Cosco (India)

NOTE 1. SIGNIFICANTACCOUNTING POLICIESAND NOTES TOACCOUNTS
 
1.    Corporate information
 
Cosco (India) Limited (“the Company”) is a public limited company domiciled in India and
incorporated under the provisions of the erstwhile Companies Act 1956. The registered office of the Company
is located at 2/8, Roop Nagar New Delhi, India. Its shares are listed on Bombay Stock Exchange (BSE). The
Company is primarily engaged in the manufacture and sale of sports goods and trading of Health Equipment and
Fitness Accessories. The company has one manufacturing location, situated in the state of Haryana at
Gurugram.
 
2.1 Represents advance of Rs.126.24 Lacs given to a Builder/ Developer Company in earlier years for
Immovable Properties. The Builder/ Developer Company to whom the amount was advanced, has been acknowledging
the advance and has also been assuring to transfer suitable properties of equal value and get the documents
of title executed in favour of company. However till date, the Builder/Developer Company has neither
transferred any property and/or executed title deed(s) in favour of company nor repaid any amount in spite of
the assurances given from time to time. As a matter of abundant precaution the amount has already been fully
provided in the year ended 31.03.2013.
 
3.1    Refernoteno.1(C)of Significant Accounting Policies, regarding valuation of inventories.
 
3.2    Non-moving items included in Raw Materials valued at Rs. 1.53 lacs (March 31,2017 : Rs. 1.26 lacs;
April 1,2016 : Rs. 1.39 lacs), in store valued atRs. 0.52 Lacs (March 31, 2017: Rs. 0.53 Lacs;April 1,2016:
Rs. 0.56 Lacs) and stock-in trade valued at Rs.4.92 Lacs (March 31,2017Rs.4.16 Lacs; April 1, 2016;Rs. 4.41
Lacs) which are valued at scrap value except Finished Goods which are valued at 50% of Net Realisable value
as per policy of the company.
 
3.3    During the year the defective items of health and fitness equipment and spares of Rs. 10.53 lacs
(March 31,2017 :Rs. 9.25 lacs; April 1,2016 :Rs. 8.82 lacs) included in stock in trade has been valued at
scrap value and inventory of traded goods amounting to Rs. 138.80 lacs (March 31,2017 :Rs. 139.50 Lacs; April
1,2016 :Rs. 57.07 Lacs) included above is slow moving and valued at estimated realisable value as certified by
the management.
 
3.4    For detail of inventories provided as security for borrowings refer note 17.1.
 
4.1    No debts are due from directors or other officers of the Company or any of them either severally
or jointly with any other person. Also, no debts are due from firms or private companies, respectively,
against which any director is a partner or a director or a member.
 
4.2    Company has system of creating provision of doubtful debts in outstanding more than 3 years.
Company has not made any provision for expected credit loss as the same is not considered to be
significant.
 
5.1 Amount of Land Compensation Claim Receivable is on account of enhanced compensation awarded by the
court in respect of about 325 sq. yards of factory land acquired by PWD (B&R) Gurgaon. Management has
certified that this amount will be received within 12 months of the reporting date.
 
6.1    Others include Rs. 0.26 Lacs (March31,2017 : Rs. 0.60 Lacs; April1, 2016 :Rs.0.80 Lacs)
recoverable from directors on account of TDS and Advance against Bonus Rs. 13.55 Lacs (March 31,2017
:Rs.i5.93 Lacs;April1,2016 :Rs.16.52 lacs).
 
6.2    In the opinion of the board, the current assets, loans and advances (Refer Note no. 11 have a
value on realisation in the ordinary course of business at least equal to the amount at which they are
stated.
 
7.1    Securities Premium Reserve
 
Where the Company issues shares at premium, whether for cash or otherwise, a sum equal to the aggregate
amount of the premium received on those shares shall be transferred to “Securities Premium
account”. The company may issue fully paid-up bonus shares to its members out of balance lying in the
securities premium account and the Company can also use this reserve for buy-back of shares.
 
