xvIII) Provisions
A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount can be estimated reliably. Expected future operating losses are not provided for.
Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. All the provisions are reviewed at each balance sheet date.
Warranty costs
Warranty costs are estimated on the basis of a past experience. Provision is made for estimated liability in respect of warranty costs in the year of sale of goods
xix) Contingent liabilities and contingent assets
A contingent liability exists when there is a possible but not probable obligation, or a present obligation that may, but probably will not, require an outflow of resources, or a present obligation whose amount cannot be estimated reliably. Contingent liabilities do not warrant provisions but are disclosed unless the possibility of outflow of resources is remote. Contingent liabilities are reviewed at each Balance Sheet date. Contingent assets are neither recognised nor disclosed in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.
xx) Income Taxes
The income tax expense or credit for the period is the tax payable on the current period's taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses, if any.
The current income tax charge is calculated based on the tax laws enacted or substantively enacted at the end of reporting period in India where the Company operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations is subject to interpretation. It establishes provisions where appropriate based on amounts expected to be paid to the tax authorities.
Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Deferred income tax is provided in full, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting profit nor taxable profit (tax loss). Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for all deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profits improves.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
xxi) Leases
A lease is a contract that contains right to control the use of an identified asset for a period of time in exchange for consideration.
As a lessee
Leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Company. Contracts may contain both lease and non-lease components. The Company allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of real estate for which the Company is a lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
• fixed payments (including in-substance fixed payments), less any lease incentives receivable
• variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date
• amounts expected to be payable by the Company under residual value guarantees
• the exercise price of a purchase option if the Company is reasonably certain to exercise that option, and
• payments of penalties for terminating the lease, if the lease term reflects the Company exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Company uses incremental borrowing rate, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. For leases with reasonably similar characteristics, the Company may adopt the incremental borrowing rate for the entire portfolio of leases.
The Company is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
• the amount of the initial measurement of lease liability
• any lease payments made at or before the commencement date less any lease incentives received
• any initial direct costs, and
• restoration costs.
The right-of-use assets is subsequently measured at cost less any accumulated depreciation, accumulated impairment losses, if any and adjusted for any re measurement of the lease liability. The right-of-use asset is depreciated from the commencement date on a straight-line basis over the shorter of the lease term unless the lease transfers ownership of the underlying asset to the Company and useful life of the underlying asset. Leasehold land is amortized on a straight-line basis over the period of lease i.e. 90 years. Right-of-use assets are tested for impairment whenever there is any indication that their carrying amounts may not be recoverable. Impairment loss, if any, is recognised in the statement of profit and loss.
Payments associated with short-term leases of equipment and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.
As a lessor
Lease income from operating leases where the Company is a lessor is recognised in income on a straight-line basis over the lease term. Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset and recognised as expense over the lease term on the same basis as lease income. The respective leased assets are included in the balance sheet based on their nature.
xxii) Cash and cash equivalents
Cash and cash equivalents include cash on hand, demand deposits with banks, other short term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
xxiii) Segment reporting
Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision maker. The Chief Executive Officer has been identified as the chief operating decision maker assess the financial performance and position of the Company and make strategic decisions. The Company is primarily engaged in the business of “manufacturing and marketing of portable gensets, water pumps, general purpose engines, lawn mower’s, brush cutters, tillers and marine engines”. However, in the context of Indian Accounting Standard 108 - Operating Segments, these are considered to constitute single reportable segment.
xxiv) Earnings per share
Basic earnings per share is calculated by dividing the profit for the year attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the financial year.
Diluted earnings per share adjusts the figures used in determination of basic earnings per share to consider:
The after-income tax effect of interest and other financing costs associated with dilutive potential equity shares, and the weighted average number of additional equity shares that would have been outstanding assuming the conversion of all dilutive potential equity shares, except where the results would be anti-dilutive.
xxv) Contributed equity
Equity shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
xxvi) Dividends
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period.
xxvii) Royalty
The Company pays / accrues for royalty in accordance with the relevant license agreement.
xxviii) Fair value Measurement:
(a) Fair value hierarchy:
Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices (for example, listed equity instruments, traded bonds and mutual funds that have quoted price).
Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
(b) Valuation technique used to determine fair value
Specific valuation techniques used to value financial instruments include:
The management assessed that the cash and cash equivalents, trade receivables, trade payables, other bank balances, loans, security deposits, fixed deposits with banks and its interest accrued and other financial assets and liabilities approximate the carrying value due to the short-term maturities of these instruments. The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in forced or liquidation sale.
(c) Valuation processes
The finance department of the Company includes a team that performs the valuations of financial assets and liabilities required for financial reporting purposes, including level 3 fair values. This team reports directly to the Chief Financial Officer (CFO). Discussions of valuation processes and results are held between the CFO and the valuation team at least once every three months, in line with the Company’s quarterly reporting periods.
Further information about the assumptions made in measuring fair values is included in note 26.
