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DCM Shriram Industries

BSE: 523369|NSE: DCMSRMIND|ISIN: INE843D01019|SECTOR: Sugar
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Mar 17
Notes to Accounts Year End : Mar '18

1. Corporate Information

DCM Shriram Industries Limited (the “Company”) is a Public Limited Listed Company incorporated in India and having its registered office at Kanchenjunga Building, 6th Floor, 18, Barakhamba Road, New Delhi - 110001. The Company is primarily engaged in production and sale of sugar, alcohol, power, chemicals and industrial fibers.

2 Basis of preparation of financial statements

a) Statement of Compliance

These Standalone Ind AS Financial Statements (“Standalone Financial Statements”) of the Company have been prepared in accordance with the Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under section 133 of Companies Act, 2013, (the ‘Act’), Companies (Indian Accounting Standards) (Amendment) Rules, 2016 and other relevant provisions of the Act, as applicable.

For all the periods up to and including March 31, 2017, these Standalone Financial Statements were prepared in accordance with the Accounting Standards specified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 and other relevant provisions of the Act (“Previous GAAP”). As these Standalone Financial Statements for the year ended March 31, 2018 are the Company’s first standalone financial statements prepared in accordance with Ind AS, Ind AS 101, First time adoption of Indian Accounting standards has been applied. An explanation of how the transition to Ind AS has effected the previously reported financial position, financial performance and cash flows of the Company is provided in Note 48.

These Standalone Financial Statements of the Company for the year ended March 31, 2018 are approved by the Company’s Audit Committee and by the Board of Directors on May 29, 2018.

b) Functional and presentation currency

These standalone financial statements are presented in Indian Rupees (INR), which is also the Company’s functional currency. All amounts are in rupees lakhs with two decimel points rounded off to the nearest thousands, unless otherwise stated.

c) Basis of measurement

The standalone financial statements have been prepared on a historical cost basis, except for the following items:

d) Critical accounting estimates and judgements

In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively. In particular, information about significant areas of estimation/ uncertainty and judgements in applying accounting policies that have the most significant effects on the standalone financial statements are included in the following notes:

- Recognition and estimation of tax expense including deferred tax- Note 38.

- Assessment of useful life of property, plant and equipment and intangible asset- Note 2A(b) & (c).

- Estimation of obligations relating to employee benefits: key actuarial assumptions- Note 2A(g)

- Valuation of Inventories- Note 2A(d)

- Fair Value Measurement of financials instruments - Note 2A(p)

- Lease Classification- Note 2A(m)

- Recognition and Measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of outflow of resources- Note 2A(k)

- Impairment of Financial Assets- Note 2A(p)

- Impairment of Non-financial Assets- Note 2A(j)

d) Terms, rights, preferences and restrictions attached to equity shares

The Company has one class of equity shares having a par value of Rs. 10 per share. Each shareholder is eligible for one vote per share held.

Nature and purpose of reserve

a. Amalgamation reserve

Amalgation reserve has been created on amalgamation of Daurala Organics Limited with the Company.

b. General reserve

Profits earned by the company are transferred to General reserve as decided.

c. Capital redemption reserve

Created on redemption of preference shares as per requirements of the Companies Act, 1956.

d. Securities premium reserve

Securities premium reserve has been created on account of the premium received on issue of shares and capital and reorganisation reserve reclassified as share premium in the year ended March 31, 1993.

* The Board of Directors have proposed a final dividend of Rs. 4.00 per share for the financial year 2017-18 (2016-17 - Rs. 6.50 per share) aggregating to Rs. 837.62 lakhs (including corporate dividend tax). The proposed dividend for 2017-18 is subject to approval of shareholders in the ensuing Annual General Meeting and has not been considered in these Standalone Financial Statements.

