1 COMPANY OVERVIEW
Ballarpur Industries Limited ("BILT" or the company) is in the business of manufacturing and selling of paper and its manufacturing operations are spread over two units namely Shreegopal (Haryana) and Kamalapuram (Telangana).
The Ind AS Financial Statements have been approved for issue by the Board of Directors at their meeting held on 22 May 2018.
2 BASIS OF PREPARATION AND USE OF ESTIMATES
2.1 BASIS OF PREPARATION
The Financial statements (FS) of the Company have been prepared in accordance with the Companies Act 2013 ("the Act") and the Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended). The Balance Sheet, the Statement of Profit and Loss and the Statement of Changes in Equity are prepared and presented in the format prescribed in Division II of Schedule III to the Act, (Ind AS compliant Schedule III), and the Statement of Cash flows have been prepared and presented as per the requirements of Ind AS 7 "Statement of Cash Flows". The disclosure requirements of Balance Sheet, and the Statement of Profit and Loss, as prescribed in Schedule III of the Act, are presented by way of notes forming part of the financial statements along with the other notes required to be disclosed under Ind ASs.
Amounts in the financial statements are presented in Indian Rupees rounded off to Lakhs.
The Financial statements have been prepared on a historical cost basis, except certain financial assets and liabilities measured at fair value (refer accounting policy regarding financial instruments).
Effective 1 April 2016, the Company has adopted all the Ind AS standards and the adoption was carried out in accordance with Ind AS 101 First time adoption of Indian Accounting Standards, with 1 April 2015 as the transition date. The transition was carried out from Indian Accounting Principles generally accepted in India as prescribed under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 (IGAAP), which was the previous GAAP.
Accounting policies have been consistently applied except where a newly issued accounting standard or a revision to the existing standard requires a change in the accounting policy hitherto in use.
2.2 USE OF ESTIMATES
The preparation of financial statements in conformity with Ind AS requires that the management of the Company makes estimates and assumptions that affect the reported amounts of income and expenses of the period, the reported balances of assets and liabilities and the disclosures relating to contingent liabilities as of the date of the financial statements. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates include useful lives of property, plant and equipment & intangible assets, allowance for doubtful debts/advances, future obligations in respect of retirement benefit plans, expected cost of completion of contracts, provision for rectification costs, fair value measurement etc. Difference, if any, between the actual results and estimates is recognized in the period in which the results are known.
3 SIGNIFICANT ACCOUNTING POLICIES
3.1 CURRENT AND NON-CURRENT CLASSIFICATION
All Assets and liabilities have been classified as current or non-current as per the Company's normal operating cycle and other criteria set out in the schedule III to 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 equivalent, the Company has ascertained its operating cycle as 12 months for the purpose of current/non-current classification of assets and liabilities
An asset is classified as current when it is:
- Expected to be realized or intended to be sold or consumed in normal operating cycle
- Held primarily for the purpose of trading
- Expected to be realized within twelve months after the reporting period, or
- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period
All other assets are classified as non-current.
A liability is current when:
- It is expected to be settled in normal operating cycle
- It is held primarily for the purpose of trading
- It is due to be settled within twelve months after the reporting period, or
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
3.2 FAIR VALUE MEASUREMENT
Fair value is the price that would be received to sell an asset or settle a liability in an ordinary transaction between market participants at the measurement date. The fair value of an asset or a liability is measured using the assumption that market participants would use when pricing an asset or liability acting in their best economic interest.
Fair value measurements under Ind AS are categorized as below based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety:
- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at measurement date
- Level 2 inputs are inputs, other than quoted prices included in level 1, that are observable for the asset or liability, either directly or indirectly; and
- Level 3 inputs are unobservable inputs for the valuation of assets or liabilities
3.3 PROPERTY, PLANT AND EQUIPMENT [PPE]
PPE is recognized when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. PPE is stated at original cost net of tax/duty credits availed, if any, less accumulated depreciation and cumulative impairment. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Company's accounting policy.
PPE not ready for the intended use on the date of the Balance Sheet are disclosed as "capital work-in-progress".
Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the Statement of profit and loss during the financial period in which they are incurred.
