Cosmo Films

1. Corporate information, basis of preparation and summary of significant accounting
policies
 
i)    Corporate Information
 
Cosmo Films Limited (the ‘Company’), manufacturers of Bi-axially Oriented Polypropylene Films
(BOPP), was incorporated in India in 1981, under the Companies Act, 1956. The Company is engaged in the
production of flexible packaging films. Company’s product majorly comprises of BOPP Films, Thermal
Films and Coated Films. In India, the Company is currently having manufacturing at Aurangabad & Shendra in
Maharashtra and at Karjan in Gujarat. It also has its subsidiaries working in different countries.
 
ii)    Basis of Preparation
 
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards
(Ind AS) as notified by Ministry of Corporate Affairs pursuant to section 133 of the Companies Act, 2013 read
with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 as amended from time to time.
 
These financial statements are separate financial statements of the Company. The Company has also
prepared consolidated financial statements for the year ended 31 March 2018 in accordance with Ind AS 110 and
the same were also approved for issue by the Board of Directors, along with these financial statements on 23
May 2018.
 
These financial statements for the year ended 31 March 2018 are the first financial statements prepared
by the Company under Ind AS. For all periods up to and including the year ended 31 March 2017, the Company
prepared its financial statements in accordance with accounting standards notified under the section 133 of
the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (hereinafter
referred to as ‘Previous GAAP’). The financial statements for the comparative year ended 31 March
2017 and opening balance sheet at the beginning of the comparative year as at 1 April, 2016 have been restated
in accordance with Ind AS. Reconciliations and explanations of the effect of the transition from Previous GAAP
to Ind AS on the Company’s Balance Sheet, Statement of Profit and Loss and Statement of Cash Flows are
provided in Note 48.
 
The financial statements have been prepared on accrual and going concern basis. The accounting policies
are applied consistently to all the periods presented in the financial statements, including the preparation
of the opening Ind AS Balance Sheet as at 1 April, 2016 being the date of transition to Ind AS.
 
The financial results have been prepared on a historical cost basis, except for the following assets and
liabilities which have been measured at fair value:
 
*    Certain financial assets and liabilities measured at fair value (refer accounting policy regarding
financial instruments); and
 
*    Defined benefit plans - plan assets measured at fair value.
 
iii) Significant management judgement in applying accounting policies and estimation uncertainty
 
The following are the critical judgments and the key estimates concerning the future that management has
made in the process of applying the Company’s accounting policies and that may have the most
significant effect on the amounts recognized in the financial Statements or that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year.
 
Allowance for expected credit losses - The allowance for expected credit losses reflects
management’s estimate of losses inherent in its credit portfolio. This allowance is based on
Company’s estimate of the losses to be incurred, which derives from past experience with similar
receivables, current and historical past due amounts, write-offs and collections, the careful monitoring of
portfolio credit quality and current and projected economic and market conditions. Should the present
economic and financial situation persist or even worsen, there could be a further deterioration in the
financial situation of the Company’s debtors compared to that already taken into consideration in
calculating the allowances recognised in the financial statements.
 
Allowance for obsolete and slow-moving inventory- The allowance for obsolete and slow-moving inventory
reflects management’s estimate of the expected loss in value, and has been determined on the basis of
past experience and historical and expected future trends in the used vehicle market. A worsening of the
economic and financial situation could cause a further deterioration in conditions in the used vehicle market
compared to that taken into consideration in calculating the allowances recognized in the financial
statements.
 
Recognition of deferred tax assets - The extent to which deferred tax assets can be recognized is based
on an assessment of the probability of the future taxable income against which the deferred tax assets can be
utilized.
 
Evaluation of indicators for impairment of assets - The evaluation of applicability of indicators of
impairment of assets requires assessment of several external and internal factors which could result in
deterioration of recoverable amount of the assets.
 
Provisions - At each balance sheet date basis the management judgment, changes in facts and legal
aspects, the Company assesses the requirement of provisions against the outstanding contingent liabilities.
However, the actual future outcome may be different from this judgement.
 
Useful lives of depreciable/ amortisable assets -Management reviews its estimate of the useful lives of
depreciable/amortisable assets at each reporting date, based on the expected utility of the assets.
Uncertainties in these estimates relate to technical and economic obsolescence that may change the utility of
assets.
 
Defined benefit obligation (DBO) - Management’s estimate of the DBO is based on a number of
underlying assumptions such as standard rates of inflation, mortality, discount rate and anticipation of
future salary increases. Variation in these assumptions may significantly impact the DBO amount and the
annual defined benefit expenses.
 
Fair value measurements - Management applies valuation techniques to determine the fair value of
financial instruments (where active market quotes are not available). This involves developing estimates and
assumptions consistent with how market participants would price the instrument.
 