** Included in “Items of other comprehensive income” in statement of changes in equity.

Repayment terms and security disclosure for the outstanding borrowings as at March 31, 2018:

From banks:

Secured borrowings:

a) Nil (March 31,2017: Rs.450.53 lakhs, April 01,2016: Rs.807.98 lakhs), Rs.414.30 lakhs (March 31,2017: Rs.627.55 Lakhs, April 01,2016: Rs.835.91 lakhs), Rs.2461.97 lakhs (March 31,2017: Nil, April 01,2016: Nil), Nil (March 31,2017: Nil, April 01,2016: Rs.623.26 lakhs) and Rs.634.43 lakhs (March 31,2017: Nil, April 01,2016: Nil) currently carrying interest between 8.95% p.a. to 10.60%, repayable in 0, 8, 16, 0 and 16 quarterly installments respectively, were/are secured by a first mortgage and charge on all the immovable and movable properties of the Company excluding all assets of Daurala Organics, a unit of the Company, subject to prior charges created / to be created in favour of the Company’s bankers for securing the borrowings for working capital requirements, the charges ranking pari-passu with the charges created/to be created in favour of first charge holders for their respective term loans.

b) Nil (March 31,2017: Rs.279.60 lakhs, April 01,2016: Rs.558.63 lakh), Nil (March 31,2017: Rs.308.35 lakhs, April 01,2016: Rs.513.05 lakhs) and Nil (March 31,2017: Nil, April 01: Rs.119.93 lakhs) were secured by a first charge on specific movable assets of Shriram Rayons, a unit of the Company.

c) Nil (March 31,2017: Rs. 120.50 lakhs, April 01,2016: Rs. 282.44 lakhs) was secured by a first mortgage and charge on all the immovable and movable properties (save and except book debts) of Daurala Organics, a unit of the Company, both present and future, excluding the assets exclusively charged subject to prior charges created / to be created in favour of the Company’s bankers for securing the borrowings for working capital requirements, the charges ranking pari-passu with the charges created/ to be created in favour of first charge holders for their respective term loans

d) Rs. 632.51 lakhs (March 31,2017: Rs. 1210.89 lakhs, April 01,2016: Rs. 1893.59 lakhs), Rs. 84.86 lakhs (March 31,2017: Rs. 163.19 lakhs, April 01,2016: Rs. 235.00 lakhs) and Nil (March 31,2017: Nil, April 01,2016: Rs.1992.09 lakhs) carrying interest of 12% p.a., repayable in 12, 13 and 0 monthly installments respectively, were/are secured by a residual charge on fixed assets of sugar factory at Daurala Sugar Works, a unit of the Company.

e) Rs. 519.59 lakhs (March 31,2017: Rs. 1034.20 lakhs, April 01,2016: Rs. 1556.38 lakhs) carrying interest of 10.65% p.a., repayable in 4 quarterly installments, is secured by a first mortgage and charge on all the immovable and movable properties of the Company excluding all assets of Daurala Organics, a unit of the Company, subject to prior charges created / to be created in favour of the Company’s bankers for securing the borrowings for working capital requirements, the charges ranking pari-passu with the charges created/to be created in favour of first charge holders for their respective term loans and 2nd pari-passu charge on all current assets of sugar division of the Company excluding stocks pledged with Distt. Co-operative Banks.

f) Nil (March 31,2017: Rs. 320.64 lakhs, April 01,2016: Rs. 435.46 lakhs) was secured by a first mortgage and charge on all the immovable and movable properties (save and except book debts) of Daurala Organics, a unit of the Company, subject to prior charges created / to be created in favour of the Company’s bankers for securing the borrowings for working capital requirements, the charges ranking pari-passu with the charges created / to be created in favour of first charge holders for their respective term loans and exclusive charge on assets acquired / to be acquired out of the loan in Distillery and Chemical divisions of Daurala Sugar Works and Shriram Rayons, units of the Company.

g) Rs.197.00 lakhs (March 31,2017: Rs. 296.23 lakhs, April 01,2016: Rs. 320.33 lakhs) carrying interest of 9.40% p.a., repayable in 8 quarterly installments, is secured by a first charge on specific movable assets of Distillery division of Daurala Sugar Works, a unit of the Company.

