1 General Information and Significant Accounting Policies
A. General Information
Gulf Oil Lubricants India Limited is engaged in the business of manufacturing, marketing and trading of automotive and non automotive lubricants. The Company is a public limited company and is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
B. Significant Accounting Policies
I. Basis of preparation of financial statements
These financial statements have been prepared in accordance with the generally accepted accounting principles in India under the historical cost convention on accrual basis. Pursuant to section 133 of the Companies Act, 2013 read with rule 7(1) of the Companies (Accounts) Rules, 2014, till the standard of accounting or any addendum thereto are prescribed by the Central Government in consultation and recommendation of the National Financial Reporting Authority, the existing Accounting Standards notified under the Companies Act, 1956 shall continue to apply. Consequently, these financial statements have been prepared to comply in all material aspects with accounting standards notified under Section 211 (3C) [Companies (Accounting Standard) Rules, 2006, as amended] and other relevant provision of the Companies Act, 2013. All assets and liabilities have been classified as current or non-current as per the Company''''s operating cycle and other criteria set out in the Schedule III (Division I) of the Companies Act, 2013. Based on the nature of products and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current - noncurrent classification of asset and liabilities.
The accounting policies adopted in the preparation of Financial Statements are consistent with those of previous year.
II. Use of estimates
The preparation of the Financial Statements in conformity with Indian GAAP require the management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent liabilities as at the end of year and the reported revenue and expenses during the year. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ due to these estimates and the differences between the actual results and the estimates are recognized in the periods in which the results are known/materialize.
III. 1. Tangible Assets
(a) Tangible Assets are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Cost comprises of the purchase price including import duties (non-convictable) and non-refundable taxes, and directly attributable expenses incurred to bring the asset to the location and condition necessary for it to be capable of being operated in the manner intended by management.
(b) Subsequent costs related to an item of Property, Plant and Equipment are recognized in the carrying amount of the item if the recognition criteria are met.
(c) Items of Property, Plant and Equipment that have been retired from active use and are held for disposal are stated at the lower of their net carrying amount and net realizable value and are shown separately in the financial statements under the head ''''Other current assets''''. Any write-down in this regard is recognized immediately in the Statement of Profit and Loss.
(d) An item of Property, Plant and Equipment is derecognized on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss arising on derecognition is recognized in the Statement of Profit and Loss.
(e) Tangible fixed assets that are not yet ready for their intended use, are carried at costs, comprising direct cost and other incidental / attributable expenses and reflected under Capital work-in-progress.
(f) Depreciation is provided on a pro-rata basis on the straight-line method over the estimated useful lives of the assets, based on technical evaluation done by management''''s expert in order to reflect the actual usage of the assets. The depreciation charge for each period is recognized in the Statement of Profit and Loss, unless it is included in the carrying amount of any other asset. The useful life, residual value and the depreciation method are reviewed at least at each financial year end. If the expectations differ from previous estimates, the changes are accounted for prospectively as a change in accounting estimate.
(g) Leasehold improvements are amortized over the lease period on straight line basis.
(h) Depreciation on additions/ deletions to fixed assets is calculated on pro-rata basis from/ up to the date of such additions/ deletions.
(b) Depreciation on additions/ deletions to fixed assets is calculated on pro-rata basis from/ up to the date of such additions/ deletions.
IV. Borrowing costs
Borrowing costs include interest, other costs incurred in connection with borrowing and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to the interest cost. General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognized in Statement of Profit and Loss in the period in which they are incurred.
V. Impairment of assets
Assessment is done at each balance sheet date as to whether there is any indication that an asset (tangible and intangible) may be impaired. For the purpose of assessing impairment, the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or group of assets is considered as a cash generating unit. If any such indication exits, an estimate of the recoverable amount of the asset/cash generating unit is made. Assets whose carrying value exceeds their recoverable amount are written down to the recoverable amount. Recoverable amount is higher of an asset''''s or cash generating unit''''s net selling price and its value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Assessment is also done at each Balance Sheet date as to whether there is any indication that an impairment loss recognized for an asset in prior accounting periods may no longer exist or may have decreased. An impairment loss is reversed to the extent that the asset''''s carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had previously been recognized.
Investments that are readily realizable and are intended to be held for not more than one year from the date, on which such investments are made, are classified as current investments. All other investments are classified as long term investments. Current investments are carried at cost or fair value, whichever is lower. Long-term investments are carried at cost. However, provision for diminution is made to recognize a decline, other than temporary, in the value of the investments, such reduction being determined and made for each investment individually.
Inventories are valued at lower of cost and net realizable value, after providing obsolescence and other losses which are considered necessary. The cost of finished goods and work in progress comprises of raw material, direct labour, other direct cost and related production overheads. Cost is determined using weighted average cost basis. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated costs necessary to make the sale.
VIII. Foreign currency transactions
(a) Initial Recognition
On initial recognition, all foreign currency transaction are recorded by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.
(b) Subsequent Recognition
As at the reporting date, non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction.
(c) All monetary assets and liabilities in foreign currency are restated using the exchange rate prevailing at the end of the accounting period.