Contingent liabilities - The Company is the subject of legal proceedings and tax issues covering a range
of matters, which are pending in various jurisdictions. Due to the uncertainty inherent in such matters, it
is difficult to predict the final outcome of such matters. The cases and claims against the Company often
raise difficult and complex factual and legal issues, which are subject to many uncertainties, including but
not limited to the facts and circumstances of each particular case and claim, the jurisdiction and the
differences in applicable law. In the normal course of business management consults with legal counsel and
certain other experts on matters related to litigation and taxes. The Company accrues a liability when it is
determined that an adverse outcome is probable and the amount of the loss can be reasonably estimated.
 
vi) Standards issued but not yet effective
 
-    Appendix B to Ind AS 21, Foreign currency transactions and advance consideration: On March 28, 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 April 1, 2018. The
Company has evaluated the effect of this on the financial statements and the impact is not material.
 
-    Ind AS 115- Revenue from Contract with Customers: On March 28, 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 recognise 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 April 1, 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 ended 31 March, 2018 will not be retrospectively adjusted. The
effect on adoption of Ind AS 115 is expected to be insignificant.
 
*Represents deemed cost on the date of transition to Ind AS.
 
Note:
 
a)    Additions include Rs. 0.27 crores (31 March 2017: Rs. 4.32 crores; 1 April 2016: Rs. 0.31 crores)
towards assets located at research and development facilities.
 
b)    Contractual obligation
 
Refer note 37 for disclosure of contractual commitments for the acquisition of property, plant and
equipment.
 
CF Global Holdings Limited, Mauritius wholly owned subsidiary of Cosmo Films Limited had been liquidated
with effect from 31 March 2017. Consequently, the shares of CF (Netherlands) Holding Limited BV, which were
previously owned by CF Global Holding Limited, Mauritius have been transferred to Cosmo Films Limited.
 
Refer notes 43 and 44 for disclosure of fair value in respect of financial assets measured at amortised
cost and assessment of expected credit losses.
 
Note:
 
a)    Pledged deposits represent ‘Nil (31 March 2017: Rs. 0.13 crores; 1 April 2016: ‘Nil)
pledged with State Bank of India for bank guarantee
 
b)    Refer notes 43 and 44 for disclosure of fair value in respect of financial assets measured at
amortised cost and assessment of expected credit losses.
 
Note:
 
a)    Pledged deposits represent Rs. 3.38 crores (31 March 2017: Rs. 4.26 crores; 1 April 2016: Rs. 0.97
crores) pledged against margin money for issue of letter of credit and bank guarantees.
 
b)    The deposit of Rs. 5.00 crores (31 March 2017: Rs. 5.00 crores; 1 April 2016: Rs. 5.00 crores) is
pledged against overdraft facility.
 
Refer notes 43 and 44 for disclosure of fair value in respect of financial assets measured at amortised
cost and assessment of expected credit losses.
 
Notes:
 
(i)    Of the above 242,051 shares have been allotted to erstwhile shareholders of Gujarat Propack
Limited on amalgamation in the financial year 2002-03. No shares have been issued for consideration other
than cash in the current reporting year and in last five years immediately preceding the current reporting
year.
 
(ii)    Of the above 8,486,705 shares have been allotted as fully paid bonus shares by capitalisation of
capital reserves and share premium account in the financial year 2002-03. No shares have been issued as bonus
shares in the current reporting year and in last five years immediately preceding the current reporting
year.
 
(iii)    There has not been any buy-back of shares in the current reporting year and in last five years
immediately preceding the current reporting year.
 
(iv)    There is no movement in equity share capital during the current year and previous year.
 
(v)    Terms and rights attached to equity shares:
 
The Company has only one class of equity shares having the par value of Rs. 10 per share. Each holder of
equity share is entitled to one vote per share. The Company declares and pays dividend in Indian Rupees. The
dividend proposed by Board of Directors is subject to approval of shareholders in Annual General Meeting
except in case of interim dividend.
 
Final dividend recommended by the board is Rs. 6 per equity share, (31 March 2017: Rs. 10) and is subject
to shareholders approval.
 
During the year ended 31 March 2018 the amount of per share dividend recognised as distributions to
equity shareholders was Rs. 10 per share (31 March 2017: ‘Nil per share).
 
In the event of liquidation of the Company, the holder of equity shares will be entitled to receive
remaining assets of the Company, after payment of all liabilities. The distribution will be in proportion to
the number of equity shares held by the shareholders.
 
(vi)    Details of shareholders holding more than 5% shares in the company
 
Nature and purpose of reserves
 
(i)    Capital reserve
 
Capital reserve was created under the previous GAAP out of the profit earned from a specific transaction
of capital nature.
 
(ii)    Securities premium account
 
Securities premium account represents premium received on issue of shares. The account is utilised in
accordance with the provisions of the Companies Act 2013.
 
(iii)    General reserve
 
The Company has transferred a portion of the net profit before declaring dividend to general reserve
pursuant to the earlier provision of Companies Act 1956. Mandatory transfer to general reserve is not
required under the Companies Act 2013.
 
(iv)    Employee share options outstanding account
 
The reserve is used to recognize the grant value of the options issued to employees under Company’s
employee stock option plan.
 