h) Nil (March 31,2017: Nil, April 01,2016: Rs. 202.09 lakhs) was secured by a first pari-passu charge on entire fixed assets of the Company, both present and future, excluding the assets exclusively charged and those pertaining to Daurala Organics, a unit of the Company, subject to prior charges created / to be created in favour of the Company’s bankers for securing the borrowings for working capital requirements, the charges ranking pari-passu with the charges created / to be created in favour of existing first charge holders for their respective term loans / debentures. Also exclusive charge on assets to be acquired in Daurala Organics, a unit of the Company.

i) Nil (March 31,2017: Nil, April 01,2016: Rs.1,000.00 lakhs) and Nil (March 31,2017: Nil, April 01,2016: Rs.801.06 lakhs) were secured by a first mortgage and charge on all fixed assets of Sugar factory at Daurala Sugar Works, a unit of the Company, subject to prior charges created / to be created in favour of the Company’s bankers for securing the borrowings for working capital requirements, the charges ranking pari-passu with the charges created/to be created in favour of first charge holders for their respective term loans.

j) Rs. 24.96 lakhs (March 31,2017: Rs. 34.01 lakhs, April 01,2016: Rs. 52.11 lakhs) currently carrying interest of 10.45% p.a., repayable in 30 monthly installments, is secured by hypothecation of specific assets.

From others:

Secured borrowings:

a) Nil (March 31, 2017: Nil, April 1, 2016: Rs. 360.99 lakhs) was secured by an exclusive second charge on immovable and movable assets of sugar factory at Daurala Sugar Works, a unit of the Company.

b) Rs.227.54 lakhs (March 31,2017: Nil, April 01,2016: Nil) carrying interest of 4.25% p.a., repayable in 8 half yearly installments, is secured by a first pari-passu charge on immovable and movable properties of sugar Factory at Daurala Sugar Works, a unit of the Company.

Public deposits:

Unsecured borrowings:

Rs.655.49 lakhs (March 31,2017: Rs. 494.99 , April 01,2016: Rs. 476.59), carrying interest of 9.5% to 10.5% p.a., is currently repayable after 3 years from the date of acceptance of deposits.

The Company’s exposure to interest rate risks related to above financial liabilities is disclosed in Note 46.

3. Operating lease - As a lessee

The Company has entered into operating leases agreements for various premises taken for accommodation of Company’s officers / directors and various offices of the Company. The lease rental expense recognised in the Statement of Profit and Loss for the period in respect of leases is Rs. 599.70 lakhs (March 31, 2017: Rs. 525.72 lakhs).

4. Contingent liabilities and commitments

A. Contingent liabilities

* Matters are subject to legal proceedings in the ordinary course of business. The legal proceedings, when ultimately concluded will not, in the opinion of the management, have a material effect on the results of the operations or financial position.

B. Commitments

a. Capital commitments: Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) amounts to Rs. 2492.74 lakhs (March 31, 2017: Rs. 519.02 lakhs, April 1, 2016: Rs. 207.46 lakhs).

b. Other commitments: The Company has other commitments, for purchase / sales orders which are issued after considering requirements per operating cycle for purchase / sale of goods and services, employee benefits including union agreement in normal course of business. The Company does not have any long term commitments / contracts including derivative contracts for which there will be any material foreseeable losses.

5. Proceedings in a Petition challenging the Preferential Issue of equity warrants by the Company filed by a shareholder before the Hon’ble Company Law Board (now National Company Law Tribunal) are continuing since November, 2007.

6. Earnings per share

Basic and diluted earnings/ (loss) per share

Basic and diluted earnings/ (loss) per share is calculated by dividing the profit/ (loss) during the year attributable to equity shareholders of the Company by the weighted number of equity shares outstanding during the year.

7. Employee benefits

A. Defined Contribution plans

Rs. 705.54 lakhs (March 31, 2017: Rs. 660.72 lakhs) for provident fund contribution and Rs. 163.85 lakhs (March 31, 2017: Rs. 276.09 lakhs) for superannuation fund contribution have been charged to the Statement of Profit and Loss. The contributions towards these schemes are at rates specified in the rules of the schemes. In case of provident fund administered through a trust, shortfall if any, shall be made good by the Company.

B. Defined benefit plans

Liability for gratuity, privilege leaves and medical leaves is determined on actuarial basis. Gratuity liability is provided to the extent not covered by the funds available in the gratuity fund.