Depreciation is recognized using straight-line method so as to write off the cost of the assets (other than freehold land and properties under construction) less their residual values over their useful life determined based on technical evaluation which are different from the useful life specified in Schedule II to the Companies Act, 2013.
Railway Siding 14
The useful lives as given above represents the period over which management expects to use these assets.
Where cost of a part of the assets ("asset components") is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part is determined separately and such asset components is depreciated over its separate useful life.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the Statement of Profit and Loss on the date of disposal or retirement.
The estimated useful life and residual values are also reviewed at each financial year end and the effect of any change in the estimates of useful life / residual value is accounted on prospective basis.
3.4 INTANGIBLE ASSETS
Intangible assets are recognized when it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably. Intangible assets are stated at original cost of acquisition less accumulated amortization and accumulated impairment loss.
Intangible assets that are acquired by the Company and having finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses (if any). Costs include expenditure that is directly attributable to the acquisition of the intangible assets.
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, are recognized in profit or loss as incurred.
Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. Expenditure on specialized software are amortized over seven years.
3.5 RESEARCH & DEVELOPMENT COST
Research costs are expensed in the year in which it is incurred. Development expenditures on new projects are recognized as an intangible asset, if all the following can be demonstrated:
- The technical feasibility of completing the intangible asset so that the asset will be available for use or sale;
- The Company has intention to complete and its ability and intention to use or sell the asset;
- The Company has the ability to use or sell the asset;
- The manner in which the probable future economic benefits will be generated including the existence of a market for output of the intangible asset or intangible asset itself or if it is to be used internally, the usefulness of intangible assets;
- The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
- The Company has the ability to measure reliably the expenditure attributable to the intangible asset during its development; Development expenditure that does not meet the above criteria is expensed in the period in which it is incurred.
Following initial recognition of the development expenditure as an intangible asset, it is carried at cost less any accumulated amortization and accumulated impairment losses (if any). Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over 3 to 5 years. Amortization expense is recognized in the statement of profit and loss.
During the period of development, the asset is tested for impairment annually.
3.6 IMPAIRMENT OF PPE AND INTANGIBLE ASSETS
As at each reporting date, the Company reviews the carrying amounts of PPE and intangible assets to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the PPE and intangible assets are tested for impairment so as to determine the impairment loss, if any. Goodwill and intangible assets with indefinite life are tested for impairment each year. Company estimates the recoverable amount of the asset and recognizes an impairment loss when the carrying value of an asset exceeds its recoverable amount.
Impairment loss is recognized when the carrying amount of an asset exceeds its recoverable amount. Recoverable amount is determined:
(i) in case of an individual asset, at the higher of the net selling price and the value in use; and
(ii) in the case of a cash generating unit (smallest identifiable group of assets that generates independent cash flows), at the higher of the cash generating unit's net selling price and the value in use
(The amount of value in use is determined as the present value of estimated future cash flows from the continuing use of an asset and from its disposal at the end of its useful life. For this purpose, the discount rate (pre-tax) is determined based on the weighted average cost of capital of the company suitably adjusted for risks specified to the estimated cash flows of the asset).
If recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, such deficit is recognized immediately in the Statement of Profit or Loss as impairment loss and the carrying amount of the asset (or cash generating unit) is reduced to its recoverable amount. For this purpose, the impairment loss recognized in respect of a cash generating unit is allocated first to reduce the carrying amount of any goodwill allocated to such cash generating unit and then to reduce the carrying amount of the other assets of the cash generating unit on a pro-rata basis.
When an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit), except for allocated goodwill, is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss is recognized for the asset (or cash generating unit) in prior years.
A reversal of an impairment loss (other than impairment loss allocated to goodwill) is recognized immediately in the Statement of Profit or Loss.
3.7 INVENTORIES
Inventories are valued as under:
- Raw materials, Stores, Spare Parts, Chemicals: at lower of cost, determined on weighted average basis, and net realizable value.
However, these items are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost.
- Work in progress: at cost and net realizable value, whichever is lower. Cost comprises of material cost and related overhead expenses, including labour cost.