Nature and purpose of other reserves Securities premium reserve
Securities premium reserve represents the amount received in excess of par value of securities (equity shares). The reserve is utilised in accordance with the provisions of the Companies Act, 2013.
General reserve
The General Reserve is created from time to time on transfer of profits from retained earnings. General reserve is created by transfer from one component of equity to another and is not an item of other comprehensive income, items included in general reserves will not be subsequently reclassified to profit and loss.
Retained earnings
Retained earnings represent the undistributed profits of the Company.
During the year a dividend of Rs 16.50 per share , total dividend Rs. 1,674 lakhs (Previous Year Rs 15 per share, total dividend 1,521 lakhs) was paid to equity shareholders. The board of directors recommended the final dividend of Rs. 17.50/-per share (Nominal value of Rs. 10/share) for the financial year 2023-24. The dividend is subject to approval of shareholders in the ensuing Annual General Meeting.
Note 25 : Employee benefits (1) Compensated absences
The Compensated absences cover the Company’s liability for accumlated earned leave and sick leave.
The entire amount of the provision of INR 1521 lakhs (March 31, 2023: INR 1424 lakhs) is presented as current since the Company does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the Company does not expect all employees to avail the full amount of accrued leave or require payment for such leaves within the next 12 months.
(ii) Defined contribution plans
Superannuation Fund
The expense recognised during the period towards defined contribution plan is INR 72 lakhs (March 31, 2023: 133 lakhs).
Employee State Insurance
The expense recognised during the period towards defined contribution plan is INR 11 lakhs (March 31, 2023: 21 lakhs).
Employer Contribution to National Pension Scheme
The expense recognised during the period towards contribution to national pension scheme is INR 71 lakhs (March 31, 2023: Nil).
(a) Fair value of financial assets and liabilities measured at amortised cost
The following summarizes the financial instruments at fair value and classification of financial instruments into the three levels prescribed under the Indian Accounting Standards:
There are no financial assets and financial liabilities in a category measured at fair value-recurring fair value measurements.
The carrying amounts of trade receivables, cash and cash equivalents, other bank balances, trade payables, employee benefits payables, lease liabilities, interest accrued, unpaid dividends, capital creditors and security deposits received are considered to be the same as their fair values, due to their short-term nature. The fair values for long - term deposits with banks with remaining maturity period more than 12 months were calculated based on cash flows discounted using a current interest rate.The carrying amount is considered to approximate the same to fair value as at the reporting date based on evidence obtained from banks to support the valuation. There is no transfer of financial assets and liabilities between the levels 1,2,3 during the year.
(A) Credit risk
Credit risk arises from cash and cash equivalents, financial assets carried at amortised cost and deposits with banks, as well as credit exposures to customers, including outstanding receivables.
(i) Credit risk management
Trade receivables and other financial assets
A default is when the counterparty fails to make contractual payments within 30 days of when they fall due in case of trade receivables and for other financial assets as prescribed by relevant terms of the contract. This definition of default is determined considering the business environment in which the Company operates and other macro-economic factors. Assets are written-off when there is no reasonable expectation of recovery, such as a trade receivables declaring bankruptcy or failing to engage in a repayment plan with the Company. Where financial assets have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognized in the statement of profit and loss.
The Company extends credit to the customers considering factors such as credit track record in the market and past dealing with the Company. The Company monitors the payment track record of the customers. The Company’s third party export customers are secured through letter of credit and majority of the Company’s export trade receivables are outstanding but not due with its related entities, which mitigates the risk to an extent.
Cash and cash equivalents and deposits with banks
Credit risk related to cash and cash equivalents and bank deposits is managed by only accepting highly rated banks and diversifying bank deposits accounts in different banks across the Country.
(ii) Provision for expected credit losses
The Company provides for expected credit loss based on the following:
(a) Financial assets for which loss allowance is measured using 12 month expected credit losses
The 12-month expected credit loss is a portion of the lifetime expected credit losses which results from default events that are possible within 12 months after the reporting date. At initial recognition, financial assets are considered as having negligible credit risk. The Company monitors whether there is any significant increase in credit risk since initial recognition.
(b) Financial assets for which loss allowance is measured using life time expected credit losses
Lifetime expected credit loss are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. Management believes that the unimpaired amounts that are 6 months past due date are still collectible in full. The Company considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk the Company compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportive forward-looking information. Considering the above factors the trade receivables continue to have a negligible credit risk on initial recognition and thereafter on each reporting date.
Impairment of financial assets
The impairment provisions for financial assets disclosed above are based on assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Company past history, existing market conditions as well as forward looking estimates at the end of each reporting period.
(B) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash. The Company’s approach to managing liquidity is to ensure, that it will have sufficient liquidity to meet its liabilities when they are due.
The Company aims to maintain the level of its cash and cash equivalents at an amount in excess of expected cash outflows on financial liabilities.