(v)    Foreign currency monetary item translation difference account
 
FCMITDA represents exchange differences arising from translation of long-term foreign currency monetary
items recognised in the financial statements.
 
(vi)    Treasury shares
 
Treasury shares represent Company''s own equity shares held by the Cosmo Films ESOP 2015 Trust which is
created under the employee stock option plan.
 
(vii)    Other comprehensive income (OCI) reserve
 
(a)    The cash flow hedge reserve represents the cumulative effective portion of gains or losses arising
on changes in fair value of designated portion of hedging instruments entered into for cash flow hedges. Such
gains or losses will be reclassified to statement of profit and loss in the period in which the hedged
transaction occurs.
 
(b)    The Company has recognised remeasurements benefits on defined benefits plans through other
comprehensive income.
 
Note:
 
(a) Cash credits/ working capital demand loans/ export packing credits are secured/to be secured by
hypothecation of inventories, trade receivable and second charge on fixed assets except assests exclusively
carved out.
 
On the basis of confirmation obtained from suppliers who have registered themselves under the Micro,
Small and Medium Enterprise Development Act, 2006 (MSMED Act, 2006) and based on the information available
with the Company, dues disclosed above as micro and small enterprises are as per the Micro, Small and Medium
Enterprise Development Act, 2006 at the year end.
 
Refer notes 43 and 44 for disclosure of fair values in respect financial liabilities measured at
amortised cost and analysis of maturity profiles.
 
The finance cost shown above is net of borrowing costs capitalised during the year ended 31 March 2018 is
Rs. 1.76 crores (31 March 2017: Rs. 2.83 crores) (1 April 2016: ‘Nil).
 
Notes:
 
Disputed demand for income tax includes a dispute of Rs. 4.83 crores (31 March 2017: Rs. 4.83; 1 April
2016: Rs. 4.83 crores) between the Company and income tax department over computation of deduction under
section 80HHC of the Income Tax Act, 1961. The Company has filed a special leave petition against the order
of Hon’ble High Court which has been accepted by Supreme Court and is pending. Based on the legal
opinion taken from an independent expert, the management is of the view that it is more likely than not that
matter will be decided in favour of the Company.
 
2: EMPLOYEE STOCK OPTION PLAN
 
Pursuant to the approval of the shareholders, the Company has introduced Cosmo Films Employees Stock
Option Plan 2015 (CF ESOP 2015) to provide share based incentive to the eligible employees of the Company and
its subsidiaries. The plan is implemented via trust route which will acquire the equity shares of the Company
by secondary market acquisition, however, in case of any shortfall the Company will issue new shares as
required.
 
A) Under the CF ESOP 2015, the Company has granted 200,000 options in financial year 2017-18 (31 March
2017: 250,000 options; 1 April 2016: 193,000 options) as per the details given hereunder:
 
The weighted average remaining contractual life outstanding as of 31 March 2018 was 11.47 years (31 March
2017: 12.07 years; 1 April 2016: 12.78 years).
 
C) The fair value of options has been done on the date of grant using Black-Scholes Model.
 
The key assumption in Black-Scholes Model for calculating fair value on grant are as under:
 
$ The expected volatility was determined based on historical volatility data.
 
*Options life is considered on the basis of earliest possible exercise after vesting
 
3 : EMPLOYEE BENEFIT OBLIGATIONS 
 
1) Gratuity
 
The Company makes contribution towards gratuity to a defined retirement benefits plan for qualifying
employees. The Company has taken policy with Life Insurance Corporation of India to provide for payment of
retirement benefits to vested employees. The present value of obligation is determined based on acturial
valuation. The expected contribution to the plan for next annual reporting period amounts to Rs. 0.13
crores.
 
The weighted average duration of the defined benefit obligation as at 31 March 2018 is 6 years (31 March
2017: 7 years)
 
The amounts recognised in the balance sheet and the movements in the net defined benefit obligation over
the year are as follows:
 
Defined Contribution Plans
 
The Company also has certain defined contribution plans. Contributions are made to provident fund in
India for employees at the rate 12% of basic salary as per regulations. The contributions are made to
registered provident fund administered by the government. The obligation of the Company is limited to the
amount contributed and it has no further contractual nor any constructive obligation.
 
4: LEASES
 
Operating leases
 
The Company has entered into agreements for taking on lease few properties under operating lease
arrangements. The leases are non-cancellable and are ranging for the period upto 6 years and may be renewed
for the further period based on mutual agreement of the parties.
 