- Finished goods: at cost and net realizable value whichever is lower. Cost comprise material cost and related overhead expenses, including labour cost
- Traded goods: at cost, determined on weighted average basis, and net realizable value whichever is lower.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
3.8 Foreign CURRENCY TRANSACTIONS
The Company's financial statements are presented in INR, which is functional currency of the Company.
Transactions and balances
Transactions in foreign currencies are initially recorded by the Company's entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date.
Differences arising on settlement or translation of monetary items are recognized in Statement of Profit and Loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
The Company has availed the exemption available in IND AS 101, to continue capitalization of foreign currency fluctuation on long term foreign currency monetary liabilities outstanding on transition date.
3.9 FINANCIAL INSTRUMENT
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
(i) Financial assets
Initial recognition and measurement
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to acquisition of financial asset.
Financial assets are classified, at initial recognition, as financial assets measured at fair value or as financial assets measured at amortized cost.
Subsequent measurement
For purposes of subsequent measurement financial assets are classified in two broad categories:
- Financial assets at fair value
- Financial assets at amortized cost
Where assets are measured at fair value, gains and losses are either recognized entirely in the statement of profit and loss (i.e. fair value through profit and loss) or recognized in other comprehensive income. (i.e., fair value through other comprehensive income)
A financial asset that meets the following two conditions is measured at amortized cost (net of any write down for impairment) unless the asset is designated at fair value through profit or loss under fair value option.
- Business model test: The objective of company's business model is to hold the financial asset to collect the contractual cash flows (rather than to sell the instruments prior to its contractual maturity to realize its fair value changes).
- Cash flow characteristics test: The contractual terms of the financial asset gives rise on specified dates to cash flows that are solely payments of principal and interest and principal amount outstanding.
A financial asset that meets the following two conditions is measured at fair value through other comprehensive income unless the asset is designated at fair value through profit or loss under the fair value option.
- Business model test: The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.
- Cash flow characteristics test: The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on principal amount outstanding.
Even, if an instrument meets the two requirements to be measured at amortized cost or fair value through other comprehensive income, a financial asset is measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement
or recognition inconsistency (sometimes referred to as ‘accounting mismatch') that would otherwise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
All other financial assets are measured at fair value through profit or loss except investment in equity instruments of subsidiaries which are measured at cost less impairment.
All other equity instruments are measured at fair value in the balance sheet, with values recognized in the statement of profit and loss, except for those equity instruments for which the entity has elected to present value changes in ‘other comprehensive income'.
If an equity investment is not held for trading, an irrevocable election is made at initial recognition to measure it at fair value through other comprehensive income with only dividend income recognized in the statement of profit and loss.
Derecognition
A financial asset (or, where applicable, a part of financial asset or a part of a group of similar financial assets) is primarily derecognized (i.e. removed from the company's balance sheet) when:
- The rights to receive cash flows from the assets have expired, or
- The company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under ‘pass through' arrangement and either;
a) The company has transferred substantially all the risks and rewards of the asset, or
b) The company has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset.
When the company has transferred its right to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset, nor transferred control of the asset. The company continues to recognize the transferred asset to the extent of company's continuing involvement. In that case, the company also recognizes an associated liability. The transferred asset and associated liability are measured on a basis that reflects the rights and obligations that the company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset the maximum amount of consideration that the company could be required to repay.
Impairment of financial assets
The Company recognizes impairment loss on trade receivables and certain other financial assets using expected credit loss (ECL) model, which involves use of a provision matrix constructed on the basis of historical credit loss experience as permitted by Ind AS 109. Other financial assets measured at amortized cost and financial assets measured at fair value through OCI are tested for impairment based on evidence or information that is available without undue cost or effort. Expected credit loss on such assets are assessed and allowance recognized if the credit quality of the financial asset has deteriorated significantly since initial recognition.
(ii) Financial liabilities
Initial recognition and measurement
All financial liabilities are recognized initially at fair value, and in case of borrowings and payables, net of directly attributable transaction costs.
The Company's financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit and loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains / losses on liabilities held for trading are recognized in the statement of profit and loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit and loss.
(iii) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the Balance Sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
3.11 COMPOUND FINANCIAL INSTRUMENTS
The liability component of a compound financial instrument is recognized initially at fair value of a similar liability that does not have an equity component. The equity component is recognized initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and the equity components, if material, in proportion to their initial carrying amounts.