(d) All the exchange differences are recognized in the Statement of Profit and Loss.
(e) Forward Exchange contracts
The premium or discount arising at the inception of forward exchange contracts entered into to hedge an existing asset/liability, is amortized as expense or income over the life of the contract. Exchange differences on such contract are recognized in the Statement of Profit and Loss in the reporting period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of such a forward contract is recognized as income or as expense for the period.
IX. Revenue recognition
Sale of goods is recognized on transfer of significant risks and rewards of ownership in the goods to customers as per the term of the contract and are net of trade discounts, sales tax/ value added tax but inclusive of excise duty.
X. Other Income
(a) Interest: Interest income is recognized on a time proportion basis taking into account the amount outstanding and the rate applicable.
(b) Dividend: Dividend income is recognized when the right to receive dividend is established.
(c) Income from Duty drawback is recognized on an accrual basis.
XI. Employee benefits
(a) Employee benefits include provident fund, superannuation fund, employee state insurance scheme, Gratuity, compensated absences.
(b) Defined Contribution Plans
The Company''''s contribution to provident fund and superannuation fund are considered as defined contribution plans and are charged as an expense based on the amount of contribution required to be made and when services are rendered by the employee. These funds are administered by respective Government Authorities and Company has no further obligation beyond the amount required to be contributed.
(c) Defined Benefit Plans
For defined benefit plans in the form of Gratuity, the cost of providing benefits is determined using the Projected Unit Credit method, with actuarial valuations being carried out at each Balance Sheet date. Actuarial gains and losses are recognized in the Statement of Profit and Loss in the period in which they occur. Past service cost is recognized immediately to the extent the benefits are already vested. The retirement benefit obligation recognized in the Balance Sheet represents the present value of the defined benefits obligation as adjusted for unrecognized past service cost, as reduced by the fair value of plan assets. Gratuity fund is set up by the Company and is administered through trustees. Plan assets are invested in insurer managed fund.
(d) Short Term Employee benefits
The undiscounted amount of short-term benefits expected to be paid in exchange for the services rendered by employees are recognized during the year when the employees render service. These benefits include performance incentive and compensated absences which are expected to occur within twelve months after the period in which the employee renders the related service.
The cost of short term compensated absences is accounted as under: (a) In case of accumulated compensated absences, when employees render services that increase their entitlement of future compensated absences; and
(b) In case of non-accumulating compensated absences, when absences occur.
(e) Long Term Employee benefits
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related service are recognized as liability at the present value of the defined benefit obligation as at the Balance Sheet date. Company has determined its liability using projected unit credit method based on Actuarial valuation carried out at the Balance sheet date. Actuarial gains and losses are recognized in the Statement of Profit and Loss.
XII. Employee stock options scheme
Equity settled stock options granted under "Employee Stock Option" are accounted for as per the accounting treatment prescribed by the Guidance Note on Employee Share-based Payments issued by the Institute of Chartered Accountants of India as required by the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. The intrinsic value of the option being excess of market value of the underlying share immediately prior to date of grant over its exercise price is recognized as deferred employee compensation with a credit to employee stock option outstanding account. The deferred employee compensation is charged to Statement of Profit and Loss on straight line basis over the vesting period of the option. The options that lapse are reversed by a credit to employee compensation expense, equal to the amortized portion of value of lapsed portion and credit to deferred employee compensation expense equal to the un-amortized portion.
XIII. Income Taxes
(a) Tax expense comprises of current and deferred tax and includes any adjustment related to past period in current year. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income-tax Act, 1961.
(b) Current tax assets and current tax liabilities are offset when there is legally enforceable right to set off the recognized amounts and there is an intention to settle the asset and the liability on a net basis. Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off assets against liabilities representing current tax and where the deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws.
(c) Deferred Income taxes reflect the impact of current year''''s timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years.
(d) Deferred tax asset and liabilities are measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets are recognized only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.
(e) The carrying amount of deferred tax assets are reviewed at each Balance Sheet date. The Company writes down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain that sufficient future taxable income will be available against which deferred tax assets can be realized. Any such write-down is reversed to the extent that it becomes reasonably certain that sufficient future taxable income will be available.
XIV. Provisions and contingent liabilities
Provisions are recognized when there is a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and there is a reliable estimate of the amount of the obligation. Provisions are measured at the best estimate of the expenditure required to settle the present obligation at the Balance sheet date and are not discounted to its present value.
(b) Contingent Liabilities
Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.
Lease arrangements where risks and rewards incidental of ownership of an asset substantially rests with the less or are recognized as operating leases. Lease rental under operating leases are recognized in the Statement of Profit and Loss on a straight line basis.
XVI. Cash & cash equivalents
Cash comprises cash on hand and demand deposits with banks. Cash Equivalents are short term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investment that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
XVII. Earnings per share
Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. The weighted average number of equity shares outstanding during the period and for all periods presented is adjusted for events, such as bonus shares, other than the conversion of potential equity shares that have changed the number of equity shares outstanding, without a corresponding change in resources. For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period is adjusted for the effects of all dilutive potential equity shares.