fix gold prices are at unfixed prices to hedge against potential losses in value of inventory of gold held by the Company.
The Company applies fair value hedge for the gold purchased whose price is to be fixed in future. Therefore, there will no impact of the fluctuation in the price of the gold on the Company’s profit for the period.
Note 11: Capital management
The Company’ s capital management objectives are:
- to ensure the Company’s ability to continue as a going concern
- to provide an adequate return to shareholders
The Company monitors capital on the basis of the carrying amount of equity less cash and cash equivalents as presented on the face of balance sheet.
The Management assesses the Company’s capital requirements in order to maintain an efficient overall financing structure while avoiding excessive leverage. This takes into account the subordination levels of the Company’s various classes of debt. The Company manages the capital structure and makes adjustments to it in the light of changes in the economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
Note 12: First time adoption of ind AS
These standalone financial statements, for the year ended 31 March 2017, are the first financial statements prepared by the Company in accordance with Ind AS. For periods up to and including the year ended 31 March 2016, the Company prepared its standalone financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (‘Indian GAAP’ or ‘Previous GAAP’).
Accordingly, the Company has prepared standalone financial statements which comply with Ind AS applicable for periods ending on 31 March 2017, together with the comparative period data as at and for the year ended 31 March 2016, as described in the summary of significant accounting policies. In preparing these standalone financial statements, the Company’s opening Ind AS balance sheet was prepared as at 1 April 2015, the Company’s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Previous GAAP standalone financial statements, including the balance sheet as at 1 April 2015 and the standalone financial statements as at and for the year ended 31 March 2016.
The Company has applied Ind AS 101 in preparing these first standalone financial statements. The effect of transition to Ind AS on equity, total comprehensive income and reported cash flows are presented in this section and are further explained in the notes accompanying the tables.
A. Exemptions and exceptions availed
Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from Previous GAAP to Ind AS.
A.1 ind AS optional exemptions:
A1.1 Deemed cost for property, plant and equipment
Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind AS, measured as per the Previous GAAP and use that as its deemed cost as at the date of transition. Accordingly, the Company has elected to measure all of its property, plant and equipment at their Previous GAAP carrying value.
A.2 ind AS mandatory exceptions: A2.1 Estimates
An entity’s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with Previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.
Ind AS estimates as at 1 April 2015 are consistent with the estimates as at the same date made in conformity with Previous GAAP.
A2.2 Classification and measurement of financial assets
The classification and measurement of financial assets will be made considering whether the conditions as per Ind AS 109 are met based on facts and circumstances existing at the date of transition.
Financial assets can be measured using effective interest method by assessing its contractual cash flow characteristics only on the basis of facts and circumstances existing at the date of transition and if it is impracticable to assess elements of modified time value of money, i.e., the use of effective interest method, fair value of financial asset at the date of transition shall be the new carrying amount of that asset. The measurement exemption applies for financial liabilities as well.
Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so. It is impracticable to apply the changes retrospectively if:
a) The effects of the retrospective application are not determinable;
b) The retrospective application requires assumptions about what management’s intent would have been in that period;
c) The retrospective application requires significant estimates of amounts and it is impossible to distinguish objectively information about those estimates that existed at that time.
A2.3 De-recognition of financial assets and liabilities
Ind AS 101 requires a first-time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101 allows a first-time adopter to apply the derecognition requirements in Ind AS 109 retrospectively from a date of the entity’s choice, provided that the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions.
The Company has elected to apply the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS.
B. Reconciliation between Previous GAAP and ind AS
Ind AS 101, First time adoption of Indian Accounting Standards, requires an entity to reconcile equity, total comprehensive income and cash flows for prior periods. The following tables represent the reconciliations from previous GAAP to Ind AS.
B.1 Effect of ind AS adoption on the balance sheet as at 1 April 2015
B.5 There is no impact of Ind AS adoption on the statements of cash flows for the year ended 31 March 2016.
Note-1 Proposed dividend
Under Previous GAAP, proposed dividend is recognised as liability in the period to which they relate irrespective of the approval of shareholders.
Under Ind AS, proposed dividend is recognised as liability in the period in which it is declared (approval of shareholders in general meeting) or paid.
Note - 2 Measurement of rental expense
Under Previous GAAP, any escalation in operating lease rentals were straight-lined over the lease term.
Under Ind AS, operating lease rentals are not straight lined over the lease term if the payments to the lessor are structured to increase in line with expected general inflation. Further, under Ind AS, rental expense is also attributed to operating lease incentives, like rent free period.
Note - 3 Option to fix prices of gold purchases
Under Previous GAAP, in respect of purchase of goods at prices that are yet to be fixed at the period end, adjustments to the provisional amounts invoiced by the vendor were recognised in the cost of inventory based on the closing gold rate. Further, in respect of purchase of goods whose prices are fixed at forward rates, cost of inventory was measured at such forward rates.
Under Ind AS, in respect of purchase of goods at prices that are fixed subsequent to the date of purchase, the Company has applied hedge accounting wherein the option to fix prices is designated as a hedging instrument and change in fair value of inventory attributable to change in prices between the date of purchase and the date of fixing prices or reporting date (as applicable) is designated as hedged item.
The hedging relationship is considered a fair value hedge. The gain or loss on the hedging instrument is recognised in statement of profit and loss and the corresponding gain or loss on the hedged item is adjusted in the carrying amount of the hedged item and recognised in statement of profit and loss.