7.2    General Reserve
 
General reserve is created out of profit earned by the company by way of transfer from surplus in the
Statement of Profit & Loss. The Company can use this reserve for payment for dividend and issue of fully paid
up shares.
 
7.3    The disaggregation of changes in each type of reserve, retained earnings and other comprehensive
income are disclosed in Statement of Changes in Equity
 
8.1 Out of the total Unsecured Borrowings from related parties aggregating 72693.36 lacs (March 31,
2017:72273.95 lacs, April 1,2016:72197.78 lacs), a sum of 71400 lacs (March 31,2017:7 1400 lacs, April
1,2016: 71409.76 lacs) has been classified as long term borrowing (s)as per the CMA projections given to the
bank for availing credit limits. The balance amount has been considered short term borrowing(s).
 
9.1. Provision for Gratuity and compensated absence has been made in terms of IND AS-19. Gratuity and
compensated absence have been determined by actuary as on 31.03.2018 (for detail refer note 28.3).
 
10.1    Working Capital Loans are secured against hypothecation of all moveable properties including
plant & equipments, stocks of raw materials, stores, semi - finished goods, manufactured goods, stock in
trade and all book debts, bills and claims receivables. The loans from banks are collaterally secured against
equitable mortgage of factory land/building & guaranteed by all Executive Directors.
 
10.2    The term ‘Foreign Currency loan’ means Buyer’s Credit loan from bank.
 
11.1 The above information regarding micro, small and medium enterprises have been determined to the
extent such parties are identified on the basis of information available with the Company, which has been
relied upon by the Auditors.
 
12.1 a) Other Liabilities include Rs. 236.80 lacs (March 31,2017 : Rs.342.02 lacs; April1,2016 :Rs.
313.39 lacs) towards interest payable on Unsecured Short Term Borrowings.
 
b)    include Rs. 6.92 lacs (March 31,2017: Rs.1.66lacs;April 1,2016:Rs. 0.57 lacs) credits pending for
identification.
 
c)    includeRs.15.63lacs(March31,2017:Rs. 36.06 lacs;April 1,2016: Rs..28.49 lacs) towards Gratuity Fund
Payable.
 
13.1    Excise duty has been replaced by G.S.T w.e.f 01.07.2017 and accordingly Nil amount has been
provided for closing stockon finished goods.
 
13.2    Provision for Gratuity and compensated absence has been made in terms of IND AS-19. Gratuity and
compensated absence have been determined by actuary as on 31.03.2018 (for detail refer note 28.3)
 
14.1 Revenue from Sale of Products is gross of excise duty for the previous year and gross up of excise
duty upto 30.06.2017 and net of GST for the remaining period of current year as GST was implemented from
01.07.2017.
 
15.1    Interest Received includes Rs. Nil (March31,2017:Rs. 40.55 lacs;) on account of Interest on
Income Tax Refund.
 
15.2    Other Non-Operating income includes Rs.51.92 lacs (March 31,2017 :Rs. 72.01 lacs;) towards gain
in Foreign Exchange Difference and Rs. Nil (March 31,2017 : Rs. 8.07 lacs;) towards Profit on Sale of
Investment and Rs. 2 lacs for Provision for Doubtful Advance Written Back (March 31,2017:Rs. Nil;).
 
16.1 Staff Welfare includesRs.4.30 Lacs (March 31,2017:Rs.5.87 Lacs)towards medical expenses reimbursed
to Directors.
 
16.2 EMPLOYEE BENEFITS
 
As per IndAS 19, the disclosures of Employee benefits are given below:-Defined Contribution Plans
 
The Company makes contribution towards provident fund and pension fund. These funds are administered by
Government of India. Under the schemes; the Company is required to contribute a specified percentage of
salary to the retirement benefit scheme to fund the benefit. Contribution to Defined Contribution Plan,
recognised as expense for the year are as under :-
 
The Company provides the gratuity benefit to its employees through annual contributions to a Gratuity
trust which in turn contributes to Life Insurance Corporation of India which administers the plan and
determines the contributions required to be paid by the trust. The present value of obligation is determined
based on actuarial valuation using the Projected Unit Credit Method.
 
