xvii) Provisions, Contingent Liabilities and Contingent Assets
Provisions
Provisions are recognised when, based on Company's present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).
Contingent Liabilities and Assets
Show-cause notices issued by various Government Authorities are generally not considered as obligations. When the demand notices are raised against such show cause notices and are disputed by the Company, these are classified as disputed obligations.
The treatment in respect of disputed obligations are as under:
a) a provision is recognized in respect of present obligations where the outflow of resources is probable;
b) all other cases are disclosed as contingent liabilities unless the possibility of outflow of resources is remote.
Contingent liabilities are possible obligations that arise from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events not wholly within the control of the Company. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability. Contingent liabilities are disclosed on the basis of judgment of the management/independent experts and reviewed at each balance sheet date to reflect the current management estimate.
Estimated amount of contracts remaining to be executed on capital account are considered for disclosure.
A contingent asset is disclosed where an inflow of economic benefits is probable.
3. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES, ASSUMPTIONS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
The preparation of the Company's financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the acCompanying disclosures, and the disclosure of contingent liabilities at the date of the financial statements. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
Key estimates, assumptions and judgements
In particular, the Company has identified the following areas where significant judgements, estimates and assumptions are required. Further information on each of these areas and how they impact the various accounting policies are described below and also in the relevant notes to the financial statements. Changes in estimates are accounted for prospectively.
(i) Income taxes
Significant judgements are involved in determining the provision for income taxes, including amount expected to be paid/ recovered for uncertain tax positions as also to determine the amount of deferred tax that can be recognised, based upon the likely timing and the level of future taxable profits.
(ii) Useful lives of Property, Plant and Equipment/Intangible Assets
Property, Plant and Equipment/Intangible Assets are depreciated/ amortised over their estimated useful lives, after taking into account estimated residual value. The useful lives and residual values are based on the Company's historical experience with similar assets and taking into account anticipated technological changes or commercial obsolescence. Management reviews the estimated useful lives and residual values of the assets annually in order to determine the amount of depreciation/amortisation to be recorded during any reporting period. The depreciation/ amortisaion for future periods is revised, if there are significant changes from previous estimates and accordingly, the unamortised/depreciable amount is charged over the remaining useful life of the assets.
(iii) Contingent Liabilities
In the normal course of business, Contingent Liabilities may arise from litigation and other claims against the Company. Potential liabilities that are possible but not probable of crystallising or are very difficult to quantify reliably are treated as contingent liabilities. Such liabilities are disclosed in the Notes but are not recognised. Potential liabilities that are remote are neither recognised nor disclosed as contingent liability. The management decides whether the matters need to be classified as 'remote', 'possible' or 'probable' based on expert advice, past judgements, experiences etc.
(iv) Allowance for impairment of trade receivables
The expected credit loss is mainly based on the ageing of the receivable balances and historical experience. The receivables are assessed on an individual basis assessed for impairment or collectively, depending on their significance. Moreover, trade receivables are written off on a case-to-case basis if deemed not collectible on the assessment of the underlying facts and circumstances.
(v) Provisions
Provisions and liabilities are recognised in the period when it becomes probable that there will be a future outflow of funds resulting from past operations or events and the amount of cash outflow can be reliably estimated. The timing of recognition and quantification of the liability requires the application of judgement to existing facts and circumstances, which can be subject to change. The carrying amounts of provisions and liabilities are reviewed regularly and revised to take account of changing facts and circumstances.
15.3 Rights,preferences and restrictions attached to Shares
The Company has only one class of equity shares having par value of '10 each and the holder of the equity share is entitled to one vote per share.
The Company has only one class of equity shares having a par value of '10/- per share. Each holder of equity shares is entitled to one vote per share. Any dividend declared by the Company shall be paid to each holder of Equity shares in proportion to the number of shares held to total equity shares outstanding as on that date. In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive remaining assets of the Company after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
16.2 Securities Premium is used to record the premium on issue of equity shares. The reserve is utilised in accordance with the provision of the Companies Act, 2013.
16.3 The General Reserve is used from time to time to transfer profits from retained earnings for appropriation purposes. As the General Reserve is created by a transfer from one component of equity to another and is not an item of other comprehensive income, items included in the general reserve is not reclassified subsequently to the Statement of Profit and Loss.