Subsequent to the initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method.
The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry.
3.12 CASH AND CASH Equivalents
Cash and cash equivalents in the balance sheet comprise cash on hand and at bank, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value and are held for the purpose of meeting short-term cash commitments.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above.
3.13 Provisions, CONTINGENT LIABILITIES, CONTINGENT ASSETS AND COMMITMENTS
(i) Provisions
Provisions are recognized when
- the Company has a present obligation (legal or constructive) 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
- a reliable estimate can be made of the amount of the obligation.
The amounts recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.
If the effect of the time value of money is material, the amount of provision is discounted to the present value of cash flows estimated to settle the present obligation. Unwinding of the discount is recognized in the Statement of Profit and Loss as a finance cost. Provisions are reviewed at each balance sheet date and are adjusted to reflect the current best estimate.
Reimbursement expected in respect of expenditure required to settle a provision is recognized only when it is virtually certain that the reimbursement will be received if the Company settles the obligation.
(ii) Contingent liabilities
Contingent liabilities are disclosed in case of
- A present obligation arising from a past event, when it is not probable that an outflow of resources will be required to settle the obligation; or
- A present obligation arising from past events, when a reliable estimate of the amount cannot be made.
- A possible obligation arising from past events where the probability of outflow of resources is not remote.
(iii) Contingent assets
Contingent assets are disclosed where an inflow of economic benefits is probable.
Provisions, contingent liabilities and contingent assets are reviewed at each Balance Sheet date.
3.13 SHARE CAPITAL AND SHARE PREMIUM
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
Par value of the equity share is recorded as share capital and the amount received in excess of the par value is classified as share premium.
3.14 BORROWING COSTS
Borrowing costs consist of interest expense calculated using effective interest method and other costs that the Company incurs in connection with the borrowing of funds.
Borrowing costs that are attributable to the acquisition, construction or production of qualifying assets i.e., assets that necessarily takes a substantial period of time to get ready for its intended use, are capitalized as part of the cost of such assets. Interest income earned on temporary investment of specific borrowings pending their expenditure on qualifying assets are deducted from the cost eligible for capitalization.
All other borrowing costs are expensed in the period in which they are incurred.
3.15 REVENUE RECOGNITION
(i) Sale of goods
Revenue from the sale of goods is recognized, when all significant risks and rewards of ownership of the goods have been passed to the buyer, as per the terms of contract, the amount can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Company. Further, revenue is recognized only if the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over goods sold, and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue is measured at the fair value of consideration received or receivable, net of returns and allowances, trade discounts and volume rebates.
(ii) Other operating income
(a) Incentives
Incentives on exports and other Government incentives are recognized when it is probable that the economic benefits associated with the incentives will flow to the entity, the revenue can be measured reliably and there is no significant uncertainty about the ultimate realization of the incentive.
(b) Rental income
Lease rental income from operating lease is recognized on a straight-line basis over the lease term unless the payments are structured to increase in line with expected general inflation to compensate for lessor's expected inflationary cost increases.
(iii) Other income
(a) Interest income
Interest income is recognized on a time proportion basis using the effective interest method.
(b) Dividends
Dividends is recognized when the Company's right to receive the payment is established, which is generally when shareholders approve the dividend.
3.16 EMPLOYEE BENEFITS
(i) Short term employee benefits
Employee benefits such as salaries, wages, bonus, short-term compensated absences, performance incentives, etc., falling due wholly within the twelve months of rendering service are classified as short term employee benefit and are expensed in the period in which the employee renders the related service.
(ii) Defined benefit plans
The Company's obligation towards gratuity is a defined benefit plan. The present value of the obligation under such defined benefit plan is determined based on actuarial valuation, done by a qualified actuary, using the Projected Unit Credit Method, which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.
The obligation is measured at the present value of the estimated future cash flows. The discount rate used for determining the present value of the obligation under defined benefit plans is based on the market yields on Government securities, having maturity periods approximating to the terms of related obligations as at the Balance Sheet date.