Gratuity:

Gratuity scheme provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment. Vesting occurs upon completion of five years of service, except death while in employment.

Although the analysis does not take into account the full distribution of cash flows expected under the plan, it does provide an approximation of the sensitivity of the assumptions shown.

Sensitivities due to mortality & withdrawls are insignificant and hence not considered in sensitivity anaylsis disclosed.

(viii) Maturity profile

The table below shows the expected cash flow profile of the benefits to be paid to the current membership of the plan based on past service of the employees as at the valuation date:

C. Compensated absences:

The obligation of compensated absence in respect of the employees of the Company as at 31 March 2018 works out to Rs. 1,149.41 lakhs (31 March 2017: Rs. 1,007.04 lakhs, 1 April 2016: Rs. 897.99 lakhs)

D. Risk exposure:

These defined benefit plans typically expose the Company to actuarial risks as under:

a) Investment Risk

The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds.

b) Interest rate risk

A decrease in bond interest rate will increase the plan liability. However, this shall be partially off-set by increase in return as per debt investments.

c) Longevity risk

The present value of the defined plan liability is calculated by reference to the best estimate of the mortality of plan participants. An increase in the life expectancy will increase the plan’s liability.

d) Salary risk

Higher than expected increase in salary will increase the defined benefit obligation.

8. Related party disclosures:

In accordance with the requirements of Ind AS 24 on Related Party Disclosures, the names of the related parties where control exists and/or with whom transactions have taken place during the year and description of relationships, as identified and certified by the management are:

A. Names of related parties and nature of related party relationship

Subsidiary: Daurala Foods and Beverages Private Limited Associate: DCM Hyundai Limited

Key management personnel

Mr. Tilak Dhar, Chairman & Managing Director

Mr. Alok B.Shriram, Vice Chairman & Dy. Managing Director

Mr. Madhav B.Shriram, Deputy Managing Director

Mr. K.N. Rao, Director & CEO Rayons

Mr. P.R. Khanna, Independent Director

Mr. S.B. Mathur, Independent Director

Mr. Ravinder Narain, Independent Director

Mr. S.C. Kumar, Independent Director

Mr. C. Vikas Rao, Independent Director

Ms. Kavitha Dutt Chitturi, Independent Director

Mr. N.K. Jain, Chief Financial Officer

Mr. Y.D. Gupta, Chief General Manager & Company Secretary

Relatives/HUF of key management personnel

M/s. Bansi Dhar & Sons - HUF Mr. Akshay Dhar Ms. Kanika Shriram

Mr. Rudra Shriram Mr. Rohan Shriram Mr. Uday Shriram Mrs. K. Rao Mrs. Anita Gupta Mrs. Manju Jain Mr. Nirmal Kumar Jain Mrs. Maya Rani Jain Mr. Rajat Jain Mrs. Kiran Khanna Mr. P. R. Khanna (HUF)

Others (Enterprises over which key management personnel or their relatives are able to exercise significant influence)

Bantam Enterprises Private Limited

H.R. Travels Private Limited Hindustan Vaccum Glass Private Limited

# The Company’s borrowings have been contracted at both floating and fixed rates of interest. The borrowings at floating rates reset at short intervals. Accordingly, the carrying value of such borrowings (including interest accrued but not due) approximates fair value.

* The carrying amounts of trade receivables, trade payables, cash and cash equivalents, investments, bank balances other than cash and cash equivalents and other financial assets and liabilities, approximates the fair values, due to their short-term nature. The other non-current financial assets represent security deposits given to various parties, loans and advances to employees and bank deposits (due for maturity after twelve months from the reporting date), and other noncurrent financial liabilities, the carrying value of which approximates the fair values as on the reporting date.

There have been no transfers between Level 1, Level 2 and Level 3 for the years ended March 31, 2018 and March 31, 2017.

Valuation

Following financial instruments are remeasured at fair value as under :

(a) The fair value of investments in quoted Equity Shares and Mutual Funds are measured at quoted price or NRV.

