Note 2: Basis of preparation and measurement and Material Accounting policies and notes to accounts
2.1 Basis of Accounting and preparation of Financial Statements
a. The financial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards notified under the relevant provisions of Companies Act, 2013.
b. The financial statements have been prepared on accrual basis under the historical cost convention. The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the previous year.
c. All the 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 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 to be 12 months for the purpose of current - noncurrent classification of assets and liabilities.
2.2 Use of Estimates
The preparation of financial statements is in conformity with Generally Accepted Accounting Principles that requires the Management to make estimates and assumptions considered in the reported amount of assets and liabilities (including contingent liabilities) and the income and expenses during the year. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future 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/materialized.
2.3 Property Plant & Equipment and Depreciation thereon
a. Property Plant & Equipment are stated at cost net of recoverable taxes, trade discounts and rebates and include amounts added on revaluation, less accumulated depreciation, and impairment loss, if any.
b. The cost of Property Plant & Equipment comprises its purchase price, borrowing cost and any cost directly attributable to bringing the asset to its working condition for its intended use, net charges on foreign exchange contracts and adjustments arising from exchange rate variations attributable to the assets.
c. Subsequent expenditures related to an item of Property Plant & Equipment are added to its book value only if they increase the future benefits from the existing asset beyond its previously ascertained standard of performance.
d. The company has applied the estimated useful life as specified in Schedule II and calculated depreciation based on rates worked as per applicable accounting standard and guidance note issued by ICAI as under:
2.4 Intangible Assets and Amortization thereon
a) Items of Intangible Assets are recognized and measured at cost less accumulated amortization and impairment losses, if any. The cost of intangible assets comprises of its purchase price, including import duties and nonrefundable purchase taxes, after deducting trade discounts and rebates; and any costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by management.
b) Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Company and the cost of the expenditure can be measured reliably.
c) Intangible assets are amortized over their estimated useful life using straight line method.
d) Software is amortized over a period of five years. Amortization method, useful lives and residual values are reviewed at the end of each financial year and adjusted if appropriate.
2.5 Impairment of Assets
An asset is considered as impaired in accordance with AS-28 in Impairment of Assets when at balance sheet date there are indications of impairment and the carrying amount of asset, or where applicable the cash generating unit to which the asset belongs, exceeds its recoverable amount (i.e., the higher of assets’ net selling price and value in use). The carrying amount is reduced to the recoverable amount and reduction is recognized as an impairment loss in the Statement of Profit & Loss. 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.
2.6 Borrowing Costs
Borrowing costs include interest, amortisation of ancillary costs incurred and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Costs in connection with the borrowing of funds to the extent not directly related to the acquisition of qualifying assets are charged to the Statement of Profit and Loss over the tenure of the loan. Borrowing costs, allocated to, and utilised for qualifying assets, pertaining to the period from commencement of activities relating to construction / development of the qualifying asset upto the date of capitalisation of such asset is added to the cost of the assets. Capitalisation of borrowing costs is suspended and charged to the Statement of Profit and Loss during extended periods when active development activity on the qualifying assets is interrupted.
2.7 Investments
Investments that are readily realizable and intended to be held for not more than a year are classified as current
investments. All other investments are classified as long-term investments. Long-Term investments are valued
at cost and provision for diminution in value thereof is made, wherever such diminution is other than temporary.
2.8 Inventories
a. Cost of Inventory comprises of Cost of Purchase, Cost of Conversion and proportionate manufacturing overheads incurred in bringing the inventories to their present location and condition.
b. Items of Inventories are valued at lower of cost and net realizable value
2.9 Employee Benefits
a. All employee benefits payable wholly within 12 months of rendering of services are classified as short-term employee benefits. These comprise of salaries, wages and short-term compensated absences, etc. and the expected costs of ex-gratia are recognized in the period in which the employee renders the related services.
b. Post-employment benefits defined contribution plans:
Payments made to a defined contribution plan such as Provident Fund maintained with the Regional Provident Fund Office and superannuation fund are charged to as an expense in the Statement of Profit and Loss Account as they fall due.
c. Defined Benefit plans Gratuity Fund:
The scheme is a non-contributory defined benefit arrangement providing gratuity benefits expressed in terms of final monthly salary and the period of past service. The scheme is funded with the Life Insurance Corporation of India.
2.10 Revenue Recognition
a. Revenue from operations is recognised to the extent that it is probable that the economic benefits will flow to the company and its revenue can be reliably measured. Revenue is measured on accrual basis at the
fair value of the consideration received or receivable, considering contractually defined terms of payment and excluding taxes or duties collected on behalf of the Central or the State government.
b. Supply of Goods
Revenue is recognized when significant risks and rewards of ownership of the goods have passed to the buyer. Net Turnover from operations represents amount of turnover after deduction of discounts and Goods and Services tax.
c. Sale of services
Revenue from Sale of services is recognised on accrual basis as and when the service provision is completed. It is recognized net of discounts and Goods and Services Tax.
d. Interest Income
Interest income is recognised on a proportionate basis considering the amount outstanding and the rate applicable.
e. Government Grants
Government grants and subsidies are recognised when there is reasonable assurance that the Company will comply with the conditions attached to them and the grants/ subsidy will be received.
Government grants whose primary condition is that the Company should purchase, construct, or otherwise acquire capital assets are presented by deducting them from the carrying value of the assets. The grant is recognised as income over the life of a depreciable asset by way of a reduced depreciation charge.
Grants related to revenue are recognised in the Statement of Profit and Loss on a systematic basis to match them with related costs.
2.11 Insurance Claims
Insurance claims are accounted for based on claims admitted / expected to be admitted and to the extent that there is no uncertainty in receiving the claims.