Maturities of financial liabilities
The tables below analyse the Company’s financial liabilities into relevant maturity groupings based on their contractual maturities for all financial liabilities: The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of
Notes
(i) In respect of the matters above, the amount represents the demands received under the respective demand/ show cause notices/ legal claims, wherever applicable.
(ii) Pending resolution of the respective proceedings, it is not practicable for the Company to estimate the timings of cash outflows, if any, in respect of the above as it is determinable only on receipt of judgements/decisions pending with various forums/authorities.
(iii) The Company does not expect any reimbursements in respect of the above contingent liabilities.
(iv) The Company has received show cause notice amounting to Rs 1731.5 lakhs from Customs Department regarding classification of three parts at the time of importation. The Company has filed the reply to the show cause notice.
Based on the opinion obtained from external legal expert, the management has assessed that the Company has a good case in the said matter
(v) The Company has received a show cause notice dated May 30, 2018, from Regional Commissioner - Noida under section 7A of the Employees’ Provident Fund and Miscellaneous Provisions Act 1952 challenging the salary structure used for determining the liability under the act in case of international workers. Presently the proceedings subsequent to the notice are in data collection and verification stage and no demand has been raised on the Company.
The Company has filed a writ petition against the show cause notice and proceedings thereto, in Allahabad High court, wherein the Hon’ble High court in their order dated April 30, 2019, directed that any final order passed by the Provident Fund authorities will be subject to the disposal of the present writ petition.
Based on the opinion obtained from external legal expert, the management has assessed that the Company has a good case in the said matter
(vi) The Company will continue to assess the impact of further developments relating to retrospective application of Supreme Court Judgment in case of “Vivekananda Vidyamandir And Others Vs The Regional Provident Fund Commissioner (II) West Bengal” and the related circular (Circular No. C-I/1(33)2019/Vivekananda Vidya Mandir/284) dated March 20, 2019 issued by the Employees’ Provident Fund Organisation on non-exclusion of certain
allowances from the definition of “basic wages” of the relevant employees for the purposes of determining contribution to provident fund under the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952. In the assessment of the management which is supported by legal advice, the aforesaid matter is not likely to have a significant impact and accordingly, no provision has been made in these Financial Statements.
(vii) The results of product line testing done during the financial year 2021-22 were not in confirmation with required norms in case of USA, Canada, Australia, UK, countries in EU /EFTA. In case of USA and Canada, testing results exceeded the declarations on the products but same were within the required norms in respective countries. During the year ended 31 March 2023, based on management estimate, the Company has provided a sum aggregating to Rs 1,750 lakhs towards repair and reimbursement of expenses towards inventory holding of non-confirming stock out of the sale made by the Company during financial year 2021-22 to its fellow subsidiaries in USA and Canada.
During the current year all the activities related to repair has been completed. No further action is necessitated in this regard.
The total expenditure incurred by the company in this regard is Rs 1352 lakhs, consequently Rs 398 lakhs being the excess provision made during last year has been written back and shown under “Exceptional Items” in the financial statements.
(viii) In view of the judgement of honourable supreme court in the case of M/s Northern operating system private limited(NOS) on manpower supply services, the Company has consulted a reputed lawyer and got its opinion. Based on the opinion the Company is of the view that the Company has no liability in this regards as the facts of the Company are different from NOS. However the Company has discharged the GST without admitting liability.
Note 37: Additional regulatory information required by Schedule-III
(i) Details of Benami Property:
No proceedings have been initiated on or are pending against the Company for holding benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and Rules made thereunder.
(ii) Borrowing secured against current assets:
The Company does not have any borrowings from banks and financial institutions on the basis of security of current assets.
(iii) Wilful Defaulter:
The Company has not been declared wilful defaulter by any bank or financial institution or government or any government authority.
(iv) Compliance with number of layers of companies The Company does not have any subsidaries.
(v) Utilisation of borrowed funds and share premium
The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding that the Intermediary shall:
a. directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (Ultimate Beneficiaries) or
b. provide any guarantee, security or the like to or on behalf of the Ultimate beneficiaries
The Company has not received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the Company shall:
a. directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or
b. provide any guarantee, security or the like on behalf of the ultimate beneficiaries
(vi) Undisclosed income
There is no income surrendered or disclosed as income during the current or previous year in the tax assessments under the Income Tax Act, 1961, that has not been recorded in the books of account.
(vii) Details of crypto currency or virtual currency
The Company has not traded or invested in crypto currency or virtual currency during the current or previous year.
For B S R & Co. LLP For and on behalf of the Board of Directors of
Chartered Accountants Honda India Power Products Limited
Firm Registration No. 101248W/W-100022
Rajesh Arora Shigeki Iwama DIN: 10075458 CMD and President & CEO
Partner Sunita Ganjoo Ravi Prakash Mehrotra DIN: 06823899 Director
Membership No. 076124 Company Secretary Vinay Mittal DIN: 05242535 Whole time director & CFO
Place : New Delhi Date : 20th May 2024
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