16.4 The retained earnings comprises of surplus which is used from time to time to transfer profits by appropriations. Retained earnings is free reserve of the Company and is used for the purposes like issuing bonus shares, buy back of shares and other purposes (like declaring Dividend etc.) as per the approval of Board of Directors. It includes the re-measurement of defined benefit plan as per actuarial valuations which will not be re-classified to statement of profit and loss in subsequent periods.
16.5 The Revaluation Reserve represents cumulative increase or decrease in the carrying value of a Company's property plant and equipments to account for any major changes in their fair market value.
NOTE 37: COMMITMENTS
Estimated amount of contract remaining to be executed on capital Account and not provided for 'NIL (P.Y. 'NIL)
NOTE 38: EMPLOYEE BENEFITS
The Company has classified various employee benefits as under:
A. Defined Contribution Plans
The Company makes Contribution to Provident fund and employees pension scheme to Defined Contribution plan for qualifying employees. Under the schemes the Company is required to contribute a speciified percentage of the payroll costs to fund the benefits.
The Provident Fund is operated by the Regional Provident Fund Commissioner and the Superannuation Fund is administered by the LIC of India as applicable for all eligible employees. Under the schemes, the Company is required to contribute a specified percentage of payroll costs to the retirement benefit schemes to fund the benefits. These funds are recognised by the Income Tax Authorities.
B. Defined Benefit Plans
a) The Company offers the following employee benefit scheme to its employees
i) Gratuity
The Company operates a gratuity plan covering qualifying employees. Under the gratuity plan, the eligible employees are entitled to post retirement benefit at the rate of 15 days salary for each year of service until the retirement age of 60, subject to a payment ceiling of '20 lakhs. The benefit vests upon completion of five years of continuous service as per "The Payment of Gratuity Act” and once vested it is payable to the employee on retirement or on termination of employment. The Company makes annual contribution to the group gratuity scheme administered by the Life Insurance Corporation of India through its Gratuity Trust Fund.
ii) Other Defined Benefit plans (Compensated Absences)
The obligations under the compensated absences plan have been determined by Independent Actuary using Projected Unit Credit (PUC) method. Compensated absences is payable to all eligible employees on separation from the Company due to death, retirement, superannuation or resignation. At the rate of daily salary, as per current accumulation of leave days.
Gratuity is defined benefit plan and Company is exposed to following Risks:
Interest Risk:
A fall in the discount rate which is linked to the Government Securities Rate will increase the present value of the liability requiring higher provision. A fall in the discount rate generally increases the mark to market value of the assets depending on the duration of asset.
Salary Risk:
The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than assumed level will increase the plan's liability.
Investment Risk:
The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in government securities, and other debt instruments.
Mortality Risk:
Since the benefits under the plan is not payable for the life time and payable till retirement age only, plan does not have any longevity risk.
C. The Company offers the following employee benefits scheme to its employees
a. Gratuity (Partly funded through annual payment to Life insurance corporation of India and balance provided in books).
The Company has recognised full unfunded gratuity obligation at balance sheet date due to temporary shutdown and the retrenchment of factory workers. With the withdrawal of closure and reinstatement of workers, the Company has decided not to conduct an actuarial valuation at this stage. The Company will retain the excess liability on its balance sheet until normal factory operations regularise.
b. Compensated absences encashment (Partly funded through annual payment to Life insurance corporation of India and balance provided in books).
NOTE 39: DISCLOSURES ON FINANCIAL INSTRUMENTS
This Section gives an overview of the significance of financial instruments for the Company and provides additional information on balance sheet items that contain financial instruments.
The details of significant accounting policies, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.
(a) Financial assets and liabilities:
The following table presents the carrying amounts and fair value of each category of financial assets and liabilities as at March 31, 2024 and March 31,2023.
(b) Capital management
For the purpose of the Company's Capital Management, Capital includes issued Equity Capital, share premium and all Other Reserves attributable to the Equity shareholders of the Company. The Primary objective of the Company's Capital Management is to maximise the shareholders' value. The Company's Capital Management objectives are to maintain equity including all reserves to protect economic viability and to finance any growth opportunities that may be available in future so as to maximise shareholder's value. The capital structure of the Company as at 31st March, 2022 consists of no debt, equity comprising issues capital and reserves.
(c) Financial risk management:
The Company's financial risk management is an integral part of how to plan and execute its business strategies. The risk management policy is approved by the Company's Board. The Company's principal financial liabilities comprise of trade and other payables. The main purpose of these financial liabilities is to finance the Company's operations and to provide guarantees to support its operations in selective instances. The Company's principal financial assets include trade and other receivables, and cash and cash equivalents that derive directly from its operations. The Company is exposed to market risk, credit risk, liquidity risk etc. The objectives of the Company's financing policy are to secure solvency, limit financial risks and optimise the cost of capital.