(b) All foreign currency denominated assets are translated using exchange rate at reporting date.

Risk Management

The Company Manages risk arising from financial instruments as under :

Credit risk is the risk that a customer or counterparty to a financial instrument will fail to perform or pay amounts due causing financial loss to the company. It arises from cash and cash equivalents, financial instruments and principally from credit exposure to customers relating to outstanding receivables. The company continuously reviews the credit to be given and the recoverability of amounts due. Majority of the trade receivables are from parties with whom the company had long standing satisfactory dealings.

* The Company believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment behaviour.

# The company continuously reviews the credit to be given and the recoverability of amounts due. Majority of the trade receivables, both domestic and overseas, are from parties with whom the company had long standing satisfactory dealings.

Movement in the allowance for impairment in respect of trade receivables is given below:

Note

Cash and cash equivalents

Credit risk on cash and cash equivalents is limited as the Company generally transacts with the Banks with high credit ratings assigned by domestic and international credit rating agencies.

Other financial assets

Other financial assets do not have any significant credit risk

b. Financial risk management (continued)

(ii) 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 fallen due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company believes that its liquidity position, including total cash and cash equivalent and bank balances other than cash and cash equivalent of Rs. 1,229.11 lakhs as at March 31, 2018 (March 31, 2017 Rs. 912.84 lakhs, April 1, 2016 Rs. 782.20 lakhs), anticipated future internally generated funds from operations, and its fully available, revolving undrawn credit facility will enable it to meet its future known obligations in the ordinary course of business. However, if liquidity needs were to arise, the Company believes it has access to financing arrangements, which should enable it to meet its ongoing capital, operating, and other liquidity requirements. The Company will continue to consider various borrowing or leasing options to maximize liquidity and supplement cash requirements as necessary.

The Company’s liquidity management process as monitored by management, includes the following:

- Day to day funding, managed by monitoring future cash flows to ensure that requirements can be met.

- Maintaining rolling forecasts of the Company’s liquidity position on the basis of expected cash flows.

- Maintaining diversified credit lines.

I. Financial arrangements

The company had access to the following undrawn borrowing facilities at the end of the reporting period:

III. Market risk

Market risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises two types of risk: currency risk and interest rate risk. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.The Board of directors is responsible for setting up of policies and procedures to manage market risks of the Company.

Currency risk

Currency risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is exposed to the effects of fluctuation in the prevailing foreign currency exchange rates on its financial position and cash flows. Exposure arises primarily due to exchange rate fluctuations between the functional currency and other currencies from the Company’s operating, investing and financing activities.

Sensitivity analysis

A reasonably possible strengthening / weakening of the Indian Rupee against below currencies at March 31, 2018 (previous year ended as on March 31, 2017) would have affected the measurement of financial instruments denominated in functional currency and affected equity and profit or loss by the amounts shown below. This analysis is performed on foreign currency denominated monetary financial assets and financial liabilities outstanding as at the year end. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

USD: United States Dollar, EUR: Euro, GBP: Great British Pound, AUD:Australian Dollar, NZ$: New Zealand Dollar

b. Financial risk management (continued)

III. Market risk Interest rate risk

Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s main interest rate risk arises from long-term borrowings with variable rates, which expose the Company to cash flow interest rate risk.

Exposure to interest rate risk

The Company’s interest rate risk arises majorly from the term loans from banks carrying floating rate of interest. These obligations exposes the Company to cash flow interest rate risk. The exposure of the Company’s borrowing to interest rate changes as reported to the management at the end of the reporting period along with the interest rate profile are as follows:

Cash flow sensitivity analysis for variable-rate instruments

A reasonably possible change of 100 basis points (bps) in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant.

9. Capital management

For the purpose of the Company’s capital management, capital includes issued equity share capital, securities premium and all other equity reserves attributable to the equity holders of the Company. The primary objective of the management of the Company’s capital structure is to maintain an efficient mix of debt and equity in order to achieve a low cost of capital, while taking into account the desirability of retaining financial flexibility to pursue business opportunities and adequate access to liquidity to mitigate the effect of unforeseen events on cash flows.