5 RELATED PARTY DISCLOSURES
 
In accordance with the required Indian Accounting Standard (IndAS-24) on related party disclosures where
control exist and where transactions have taken place and description of the relationship as identified and
certified by management are as follows:
 
 i) List of related parties and relationships:
 
A.    Subsidiary and step-down subsidiary companies
 
a)    CF Global Holdings Limited, Mauritius (liquidated on 31 March 2017)
 
b)    Cosmo Films Inc., USA
 
c)    CF (Netherlands) Holdings Limited BV., Netherlands
 
d)    Cosmo Films Japan (GK), Japan
 
e)    Cosmo Films Korea Limited, Korea
 
f)    CF Investment Holding Private (Thailand) Company Limited, Thailand
 
g)    Cosmo Films (Singapore) Pte. Limited, Singapore
 
h)    Cosmo Films Poland Sp Z.O.O (w.e.f. 29 January 2018), Poland
 
B.    Enterprises over which Key managerial personnel of the Company and their relatives have
significant influence:
 
a)    Sunrise Manufacturing Company Limited
 
b)    Prime Securities Limited
 
c)    Cosmo Ferrites Limited
 
d)    Cosmo Foundation
 
C.    Key management personnel
 
a)    Mr. Ashok Jaipuria, Chairman and Managing Director of Company
 
b)    Mr. Anil Kumar Jain, Director of corporate affairs
 
c)    Mr. H. K. Agrawal, Independent Director
 
d)    Mr. Rajeev Gupta, Independent Director
 
e)    Mrs. Alpana Parida, Non-Independent Director
 
f)    Mr. Ashish Kumar Guha, Independent Director
 
g)    Mr. Pratip Chaudhuri, Independent Director
 
h)    Mr. H. N. Sinor, Independent Director
 
i)    Mr. Vivek Nangia, Independent Director
 
j)    Mr. Pankaj Poddar, Chief Executive Officer
 
k)    Mr. Neeraj Jain, Chief Financial Officer
 
l)    Ms. Jyoti Dixit, Company Secretary
 
Investment in subsidiaries are measured at cost as per Ind AS 27, ‘Separate financial
statements’and hence, not presented here.
 
B) Fair value hierarchy
 
The different levels of fair value have been defined below:
 
Level 1: Quoted prices for identical instruments in an active market;
 
Level 2: Directly (i.e. as prices) or indirectly (i.e. derived from prices) observable market inputs,
other than Level 1 inputs; and
 
Level 3: Inputs which are not based on observable market data (unobservable inputs). Fair values are
determined in whole or in part using a net asset value or valuation model based on assumptions that are
neither supported by prices from observable current market transactions in the same instrument nor are they
based on available market data.
 
Valuation process and technique used to determine fair values
 
(i)    The fair value of investments in mutual fund units is based on the net asset value (NAV) as stated
by the issuers of these mutual fund units in the published statements as at the balance sheet date. NAV
represents the price at which the issuer will issue further units of mutual fund and the price at which
issuers will redeem such units from the investors.
 
(ii)    In order to arrive at the fair value of unquoted investments, the company obtains independent
valuations. The techniques used by the valuer are as follows:
 
a)    Asset approach - Net assets value method
 
b)    Income approach - Discounted cash flows (“DCF”) method
 
c)    Market approach - Enterprise value/Sales multiple method
 
B) (ii) Fair value of financial assets and liabilities measured at amortised cost
 
Fair value of instruments measured at amortised cost for which fair value is disclosed is as follows,
these fair values are calculated using Level 3 inputs:
 
The management assessed that fair values of cash and cash equivalents, trade receivables, other
receivables, borrowings, trade payables and other current financial liabilities approximate their respective
carrying amounts largely 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 a forced or liquidation sale. The below mentioned
methods and assumptions were used to estimate the fair values:
 
All the long term borrowing facilities availed by the Company are variable rate facilities which are
subject to changes in underlying interest rate indices. Further, the credit spread on these facilities are
subject to change with changes in Company’s creditworthiness. The management believes that the current
rate of interest on these loans are in close approximation from market rates applicable to the Company.
Therefore, the management estimates that the fair value of these borrowings are approximate to their
respective carrying values.
 
6 : RISK MANAGEMENT
 
The Company’s activities expose it to market risk, liquidity risk and credit risk. The management
has the overall responsibility for the establishment and oversight of the Company’s risk management
framework. This note explains the sources of risk which the entity is exposed to and how the entity manages
the risk and the related impact in the financial statements.
 
A. Credit risk
 
Credit risk is the risk that a counterparty fails to discharge its obligation to the Company. The
Company''s exposure to credit risk is influenced mainly by cash and cash equivalents, trade receivables and
other financial assets measured at amortised cost. The Company continuously monitors defaults of customers
and other counterparties and incorporates this information into its credit risk controls.
 
Credit risk management Credit risk rating
 
The Company assesses and manages credit risk of financial assets based on following categories arrived on
the basis of assumptions, inputs and factors specific to the class of financial assets.
 
A: Low credit risk on financial reporting date B: Moderate credit risk C: High credit risk
 
The Company provides for expected credit loss based on the following:
 
Based on business environment in which the Company operates, a default on a financial asset is considered
when the counter party fails to make payments within a reasonable time after the agreed time period as per
contract. Loss rates reflecting defaults are based on actual credit loss experience and considering
differences between current and historical economic conditions.
 