(a) Market risk:
Market risk is the risk that changes in market prices- such as foreign exchange rates, interest rates and equity prices-will affect the Company's income or the value of its holdings of financial instrument. The objective of market risk management is to manage and control market risk exposures within acceptable parameters while optimising the return. The major components of market risk are foreign currency risk, interest rate risk and price risk.
(I) Foreign Currency Risk:
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise.
Forward foreign exchange contracts
It is the policy of the Company to enter into forward foreign exchange contracts to cover foreign currency payments in USD and Euro. The Company enters in to contracts with terms up to 90 days.
Forward cover is obtained from bank for each of the aggregated exposures and the Trade deal is booked. The forward cover deals are all backed by actual trade underlines and settlement of these contracts on maturity are by actual delivery of the hedged currency for settling the underline hedged trade transaction.
(II) Interest rate risk:
Interest rate risk is the risk that the fair value of future cashflows of a financial instrument will fluctuate because of change in market interest rate. The Company does not have significant floating interest rate borrowings during the year ended March 31,2022 and March 31,2021. Hence the Company is not exposed to significant interest rate risk as at the resepctive floating dates.
(b) Credit risk:
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing
with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Company's exposure and wherever appropriate, the credit ratings of its counterparties are continuously monitored and spread amongst various counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the management of the Company. Financial instruments that are subject to concentrations of credit risk, principally consist of balance with banks, investments in equity instruments and trade receivables.
None of the financial instruments of the Company result in material concentrations of credit risks, which may result into financial loss for the Company.
(c) Liquidity risk:
The Company manages liquidity risk by maintaining sufficient cash and cash equivalents and availability of funding through an adequate amount of committed credit facilities to meet the obligations when due. Management monitors rolling forecasts of liquidity position and cash and cash equivalents on the basis of expected cash flows. In addition, liquidity management also involves projecting cash flows considering level of liquid assets necessary to meet obligations by matching the maturity profiles of financial assets & liabilities and monitoring balance sheet liquidity ratios.
NOTE 41:
Due to manufacturing orders drying up and as a result, the costs becoming higher than the revenue, the Company has incurred losses. To restrict any further erosion of capital due to the losses, the management has undertaken certain cost saving measures and discontinued certain services. The management decided to undertake a planned shutdown of the factory in 202122 so that the fixed cost of plant is saved. The manufacturing operations has been shut down from end of November, 2021 and certain workers/labourers were retrenched. During the previous quarter, the Management had filed an application with labour court withdrawing of closure of plant operations and reinstating workers along with payment of their back wages and additional claims if any. The Management of the Company have entered in Memorandum of Settlment on 22nd February 2024 with Workmen employed represented by Shramik Utkarsh Sabha towards full & final settlment of their dues during closure of factory. The Compnay has paid settlment amount as agreed and adequate provisions are made for outstanding liabilities in terms of said agreement. The plant operations will resume shortly in consultation with the Acquirer. The Company's liquidity
position is very healthy and its liquid assets are far higher than its liabilities. In light of above, the Company does not envisage any threat to going concern status of the Company and hence, the financial results have been prepared on going concern basis.
NOTE 42:
The Company has sought balance confirmations from trade receivables and trade payables, wherever such balance confirmations are received by the Company, the same are reconciled and appropriate adjustments if required, are made in the books of account.
NOTE 43:
Previous year's figures have been regrouped, wherever necessary, to confirm to current year's classification.
NOTE 44: APPROVAL OF FINANCIALS STATEMENTS
The Financial Statements were approved for issue by the Board of Directors on May 25, 2024.
As per our report of even date attached For and on behalf of the Board of Directors
For NGST & Associates Sadashiv K. Shetty Sunil Shedge
Chartered Accountants Chairman Chief Financial Officer
Firm's Registration No.:135159W DIN: 00038681 PAN No.: AEGPS7390B
Bhupendra Gandhi Raghuram Shetty Alesha Hakim Khan
Partner Managing Director Company Secretary
Membership No.:122296 DIN: 00038703 Membership No.: A55659
Place: Mumbai Place: Mumbai
Date: May 25, 2024 Date: May 25, 2024
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