Employee Attrition rate: Sensitivities due to mortality & withdrawals are not material & hence impact of
change due to these not calculated.
 
The management of funds is entrusted with Life Insurance Corporation of India. The detail of investments
made by them are not available.
 
16.3    LEAVEENCASHMENT
 
It is an unfunded defined benefit plan for which the obligation is recognised on actuarial valuation
basis. A sum of Rs.5.26 lacs (March 31,2017:Rs. 5.72lacs;April 1,2016:7 3.13 lacs) has been provided and
included in Salaries & Wages.
 
16.4    Bonus provision under The Payment of Bonus Act,2016 for the year has been made on estimated basis
and any adjustment on account of final liability will be made in the subsequent year.
 
17.1    Travelling Expenses include Directors’ Travelling Rs.31.98 lacs (March 31,2017: Rs. 25.94
lacs).
 
17.2    Excise duty include Rs. NIL (March 31, 2017: Rs. 15.58 Lacs) towards Excise duty on closing stock
of finished goods and Rs. 20.71 Lacs (March 31, 2017: Rs. 91.15 Lacs) towards excise duty on branch transfer.
Excise duty has been replaced by Goods and Service Act w.e.f. 01-07-2017.
 
18.1    Related parties have been identified by the management.
 
18.2    Key Management Personnel remuneration does not include provision for gratuity and compensated
absences which is determined for the Company as whole
 
18.3    No amounts have been written off/provided for or written back during the year in respect of
amounts receivable from or payable to related parties.
 
18.4    Remuneration paid to KMP excludes expenses incurred in the course of performance of duty.
 
19. FINANCIAL RISK MANAGEMENT OBJECTIVESAND POLICIES
 
The Company’s principal financial liabilities comprise borrowings, trade and other payables. The
main purpose of these financial liabilities is to finance the Company’s operations. The Company’s
principal financial assets include trade and other receivables, cash and cash equivalents, bank balances and
security deposits that are out of regular business operations.
 
The Company is exposed to market risk, credit risk and liquidity risk. The Company’s senior
management oversees the management of these risks.
 
a) Market Risk
 
Market risk is the risk that the fair value of future cash flows of a financial instrument that will
fluctuate because of changes in market prices. Market risk comprises three types of risk i.e. interest rate
risk, currency risk and other price risk such commodity risk.
 
Financial instruments effected by market risk include borrowings including foreign currency loan
comprising of buyer’s credit, trade payables, trade receivables.
 
i. Interest rate risk
 
Interest rate risk is the risk that the fair value or future cash flows of the Company’s financial
instruments will fluctuate because of changes in market interest rates. The Company’s exposure to the
risk of changes in market interest rate relates primarily to the Company’s borrowings with floating
interest rates/volatility in rupee value against foreign currency fluctuations.
 
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on
borrowings affected. With all other variables held constant, the Company’s profit before tax is
affected through the impact on floating rate borrowings, as follows:
 
ii.    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. Company deals in import of health equipment and exports sports
goods. Adverse changes in rupees due to imports are partially offset by exports and company is able to pass
on the increase in price of imports to the customers. In view of the insignificant risk, sensitivity analysis
showing impact on profit is not calculated.
 
iii.    Commodity price risk
 
The company does not have significant risk in raw material price variations. In case of any variation in
price, the same is passed on to customers through appropriate adjustment to selling prices.
 
b) Credit Risk
 
Credit risk is the risk of loss that may arise on outstanding financial instruments if a counterparty
default on its obligations. The Company’s exposure to credit risk arises majorly from trade and other
receivables. Other financial assets like security deposits and bank deposits are mostly with government.
Company has good past track record of recovery from trade receivables. Defaults in past have been very fewand
too less.
 
c) Liquidity Risk
 
The Company’s objective is to maintain a balance between continuity of funding and flexibility
through the use of bank borrowings, unsecured loans from directors on a continuous basis and security from
dealers. The table below summarises the maturity profile of the Company’s Financial liabilities:
 
20. CAPITALMANAGEMENT
 
For the purpose of the Company’s capital management, capital includes issued equity capital,
securities premium and all other equity reserves attributable to the equity shareholders. The primary
objective of the Company’s capital management is to ensure that it maintains a good credit rating and
capital ratios in order to support its business and maximise shareholder value. The Company monitors capital
using a gearing ratio, which is net debt divided by total capital. The Company includes within net debt, all
non-current and current borrowings reduced by cash and cash equivalents and other bank balances.
 