Assets are written off when there is no reasonable expectation of recovery, such as a debtor failing to
engage in a repayment plan with the Company or debtor declaring bankruptcy or a litigation decided against
the Company. The Company continues to engage with parties whose balances are written off and attempts to
enforce repayment. Recoveries made are recognised in statement of profit and loss.
 
Credit risk exposure
 
Cash and cash equivalents and bank deposits
 
Credit risk related to cash and cash equivalents and bank deposits is managed by only accepting highly
rated banks and diversifying bank deposits and accounts in different banks across the country.
 
Trade receivables
 
Credit risk related to trade receivables are mitigated by taking bank guarantees/letter of credit, from
customers where credit risk is high. The Company closely monitors the credit-worthiness of the debtors
through internal systems that are configured to define credit limits of customers, thereby, limiting the
credit risk to pre-calculated amounts. The Company assesses increase in credit risk on an ongoing basis for
amounts receivable that become past due and default is considered to have occurred when amounts receivable
become one year past due. Company obtains the credit insurance for export debtors from Export Credit
Guarantee Corporation (ECGC) of India.
 
Other financial assets measured at amortised cost
 
Other financial assets measured at amortised cost includes loans and advances to employees, security
deposits and others. Credit risk related to these other financial assets is managed by monitoring the
recoverability of such amounts continuously.
 
Provision for expected credit losses
 
a)    Expected credit losses for financial assets other than trade receivables
 
Company provides for expected credit losses on loans and advances other than trade receivables by
assessing individual financial instruments for expectation of any credit losses. Since, the Company deals
with only high-rated banks and financial institutions, credit risk in respect of cash and cash equivalents,
other bank balances and bank deposits is evaluated as very low. In respect of loans, comprising of security
deposits, credit risk is considered low because the Company is in possession of the underlying asset. In
respect of other financial assets, credit risk is evaluated based on Company’s knowledge of the credit
worthiness of those parties and loss allowance is measured as lifetime expected credit losses. The Company
does not have any expected loss based impairment recognised on such assets considering their low credit risk
nature, though incurred loss provisions are disclosed under each sub-category of such financial assets.
 
b)    Expected credit loss for financial assets under simplified approach
 
The Company recognizes lifetime expected credit losses on trade receivables using a simplified approach,
wherein Company has defined percentage of provision by analysing historical trend of default based on the
criteria defined above and such provision percentage determined have been considered to recognise life time
expected credit losses on trade receivables (other than those where default criteria are met).
 
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 or another financial asset. The
Company’s approach to managing liquidity is to ensure as far as possible, that it will have sufficient
liquidity to meet its liabilities when they are due. Management monitors rolling forecasts of the liquidity
position and cash and cash equivalents on the basis of expected cash flows. The Company takes into account
the liquidity of the market in which the entity operates.
 
Financing arrangements
 
The Company has access to the following undrawn borrowing facilities at the end of reporting period:
 
Contractual maturities of financial liabilities
 
The tables below analyse the financial liabilities into relevant maturity Companying’s based on
their undiscounted contractual maturities (including interest).
 
Market Risk Interest Rate risk
 
The Company’s policy is to minimise interest rate cash flow risk exposures on long-term financing.
The Company is exposed to changes in market interest rates through bank borrowings at variable interest
rates.
 
The following table illustrates the sensitivity of profit after tax and equity to a possible change in
interest rates of  /- 1% in current year (31 March 2017:  /- 1%; 1 April 2016:  /- 1%). These changes are
considered to be reasonably possible based on observation of current market conditions. The calculations are
based on a change in the average market interest rate for each period, and the financial instruments held at
each reporting date that are sensitive to changes in interest rates. All other variables are held
constant.
 
Foreign currency risk
 
Fluctuations in foreign currency exchange rates may have an impact on profit or loss and the statement of
change in equity, where any transaction references more than one currency or where assets/liabilities are
denominated in a currency other than the functional currency of the Company.
 
Exposures on foreign currency loans are managed through a hedging policy, which is reviewed periodically
to ensure that the results from fluctuating currency exchange rates are appropriately managed. The Company
strives to achieve asset liability offset of foreign currency exposures and only the net position is
hedged.
 
The Company uses forward exchange contracts, currency swaps and other derivatives to hedge the effects of
movements in exchange rates on foreign currency denominated assets and liabilities. The sources of foreign
exchange risk are outstanding amounts payable for imported raw materials, capital goods and other supplies as
well as financing transactions and loans denominated in foreign currencies. The Company is also exposed to
foreign exchange risk on its exports. The policy of the Company is to determine on a regular basis what
portion of the foreign exchange risk on financing transactions and loans are to be hedged through forward
exchange contracts and other instruments. Short-term net exposures are hedged progressively based on their
maturity. The hedge mechanisms are reviewed periodically to ensure that the risk from fluctuating currency
exchange rates is appropriately managed. The following analysis is based on the gross exposure as at the
reporting date which could affect the profit or loss or other comprehensive income. The exposure summarised
below is mitigated by some of the derivative contracts entered into by the Company as disclosed under the
section on “Derivative financial instruments”.
 