Defined benefit cost comprising current service cost, past service cost and gains or loss on settlements are recognized in statement of profit or loss as employee benefit expenses. Interest cost implicit in defined benefit cost is recognized in statement of profit or loss under finance cost. Gains or losses on the curtailment or settlement of the defined benefit plan are recognized when the curtailment or settlement occurs.
Remeasurements, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding net interest as defined above), are recognized in other comprehensive income.
(iii) Long term employee benefits
The obligation recognized in respect of long term employee benefits such as long term compensated absences is measured at present value of estimated future cash flows expected to be made by the Company and is measured in a similar manner as in the case of defined benefit plan.
Long term employee benefit costs comprising current service cost and gains or losses on curtailments and settlements, remeasurements including actuarial gains and losses are recognized in the statement of profit or loss as employee benefits expense. Interest cost implicit in long term employee benefit cost is recognized in the statement of profit or loss under finance cost.
(iv) Defined contribution plan - post employment benefit
The Company's contributions to defined contribution plans are recognized in statement of profit or loss in the period to which the employee provides the related service.
(v) Termination benefits
Termination benefits are recognized as expense in the period in which they are incurred.
3.17 LEASES
The determination of whether an agreement is, or contains, a lease is based on the substance of the agreement at the date of inception. Assets acquired under leases where the Company has substantially all the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.
(i) Operating lease
Lease rentals on assets under operating lease are charged to statement of profit and loss on a straight line basis over the term of the lease unless such payments are structured to increase in line with the expected general inflation to compensate for the lessor's expected inflationary cost increases.
Assets leased out on operating lease are continued to be shown under respective class of assets. Lease rental income from operating lease is recognized on a straight-line basis over the lease term unless the payments are structured to increase in line with expected general inflation to compensate for lessor's expected inflationary cost increases.
(ii) Finance lease
Assets acquired under finance lease are capitalized at the commencement of the lease at the fair value of the lease property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charge and a reduction in lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Financing charges are recognized as finance cost in the statement of profit and loss.
Subsequent to initial recognition, the assets are measured for in accordance with the accounting policy applicable to that asset.
3.18 GOVERNMENT GRANTS
Government grants with a condition to purchase, construct or otherwise acquire long-term assets are initially measured based on grant receivable under the scheme. Such grants are recognized in the Statement of Profit and Loss on a systematic basis over the useful life of the asset. Amount of benefits receivable in excess of grant income accrued based on usage of the assets is accounted as Government grant received in advance. Changes in estimates are recognized prospectively over the remaining life of the assets. Government revenue grants relating to costs are deferred and recognized in the Statement of Profit and Loss over the period necessary to match them with the costs that they are intended to compensate.
3.19 INCOME TAXES
(i) Income tax expense
Income tax expense comprises current and deferred tax. It is recognized in statement of profit and loss except when they relate to items recognized in other comprehensive income or directly in equity, in which case, the income tax expense is also recognized in other comprehensive income or directly in equity, as the case may be.
(ii) Current tax
Tax on income for the current period is determined on the basis of taxable income (or on the basis of book profits wherever minimum alternate tax is applicable) and tax credits computed in accordance with the provisions of the Income Tax Act 1961. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Current tax assets and liabilities are offset only if, the Company:
- has a legally enforceable right to set off the recognized amounts; and
- intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
(iii) Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the Company's financial statements and the corresponding tax bases used in computation of taxable profit.
Deferred tax liabilities are recognized for all taxable temporary differences.
Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized. Deferred tax assets are recognized for the carry forward and unused tax credits and any unused tax losses only to the extent that the entity has sufficient taxable temporary differences or convincing other evidence that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.
Deferred tax assets and liabilities are offset only if:
- entity has a legally enforceable right to set off current tax assets against current tax liabilities; and
- deferred tax assets and the deferred tax liabilities relate to the income taxes levied by the same taxation authority.
3.20 DIVIDEND / DISTRIBUTION
Dividend distribution to the Company's shareholders is recognized as a liability in the financial statements in the period in which the dividends are approved by the Company's shareholders.
3.21 EARNINGS PER SHARE
Basic earnings per share is computed by dividing the net profit for the year attributable to the shareholders' by weighted average number of equity shares outstanding during the year.
Diluted earnings per share is computed by dividing the net profit for the year attributable to the shareholder' by the weighted average number of equity shares considered for deriving basic earnings per share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares.