In order to achieve this overall objective, the Company’s capital management, amongst other things,
aims to ensure that it meets financial covenants attached to the interest-bearing borrowings that define
capital structure requirements. The breaches in meeting the financial covenants would permit the bank to
immediately call borrowings. There have been no breaches in the financial covenants of any interest-bearing
borrowings in the current year. No changes were made in the objectives, policies or processes for managing
capital during the years ended March 31,2018 and March 31,2017.
 
21. FIRST TIMEADOPTION OF Ind AS
 
The Company has prepared financial statements which comply with Ind AS applicable for period ending on
March 31, 2018, together with the comparative period data as at end for the year ended March 31, 2017 as
described in summary of significant accounting policies. In preparing these financial statement the
Company’s opening balance sheet was prepared as per IndAS as ofApril 1,2016 (the transition date) by
recognizing all assets and liabilities whose recognition is required by IndAS, not recognizing items of
assets and liabilities which are not permitted by IndAS, by reclassifying items from previous GAAP to IndAS
as required under IndAS, and applying IndAS in measurement of recognized assets and liabilities. However,
this principle is subject to certain exceptions and certain optional exemptions availed by the Company (as
per IndAS 101) as detailed below:
 
Optional Exemption applied
 
a) Ind AS 101 permits a first-time adopter to elect to continue with the carrying value of all of its
property, plant and equipment as recognised in the financial statements as on the date of transition to
IndAS, as per the Previous GAAP and use that as its deemed cost as at the date of transition after making
necessary adjustments for decommissioning liabilities. The exemption can also be used for intangible assets
covered by Ind AS 38. Accordingly, the Company has elected to measure all of its property, plant and
equipment and intangibles at their Previous gAaP carrying value. Therefore there is NIL adjustment in the
value of PPE/other intangible assets in the previous GAAP figures.
 
The effect on account of other changes in the previous GAAP figure are given and explained below:
 
22.1    Under Previous GAAP, Prior Period Income and Expenses are considered as part of Income and
expenses respectively. However, under IndAS, this is treated as errorand adjusted with retained earnings.
 
As a result prior period income of A 0.18 Lacs and prior period expenses of A 5.82 Lacs are removed from
other income and other expenses respectively and adjusted with retained earnings as onApril 1,2016.
 
22.2    Under previous GAAP, there is no concept of Other Comprehensive Income (OCI). Under Ind AS
specified items of income expenses, gain and loss are required to be presented in OCI.
 
Both under Previous GAAP and Ind AS, the Company recognised costs related to its post-employment defined
benefit plan on an actuarial basis. Under Previous GAAP, the entire cost, including actuarial gains and
losses, were charged to profit or loss. Under Ind AS, re-measurement (comprising of actuarial gains and
losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined
benefit liability and return on plan assets excluding amounts included in net interest on the net defined
benefit liability) are recognised immediately in the balance sheet with corresponding debitorcredit to
retained earnings through other comprehensive income.
 
22.3    As a result, employee benefit cost for the year ended March 31, 2017 have been reduced by A 17.21
Lacs and remeasurement losses of A 11.52 Lacs, (net of deferred tax income of A 5.69 Lacs) on defined benefit
plans has been recognised in the Other Comprehensive Income.
 