Derivative financial instruments
 
The Company uses derivative instruments as part of its management of exposure to fluctuations in foreign
currency exchange rates and interest rates. The Company does not acquire derivative financial instruments for
trading or speculative purposes. The derivative transactions are normally in the form of forward contracts,
interest rate swaps and cross currency swaps and these are subject to the Company guidelines and policies.
The fair values of all derivatives are separately recorded in the balance sheet within current and noncurrent
assets and liabilities. Derivatives that are designated as hedges are classified as current or non-current
depending on the maturity of the derivative.
 
The use of derivatives can give rise to credit and market risk. The Company tries to control credit risk
as far as possible by only entering into contracts with reputable banks and financial institutions. The use
of derivative instruments is subject to limits, authorities and regular monitoring by appropriate levels of
management. The limits, authorities and monitoring systems are periodically reviewed by management and the
Board. The market risk on derivatives is mitigated by changes in the valuation of the underlying assets,
liabilities or transactions, as derivatives are used only for risk management purposes.
 
The Company enters into forward exchange contracts for hedging highly probable forecast transactions and
accounts for them as cash flow hedges and states them at fair value. Subsequent changes in fair value are
recognised in equity until the hedged transactions occur, at which time the respective gains or losses are
transferred to the income statement.
 
The cash flows related to above are expected to occur during the year ended 31 March 2019 and
consequently may impact profit or loss for that year depending upon the change in the foreign exchange rates
movements.
 
Derivative contracts entered into by the company and outstanding as at Balance Sheet date :
 
To hedge currency risks and interest related risks, the Company has entered into various derivatives
contracts. The category wise break up of amount outstanding as on Balance Sheet date is given below :
 
Price risk Exposure
 
The Company’s exposure to price risk arises from investments held and classified in the balance
sheet either as fair value through other comprehensive income or at fair value through profit or loss. To
manage the price risk arising from investments, the Company diversifies its portfolio of assets.
 
Sensitivity
 
The table below summarises the impact of increases/decreases of the index on the Company’s equity
and profit for the period :
 
7: CAPITAL MANAGEMENT
 
The Company’s capital management objectives are to ensure the Company’s ability to continue
as a going concern as well as to provide an adequate return to shareholders by pricing products and services
commensurately with the level of risk.
 
The Company monitors capital on the basis of the carrying amount of equity plus its subordinated loan,
less cash and cash equivalents as presented on the face of the statement of financial position and cash flow
hedges recognised in other comprehensive income.
 
The Company manages its capital structure and makes adjustments to it in the light of changes in economic
conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital
structure, the Company may adjust the amount of dividends paid to shareholders, return capital to
shareholders or issue new shares. The amounts managed as capital by the Company are summarised as
follows:
 
Dividends not recognised at the end of the reporting period
 
In addition to the above dividends, the directors have recommended the payment of a final dividend of Rs.
6 per fully paid equity share. This proposed dividend is subject to the approval of shareholders in the
ensuing annual general meeting.
 
8 SEGMENT REPORTING
 
In accordance with Ind AS 108, the Board of directors being the Chief operating decision maker of the
Company has determined its only one business segment of packaging films. Further, in terms of Paragraph 4 and
31 of Ind AS 108 ‘Operating Segments’, entity wide disclosures have been presented below:
 
a) Revenue as per geographical markets:
 
b) There is no customer who has contributed of 10% or more in the revenue.
 
9 CASH FLOW
 
Reconciliation of liabilities arising from financing activities
 
The changes in the Company’s liabilities arising from financing activities can be classified as
follows:
 
10 FIRST TIME ADOPTION OF IND AS Transition to Ind AS
 
These are the company’s first financial statements prepared in accordance with Ind AS.
 
The accounting policies set out in Note 1 have been applied in preparing the financial statements for the
year ended 31 March 2018, the comparative information presented in these financial statements for the year
ended 31 March 2017 and in the preparation of an opening Ind AS Balance Sheet at 1 April 2016 (the
Company’s date of transition). In preparing its opening Ind AS Balance Sheet, the Company has adjusted
the amounts reported previously in financial statements prepared in accordance with the accounting standards
notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the
Act (previous GAAP or Indian GAAP). An explanation of how the transition from previous GAAP to Ind AS has
affected the Company’s financial position, financial performance and cash flows is set out in the
following tables and notes.
 
A. Ind AS optional exemptions
 
Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the
transition from previous GAAP to Ind AS.
 
Ind AS optional exemptions
 
Deemed cost of property, plant and equipment
 
Ind AS 101 permits an entity to elect to measure an item of property, plant and equipment at the date of
transition to Ind AS at its fair value and use that fair value as its deemed cost at that date.
 
Accordingly, the Company has elected to use the fair value of certain items of property, plant and
equipment on the date of transition and designate the same as deemed cost on the date of transition. Fair
value has been determined, by obtaining an external third party valuation, with reference to the depreciated
replacement cost of similar assets, a level 3 valuation technique. For the remaining assets, the Company has
applied Ind AS retrospectively, from the date of their acquisition.
 