2.12 Goods and Services Tax Input Tax Credit
The Company has claimed input tax credit in terms of Chapter V of the CGST Act, 2017 and the Rules made there under in respect of inputs, input services and capital goods used for the purposes of the business. To the extent of ineligible credits, the same are added to their respective heads of expenses/ capital goods.
2.13 Cash and 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 investments that are readily convertible into known amounts of cash, and which are subject to insignificant risk of changes in value.
2.14 Foreign Currency Transactions
a. The Company’s financial statements are prepared in Indian Rupees which is the Company’s functional currency.
b. The Transactions in foreign currency are recorded in the functional currency at the original rates of exchange in force at the time the transactions are effected. At the year end, monetary items, including those of foreign operations integral in nature, denominated in foreign currency are reported using the closing rates of exchange. Exchange differences arising thereon and on realization/ payment of foreign exchange are accounted for in the relevant year as income or expense.
c. During the year under review there are no foreign exchange earnings. Foreign Currency outgoings are Rs. 90.09 Lakh used for Import Purchase and Repairs/ Purchase of Capital Goods.
2.15 Micro, Small & Medium Enterprises Development Act, 2006
Based on the information available with the company, none of suppliers have been identified, who are registered under the Micro, Small and Medium Enterprises Development Act 2006 (MSMED) to whom the company owes and the same is outstanding for more than 45 days as at 31 March 2024. The information has been determined to the extent such parties have been identified based on information available within the company. This has been relied upon by the auditors.
2.16 Segment Information
The Company’s business activity falls within a single primary business segment viz. manufacturing and supply of furniture items. Also, the company is operating in Indian market; hence there is no reportable geographic /secondary segment.
Accordingly, no disclosure is required under AS-17.
a. Current Ratio
The current ratio, also known as the working capital ratio, measures the capability of a business to meet its shortterm obligations that are due within a year. The ratio considers the weight of total current assets versus total current liabilities.
There is variance in the ratio as during the current period company has available cash & cash equivalent balance received from issue of equity.
b. For Debt-equity ratio
The debt-to-equity (D/E) ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders’ equity.
There is variance in this ratio as during the current period, the company has issued new equity shares at premium.
c. For Debt Service coverage ratio
Debt Service coverage ratio is used to analyze the Company’s ability to pay-off current interest and instalments. It is calculated by dividing earnings available for debt service by debt service.
Variance in this ratio is due to trimming of Earnings before Interest, Tax, Depreciation and Exceptional Items of the Company compared to previous year.
d. For Return on Equity Ratio
Return on Equity (ROE) is a measure of profitability of a Company expressed in percentage. It is calculated by dividing total income by average shareholder’s equity.
There is variance in this ratio as the profit during the current financial year is reduced as compared to previous year, further during the year equity capital of the company has also increased.
e. For Trade Payable Turnover Ratio
Trade Payable Turnover Ratio measures the efficiency at which the Company is managing the payables. The ratio shows how well a Company uses and manages the credit extended to it by its vendors. It is calculated by dividing turnover by average trade payables.
Change is due to an increase in trade payables during the year.
f. For Net Capital Turnover Ratio
Net Capital Turnover Ratio indicates a company’s effectiveness in using its working capital.
During the year the working capital of the company has increased. The Company has managed to increase its revenue by maintaining the same level of working capital which has thus impacted the Net Capital Turnover Ratio to come in favour of the company.
g. For Return on capital employed
Return on Capital Employed (ROCE) indicates the ability of a Company’s management to generate returns for both the debt holders and the equity holders. It measures a Company’s profitability and the efficiency with which its capital is used.
There is variance in the Capital Employed ratio as the capital employed has been significantly increased during the current year as compared with previous year.
h. For Return on Investments
Return on Investments is the percentage of return on funds invested in the business by its owners.
The company has earned better returns on its investments in the current year as compared to previous years, however the amount available for investment has increased significantly but at the end of the year.
2.19 Earnings per share
a. Basic earnings per share are calculated in accordance with Accounting Standard (AS-20) - Earning per share. The Basic Earnings per share is arrived 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 numbers of equity shares are adjusted retrospectively for all the periods presented for bonus shares issued during the reporting period.
2.20 Taxes on income
a. Current Tax comprises of expected tax payable or recoverable for the year and any adjustment in respect of previous years. It is measured using tax rates provided under the Income Tax Act, 1961.
b. Deferred Tax is recognized, subject to consideration of prudence, on timing difference between taxable income and accounting income for the period that originate in one period and are capable of reversal in one or more subsequent periods.
(Rs.in Lakh)
2.21 Sundry Debtors, Loans and Advances
Sundry Debtors, Loans and Advances are stated at the value if realised in the ordinary course of business. Irrecoverable amounts, if any are accounted for and/ or provided for as per the decision of the management or upon final settlement with the parties
2.22 Disclosure related to Trade Payables: (Rs. in Lakh)
2.25 Further Public Offer
In the financial year 2017-18, Company had raised funds from Initial Public Offer (IPO) aggregating to 4,16,76,000 by issuing 18,12,000 equity shares at 23/- per share.
Further during the year under review, the Company came out with a “Follow - On Public Offering” (FPO) of
36.00. 000 equity shares of face value of Rs. 10/- each at a price of Rs. 75/- per equity share aggregating to Rs.
27.00. 00.000/-. The Public issue was open for subscription from 20-03-2024 till 22-03-2024.
Notes:The net proceeds which were unutilized as at 31st March, 2024 are kept in Escrow account of Kotak Mahindra Bank and Current account of Union Bank of India.
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