Previous GAAP requires deferred tax accounting using the income statement approach whereas Ind AS 12
requires deferred tax accounting using the balance sheet approach. Under the both approaches benefit of
payment of bonus u/s 43B of the Income Tax Act, 1961 can be taken up to the due date of filing of return u/s
139 of the Act. While preparing the financial statements under previous GAAP the benefits of Section 43B were
taken for payment made till date of preparation of Financial Statements instead of due date and accordingly
deferred tax asset as on 01.04.2016 is reduced by A4.21 Lacs with a corresponding effect on retained earnings
on 01.04.2016. Similarly deferred tax assets of A 9.30 Lacs (cumulative A13.51 Lacs including A4.21 lacs as on
01.04.2016) has been reduced as on 31.03.2017 with corresponding effect reduction in Total Comprehensive
Income for the year end 31.03.2017 (comprising of deferred tax expenses A 14.98 Lacs and deferred tax income
A5.69 Lacs)
 
22.4    The transition from Previous GAAP to IndAS did not have a material impact on Statement of Cash
Flows.
 
22.5    Under Previous GAAP, sale of products was presented net of excise duty. However, under Ind AS,
sale of products includes excise duty and excise duty on sale of product is shown separately as expenses in
Statement of Profit and Loss.
 
As a result, sale of products under Ind AS has increased by A 97.66 lacs forthe year ended March 31, 2017
with a corresponding increase in other expenses. There is no impact on profit of the company.
 
23. No impairment loss is recognised as on 31.03.2018 since the present value of estimated future cash
flows over a period of five years exceeds the carrying value of assets of the Company’s cash generating
units.
 
24.1    Cosco Polymer Lanka (Private) Ltd. (erstwhile Subsidiary of the Company in Sri Lanka) has been
ordered to be wound up by the Hon’ble High Court of the Western Province, Colombo. Accordingly,
“Consolidated Financial Statements” as per IndAS 110, have not been prepared.
 
24.2    The Equity Shares held by the Company in Cosco Polymer Lanka (Private) Ltd. (erstwhile Subsidiary
of the Company in Sri Lanka) stand vested in the Secretary to the Treasury of the Government of Sri Lanka
under the Revival of Underperforming Enterprises or Underutilised Assets Act No.43 of 2011 (of Republic of
Sri Lanka) as per disclosures made in the earlier year Accounts. Competent Authority appointed under the said
Act is controlling, administering and managing such Enterprises / Units / Assets. The Act (of Sri Lanka),
provides for payment of compensation and accordingly claim was filed in Sri Lanka with the Compensation
Tribunal constituted under the said Act. The Compensation Tribunal vide its letter Ref: Com T/01/27 dated
08.12.2015, has allowed compensation of LKR 480 Lacs (Equivalent INR 204.66 Lacs ) and after deducting LKR
16.74 Lacs due for Board of Investment (BOI) of Sri Lanka as at the date of vesting, the net compensation
payable is LKR 463.26 Lacs (Equivalent INR 197.52 Lacs). The amount is yet to be released and the same shall
be credited to Liquidator, since Cosco Polymer Lanka (Private) Ltd. has been ordered to be wound up by the
Hon’ble High Court of the Western Province, Colombo. The management does not expect any net realisable
value of its investment in the erstwhile subsidiary. However realisation, if any, shall be accounted for in
the year of actual receipt.
 
25.    Ind AS 115 was notified on March 28, 2018 and establishes a five-step model to account for revenue
arising from contracts with customers. Under Ind AS 115, revenue is recognised at an amount that reflects the
consideration to which an entity expects to be entitled in exchange for transferring goods or services to a
customer.
 
The new revenue standard will supersede all current revenue recognition requirements under Ind AS. Either
a full retrospective application ora modified retrospective application is required for annual periods
beginning on or after April 1,2018. The Company will adopt the new standard on the required effective date
using the modified retrospective method. The Company has established an implementation team to implement
IndAS 115 related to the recognition of revenue from contracts with customers and it continues to evaluate
the changes to accounting system and processes, and additional disclosure requirements that may be necessary.
A reliable estimate of the quantitative impact of Ind AS 115 on the financial statements will only be possible
once the implementation project has been completed.
 
26.    The comparative financial information of the company for the year ended March 31,2017 prepared in
accordance with Ind AS included in this Financial Statements is based on Financial Statements audited under
Indian GAAP by the previous auditor Madan & Associates, Chartered Accountants vide their report dated May
30,2017.
 
27.    Previous GAAP figures have been reclassified/regrouped wherever necessary to confirm with
Financial Statements prepared under IndAS.