Designation of previously recognised financial instruments
 
Ind AS 101 allows an entity to designate investments in equity instruments at FVTPL on the basis of the
facts and circumstances at the date of transition to Ind AS. The Company has elected to apply this exemption
for its investment in equity investments.
 
Deemed cost for investments in subsidiaries
 
The Company has elected to measure its investments in subsidiaries at their fair value determined as of 1
April 2016 (transition date). Fair value has been determined by obtaining an external third party valuation
using discounted cash flow method, level 3 valuation technique.
 
Long term foreign currency monetary items
 
Ind AS 101 allows a first-time adopter to continue the policy adopted for the accounting for exchange
differences arising on translation of the long-term foreign currency monetary items recognised in the
financial statements for the period ending immediately before the beginning of the first Ind AS financial
reporting period as per previous GAAP.
 
The Company has opted for this exemption and continued its previous GAAP policy for accounting for
exchange differences on long-term foreign currency monetary items recognized in the previous GAAP financial
statements for the year ended 31 March 2017. Accordingly, foreign currency differences on such items
attributable to the acquisition of property, plant and equipment are adjusted against their cost and
depreciated prospectively over the remaining useful lives.
 
Ind AS mandatory exceptions
 
Estimates
 
An entity’s estimates in accordance with Ind ASs at the date of transition to Ind AS shall be
consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to
reflect any difference in accounting policies), unless there is objective evidence that those estimates were
in error.
 
Ind AS estimates as at 1 April 2016 are consistent with the estimates as at the same date made in
conformity with previous GAAP. The Company made estimates for following items in accordance with Ind AS at
the date of transition as these were not required under previous GAAP:
 
a)    Fair value of investment in equity instruments carried at FVTPL or FVOCI
 
b)    Impairment of financial assets based on expected credit loss model.
 
Classification and measurement of financial assets and liabilities
 
The classification and measurement of financial assets will be made considering whether the conditions as
per Ind AS 109 are met based on facts and circumstances existing at the date of transition.
 
Financial assets can be measured using effective interest method by assessing its contractual cash flow
characteristics only on the basis of facts and circumstances existing at the date of transition and if it is
impracticable to assess the use of effective interest method, fair value of financial asset at the date of
transition shall be the new carrying amount of that asset. The measurement exemption applies for financial
liabilities as well.
 
Hedge accounting
 
Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy
the hedge accounting criteria in Ind AS 109, at that date. Hedging relationships cannot be designated
retrospectively, and the supporting documentation cannot be created retrospectively. As a result, only
hedging relationships that satisfied the hedge accounting criteria as of 1 April 2016, are reflected as
hedges in the Company’s financial statements under Ind AS.
 
The Company had designated various hedging relationships as cash flow hedges under the previous GAAP. On
date of transition to Ind AS, the Company had assessed that all the designated hedging relationship qualifies
for hedge accounting as per Ind AS 109. Consequently, the Company continues to apply hedge accounting on and
after the date of transition to Ind AS.
 
B: Reconciliations between previous GAAP and Ind AS
 
Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for prior
periods. The following tables represent the reconciliations from previous GAAP to Ind AS.
 
Impact of Ind AS on the adoption in the statement of Cash Flows for the year ended 31 March 2017
 
There are no material adjustments of transition to the statement of Cash Flows to conform to Ind AS
presentation for the year ended 31 March 2017.
 
Note 1:
 
Borrowings
 
Ind AS 109 requires transaction costs incurred towards origination of borrowings to be deducted from the
carrying amount of borrowings on initial recognition. These costs are recognised in the profit or loss over
the tenure of the borrowing as part of the interest expense by applying the effective interest method. Under
previous GAAP, these transaction costs were charged to profit or loss as and when incurred.
 
Note 2:
 
Property, plant and equipment- Government grant
 
Under Ind AS, the transfer of resources from the government in the form of a waiver of duty needs to be
accounted for as government grant. Accordingly, the duty benefit availed under Export Promotion Capital Goods
(EPCG) Scheme on purchase of plant and equipment has been recognised as government grant by an increase in the
carrying value of plant and equipment with a corresponding credit to the deferred government grant. The
increase in the value of plant and equipment is depreciated over the balance useful life of the asset. The
deferred grant revenue is recognised in profit or loss over the expected useful life in the pattern of
consumption of the benefit of the underlying asset. Under Previous GAAP, such benefits were being netted off
with the cost of the respective item of plant and equipment.
 
Note 3:
 
Property, plant and equipment
 
Fair valuation as deemed cost for certain items of Property, Plant and Equipment :Ind AS 101 permits an
entity to elect to measure an item of property, plant and equipment at the date of transition to Ind AS at
its fair value and use that fair value as its deemed cost at that date. Accordingly, the Company has elected
to use the fair value of certain items of property, plant and equipment on the date of transition and
designate the same as deemed cost on the date of transition. Fair value has been determined, by obtaining an
external third party valuation, with reference to the depreciated placement cost of similar assets, a level 3
valuation technique. For the remaining assets, the Company has applied Ind AS retrospectively, from the date
of their acquisition.
 