Under Ind AS, financial liabilities in respect of purchase of goods whose prices are fixed at forward rates, are measured at amortised cost, as explained in note 5 below.
Note - 4 Measurement of financial assets at fair value
Under Previous GAAP, current investments were stated at lower of cost and fair value.
Under Ind AS, these financial assets have been classified as Fair Value Through Profit and Loss (‘FVTPL’) on the date of transition to Ind AS and fair value changes after the date of transition have been recognised in the statement of profit and loss.
Note - 5 Measurement of financial assets and liabilties at amortised cost
Under Previous GAAP, the financial assets and financial liabilities were typically carried at the contractual amount receivable or payable.
Under Ind AS, certain financial assets and financial liabilities are initially recognised at fair value and subsequently measured at amortised cost which involves the application of effective interest method. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of the financial asset or financial liability.
For certain financial assets and financial liabilities, the fair value thereof at the date of transition to Ind AS has been considered as the new amortised cost of that financial asset and financial liability at the date of transition to Ind AS. The application of effective interest method results in adjustment to carrying amount of Loans, Other Financial Assets, Borrowing and Other Financial Liabilities.
Note - 6 Fair valuation of derivatives
Under Previous GAAP, foreign exchange derivatives used for hedging purposes were restated at each balance sheet date and the premium was amortised over the term of the forward contract.
Under Ind AS, all derivatives are measured at FVTPL and mark-to-market gains or losses are recorded in the period when incurred.
Note - 7 Remeasurements of post-employment benefit obligations
Under the Previous GAAP, these remeasurements were forming part of the profit or loss for the year.
Under Ind AS, remeasurements i.e. actuarial gains and losses, excluding amounts included in the net interest expense on the net defined benefit liability are recognised in other comprehensive income instead of the statement of profit and loss.
Note - 8 Deferred tax
Under Previous GAAP, deferred tax was accounted as per the income statement approach which required creation of deferred tax asset/ liability on timing differences between taxable income and accounting income. Under Ind AS, deferred tax is accounted as per the Balance Sheet approach which requires creation of deferred tax asset/ liability on temporary differences between the carrying amount of an asset/ liability in the Balance Sheet and its corresponding tax base. The adjustments in equity and net profit, as discussed above, resulted in additional temporary differences on which deferred taxes are calculated.
Note - 9 Business promotion and discount expenditure
On certain sale transactions, if a particular threshold is met, the Company gives a free gift. Under Previous GAAP, revenue is recorded at the total amount received and the cost of the free gift is recognised as an expense.
Under Ind AS, the value of the free gift is adjusted from revenue.
Note 10: Other comprehensive income
Under Ind AS, all items of income and expense recognised in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognised in the statement of profit and loss but are shown in the statement of profit and loss as ‘other comprehensive income’ includes remeasurements of defined benefit plans. The concept of other comprehensive income did not exist under Previous GAAP.
Note 13: Disclosure on specified bank notes (SBN)
During the year, the Company had specified bank notes or other denomination as defined in the MCA notification G.S.R. 308(E) dated 30 March 2017, on the details of specified bank notes (SBN) held and transacted during the period from 8 November 2016 to 30 December 2016, the denomination wise SBNs and other notes as per the notification is given below:
The Company does not maintain independent records of denomination of currency in its books of accounts.
Note 14: Micro, Small and Medium Enterprises
Information as required to be furnished as per section 22 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 for the year ended 31 March 2017 is given below. This information has been determined to the extent such parties have been identified on the basis of information available with the Company.
Note 15: Disclosures in respect of non-cancellable operating leases
The Company leases various offices and retail stores under non-cancellable operating leases with different period. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Contractual lease expense are summarised as below:
Note 16: Corporate social responsibility
As per Section 135 of the Companies Act, 2013, a company, meeting the eligibility criteria, needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility (CSR) activities. The Company’s CSR programs/projects focuses on sectors and issues as mentioned in Schedule VII read with Section 135 of the Act. A CSR committee has been formed by the Company as per the Act. A CSR committee has been examining and evaluating suitable proposals for deployment of funds towards CSR initiatives, however, the committee expects finalisation of such proposals in due course.
a) Gross amount required to be spent by the Company during the year is Rs.10.32 crores (previous year Rs.9.48 crores)
b) Amount spent during the year on CSR (excluding 5% administrative expenses)
Note 17: Segment information
Disclosure for segment information as required by Ind AS 108 ‘Operating Segment’, notified under the Act has been provided in the consolidated financial statements of the Company comprising the Company and its wholly owned subsidiaries.
Note 18: Post reporting date events
No adjusting or significant non-adjusting events have occurred between 31 March 2017 and the date of authorisation of the Company’s standalone financial statements. However, the Board of Directors have recommended a dividend of Rs.1.30 (previous year nil) on preference shares of Rs.10 each for the period 02 Semptember 2016 to 31 March 2017, subject to approval of shareholders at the ensuing Annual General Meeting. Also, the Board of Directors have recommended a final dividend of 10%, i.e., Rs.1 (previous year Rs.3.35) on equity shares of Rs.10 each for the year ended 31 March 2017, subject to approval of shareholders at the ensuing annual general meeting.
Note 19: Authorization of financial statements
The standalone financial statements for the year ended 31 March 2017 (including comparatives) were approved by the Board of Directors on 25 May 2017.