3.22 SIGNIFICANT ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS
The preparation of the Company's financial statements requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and 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 the asset or liability affected in future periods.
(a) Impairment of PPE and intangible 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 / CGU's recoverable amount is the higher of the asset's / 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 group of assets. When the carrying amount of an asset or CGU exceeds it recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing the 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.
(b) Defined benefit obligation
The cost of the defined benefit plan and other long-term benefits and the present value of such obligation as 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, mortality rates and attrition rate. Due to the complexities involved in the valuation and its long-term nature, obligation under defined benefit plan and other long term benefits are highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
(c) 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 Discounted Cash Flow (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 consideration 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.
(d) Development costs
The Company capitalizes development costs in accordance with its accounting policy. Initial capitalization of costs is based on management's judgment that technological and economic feasibility is confirmed, unless when a product development project has reached a defined milestone according to an established project management model. In determining the amounts to be capitalized, management makes assumptions regarding the expected future cash generation of the project, discount rates to be applied and the expected period of benefits.
(e) 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 the Company's past history, existing market conditions as well as forward looking estimates at the end of each reporting period.
4 RECENT ACCOUNTING PRONOUNCEMENT
4.1 Appendix B to Ind AS 21, Foreign currency transactions and advance consideration: On 28 March 2018, Ministry of Corporate Affairs ("MCA") has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign
currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency. The amendment will come into force from 1 April 2018. The Company has evaluated the effect of this on the financial statements and the impact is not material.
4.2 Ind AS 115- Revenue from Contract with Customers: On 28 March 2018, Ministry of Corporate Affairs ("MCA") has notified the Ind AS 115, Revenue from Contract with Customers. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Further the new standard requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts with customers.
The standard permits two possible methods of transition:
- Retrospective approach - Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8- Accounting Policies, Changes in Accounting Estimates and Errors
- Retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application (Cumulative catch
- up approach)
The effective date for adoption of Ind AS 115 is financial periods beginning on or after 1 April 2018.
The Company will adopt the standard on 1 April 2018 by using the cumulative catch-up transition method and accordingly comparatives for the year ending or ended 31 March 2018 will not be retrospectively adjusted. The Company is in the process of evaluating the effect on adoption of Ind AS 115.
(c) The management has taken various initiatives and strategies to revive the operations of the Company on a profitable basis. During the year the Company has implemented the Strategic Debt Restructuring (SDR) Scheme with the lenders which has eased the financial stress on the Company (Refer note 39 on SDR). Subsequent to SDR the company was able to run the manufacturing facility at Yamunanagar (Shree Gopal Unit) without major shutdowns. The Company has also taken various initiatives to recommence operations of its manufacturing facility at Kamalapuram and is confident of recommencing operations during the financial year 2018-19. Further the management of the Company is in the process of further negotiation with the lenders for second phase of restructuring as per its revival plan & also exploring various other options like sale of non-core assets, etc., to further ease out the financial burden and achieve better financial results. (Also refer note 41 on going concern assessment).
On account of the above reasons, the management is confident that the Company will be able to generate future taxable profits, in excess of the profit arising from the reversal of deferred tax liabilities, against which the aforesaid deferred tax assets will be recognized.
(e) Changes to authorized share capital
On 14 July 2017, the shareholders of the company by way of postal ballot approved the reclassification of the Authorized Share Capital from Rs, 40,000 Lakhs divided into 75,00,00,000 equity shares having face value of Rs, 2/- each, and 2,50,00,000 preference shares having face value of Rs, 100/- each, to Rs, 40,000 Lakhs divided into 150,00,00,000 equity Share having face value of Rs, 2/- each, and 1,00,00,000 preference shares having face value of Rs, 100/-each, by converting 1,50,00,000 preference shares of Rs, 100/-each into 75,00,00,000 Equity Share of Rs, 2 each.