Note 4:
 
Employee stock option plan
 
Pursuant to the approval of the shareholders, the Company has introduced Cosmo Films Employees Stock
Option Plan 2015 (CF ESOP 2015) to provide share based incentive to the eligible employees of the Company and
its subsidiaries. The plan is to be implemented via trust route which will acquire the equity shares of the
Company by secondary market acquisition, however, in case of any shortfall the Company will issue new shares
as required.
 
Note 5:
 
Derivative recognised at fair value
 
Under previous GAAP, the premium or discount arising at the inception of the forward contract was
amortised as expense or income over the life of the contract and the exchange differences on such a contract
was recognised in the statement of profit and loss in the reporting period in which the exchange rates
change. Under Ind AS, all derivative contracts are measured at fair value through profit and loss at each
reporting date.
 
Note 6:
 
Recognition of trade receivable
 
Under previous GAAP, discounted debtors against letter of credit were derecognised. Under Ind AS, since
derecognition criteria is not met, trade receivables are presented at their gross amount.
 
Note 7:
 
Remeasurements of defined benefit obligations
 
Under Ind AS, remeasurements i.e. actuarial gains and losses and the return on plan assets, excluding
amounts included in the net interest expense on the net defined benefit liability are recognised in other
comprehensive income instead of profit or loss. Under the previous GAAP, these remeasurements were forming
part of the profit or loss for the year.
 
Note 8:
 
Hedging reserve
 
Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy
the hedge accounting criteria in Ind AS 109, at that date. Hedging relationships cannot be designated
retrospectively, and the supporting documentation cannot be created retrospectively. As a result, only
hedging relationships that satisfied the hedge accounting criteria as of 1 April 2016, are reflected as
hedges in the Company’s results under Ind AS. The Company had designated various hedging relationships
as cash flow hedge and fair value hedges under the previous GAAP. On the date of transition to Ind AS, the
Company has assessed that all the designated hedging relationship qualifies for hedge accounting as per Ind
AS 109. Consequently, the Company continues to apply hedge accounting on and after the date of transition to
Ind AS.
 
Note 9:
 
Investment in subsidiaries - Fair valuation as deemed cost:
 
The Company has elected to measure investment in equity shares of its subsidiary company at the date of
transition at its fair value and use that fair value as its deemed cost as at that date. Accordingly
investments in equity shares of subsidiaries has decreased by Rs. 79.21 crore as at 31 March 2017 and 1 April
2016 with a corresponding credit to retained earnings.
 
Note 10:
 
Adjustments for consolidation of Cosmo Films ESOP 2015 Trust (''ESOP Trust'')
 
ESOP Trust that has been allotted the shares which have not vested yet, for distribution to employees of
the Company, has been consolidated on line by line basis by reducing from Other equity of the Company the
value of such shares held by the trust as treasury shares.
 
Note 11:
 
Excise duty
 
Under Previous GAAP, revenue from sale of goods was presented net of excise duty whereas under Ind AS the
revenue from sale of goods is presented inclusive of excise duty. The excise duty is presented on the face of
the Statement of profit and loss as part of expenses.
 
Note 12:
 
Minimum Alternate Tax (‘MAT’)
 
Ind AS 12 requires classification of MAT credit as deferred tax asset. Accordingly, the Company has
reclassified MAT credit from loans and advances to deferred tax asset on each reporting date. There is no
impact on the total equity or profit as a result of this adjustment.
 
Note 13:
 
Deferred tax
 
Under Previous GAAP, deferred tax was accounted using the income statement approach, on the timing
differences between the taxable profit and accounting profits for the period. Under Ind AS, deferred tax is
recognized following balance sheet approach on the temporary differences between the carrying amount of asset
or liability in the balance sheet and its tax base. In addition, various transitional adjustments have also
led to recognition of deferred taxes on new temporary differences
 
11    Per transfer pricing legislation under sections 92-92F of the Income tax Act, 1961, the Company is
required to use certain specific methods in computing arm’s length prices of international transactions
with associated enterprises and maintain adequate documentation in this respect. Since law requires existence
of such information and documentation to be contemporaneous in nature, the Company has appointed independent
consultants for conducting a Transfer Pricing Study (the ‘Study’) to determine whether the
transactions with associate enterprises undertaken during the financial year are on an “arms length
basis”. Management is of the opinion that the Company’s international transactions are at
arm’s length and that the results of the on-going study will not have any impact on the financial
statements and the independent consultants appointed have also preliminarily confirmed that they do not
expect any transfer pricing adjustments.
 
12    PREVIOUS YEARS FIGURES
 
Corresponding figures for the previous year have been regrouped/rearranged, whenever necessary to confirm
to current year classification.