(f) Shares allotted during the year
Pursuant to approval of shareholders by way of postal ballot on 14 July 2017, the committee of the Board of Directors at its meetings held on 25 July 2017, allotted collectively to the lenders 63,79,31,917 equity shares of face value of Rs, 2 at a premium of Rs, 13.83 per share aggregating Rs, 1,00,985 Lakhs as per Strategic Debt Restructuring Scheme (SDR Scheme) of the Reserve Bank of India. (Refer note 39). The implementation of SDR Scheme and consequent allotment of equity shares have been made in respect of all the lenders.
(g) Others
(i) The Company has not reserved any shares for issue under options as at 31 March 2018 (As at 31 March 2017 : Nil shares)
(ii) The Company has not allotted any bonus shares in the immediately preceding five year ended 31 March 2018. (previous period of five years ended 31 March 2017: Nil shares)
(iii) The Company has not issued any shares for consideration other than cash during the period of five years immediately preceding the reporting date. Refer note no. 20 (F) for details of loans converted in to equity.
(iv) The aggregate number of equity shares bought back in immediately preceding five years ended 31 March 2018 is Nil (previous period of five years ended 31 March 2017 - Nil)
(v) Calls unpaid as at 31 March 2018 - Rs, Nil (31 March 2017 : Rs, Nil)
* Restated - Refer note 38
(a) Refer statement of changes in equity for detailed movement in components of other equity
(b) Nature and purpose of reserves
(i) Capital reserve
Capital reserve represents the difference between value of the net assets transferred to the Company in the course of business combinations and the consideration paid for such combinations.
(ii) Securities premium reserve
The amount received in excess of face value of the equity shares is recognized in securities premium. The reserve can be utilised in accordance with the provisions of Companies Act 2013 and are not available for distribution to the shareholders.
(iii) Preference share capital redemption reserve
Preference Share Capital Redemption Reserve represents the statutory reserve created. The said capital redemption reserve account may be applied by the Company, in paying up unissued shares of the Company to be issued to shareholders of the Company as fully paid bonus shares.
(iv) Debenture redemption reserve
The Company has issued debentures and created DRR out of the profits of the Company in terms of the Companies (Share capital and Debenture) Rules, 2014 (as amended). The Company is required to maintain a DRR of 25% of the value of debentures issued, either by a public issue or on a private placement basis. The amounts credited to the DRR may not be utilised by the company except to redeem debenture.
(v) General reserve
The Company created a General Reserve in earlier years pursuant to the provisions of the Companies Act wherein certain percentage of profits were required to be transferred to General Reserve before declaring dividends. As per Companies Act 2013, the requirement to transfer profits to General Reserve is not mandatory. General Reserve is a free reserve available to the Company.
(vi) Retained Earnings
Retained earnings are the profits that the Company has earned till date, less any transfers to general reserve, dividends or other distributions paid to shareholders.
(vii) Re-measurement of net defined benefit plans
Differences between the interest income on plan assets and the return actually achieved, and any changes in the liabilities over the year due to changes in actuarial assumptions or experience adjustments within the plans, are recognized in ‘Other comprehensive income' and subsequently not reclassified to the statement of profit or loss.
(viii) Equity instruments through OCI
The fair value change of equity instruments designated as measured at fair value through other comprehensive income is recognized in equity instruments through other comprehensive income and are not subsequently reclassified to statement of profit or loss. Upon derecognition, the cumulative fair value changes on the said instruments are reclassified to retained earnings directly.
Debentures are secured by way of first pari-passu charge over all moveable properties of the Company both present and future The debentures are repayable in 5 equal yearly installments starting from financial year 2019-20 to 2023-24. Also refer note 22 (e) below:
(b) Working capital loans
The Company has availed various short term financial facilities from the banks and financial institutions ("the Lenders") which are repayable on demand and carry interest ranging from 9.8% to 14.25% (As at 31 March 2017 - 11.5% to 14%). The said facilities are unsecured except facilities taken from Axis Bank Limited and Finquest NBFC. Asix bank's facility is secured by a charge by way of hypothecation over the company's movable fixed assets on pari passu basis, both present and future and Finquest NBFC's facility is secured by a charge by way of hypothecation over the company's current assets on pari passu first charge and pledge on Premier Tissues (India) Limited's Shares, both present and future.
* The disclosure for the financial year 2017-18 includes ' 1 lakh payments made to the predecessor statutory auditors of the Company in their capacity as statutory auditors.
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