The Company manages its capital structure and makes adjustments to it in light of changes in the economic/ business conditions and requirements.

The Company’s debt to capital ratio, which is calculated as interest-bearing debts (less cash & cash equivalents) divided by total capital (equity attributable to equity share holders plus interest-bearing debt) is as under:

10. Explanation of transition to Ind AS

As mentioned in note 2, to the standalone financial statements, these financial statements for the year ended March 31, 2018, are the first financial statements of the Company prepared in accordance with the Indian Accounting Standards (“Ind AS”) notified under the Companies (Indian Accounting Standards) Rules, 2015. For periods up to and including the year ended March 31, 2017, the Company prepared its financial statements in accordance with “previous GAAP”, including accounting standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended).

The accounting policies set out in Note 2A have been applied in preparing these financial statements for the year ended March 31, 2018 including the comparative information for the year ended March 31, 2017 and the opening standalone Ind AS balance sheet as on the date of transition i.e. April 1, 2016.

Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for periods ended on or after March 31, 2018, together with the comparative period data as at and for the year ended March 31, 2017, as described in the summary of significant accounting policies. In preparing these financial statements, the Company’s opening balance sheet was prepared as at April 1, 2016, the Company’s date of transition to Ind AS.

This note explains the principal adjustments made by the Company in restating its previous GAAP financial statements, including the balance sheet as at April 1, 2016 and the financial statements as at and for the year ended March 31, 2017. According to Ind AS 101, the first Ind AS financial statements must use recognition and measurement principles that are based on standards and interpretations that are effective for the financial year ended March 31, 2018. These accounting principles and measurement principles must be applied retrospectively to the date of transition to Ind AS and for all periods presented within the first Ind AS financial statements. Any resulting differences between carrying amounts of assets and liabilities according to Ind AS 101 as of April 1, 2016 compared with those presented in the previous GAAP Balance Sheet as of March 31, 2016, were recognised in equity within the Ind AS Balance Sheet.

A. Exemptions and exceptions availed

Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.

Transition elections

Explanation of the Ind AS 101 exceptions and exemptions to the full retrospective application of Ind AS applied by the Company.

In the Ind AS opening Balance Sheet as at April 1, 2016, the carrying amounts of assets and liabilities from the previous GAAP as at March 31, 2016 are generally recognized and measured according to Ind AS in effect for the financial year ended as on March 31, 2018. For certain individual cases, however, Ind AS 101 provides for optional exemptions to the general principles of retrospective application of Ind AS. The Company has made use of the following exemptions in preparing its Ind AS opening Balance Sheet.

a) Ind AS optional exemptions:

(i) Property, plant and equipment and intangible assets

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment and intangible assets as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities. Accordingly, the Company has elected to measure the property, plant and equipment and intangible assets at their previous GAAP values (except land, building and plant and machinery for which the Company has decided to measure them at previous GAAP revalued amount)

(ii) Determining whether an arrangement contains a lease

Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. However, Ind AS 101 provides an option to make this assessment on the basis of facts and circumstances existing at the date of transition to Ind AS, except where the effect is expected not to be material. The Company has elected to apply this exemption for such contracts/arrangements.

(iii) Business combinations

Ind AS 101 provides the option to apply Ind AS 103 prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date. Accordingly, the Company elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Business combinations occurring prior to the transition date have not been restated.

(iv) Investment in subsidiaries and associates

Ind AS 101 permits first-time adopter to elect to continue with the carrying value for its investments in subsidiaries, joint ventures and associates as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as the date of transition. Accordingly, the Company has elected to measure its investments in subsidiaries and associates at their previous GAAP values.

b) Ind AS mandatory exceptions:

(i) Estimates

An entity’s estimates in accordance with Ind AS 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 April 1, 2016 are consistent with the estimates as at the same date made in conformity with previous GAAP. The Company has made estimates for following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:

a) Determination of the discounted value for financial instruments carried at amortised cost

b) Impairment of financial assets based on expected credit loss model

(ii) Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis of the facts and circumstances that exist at 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.

C. Notes to the reconciliations:

1. Revaluation reserve set to zero on account of deemed cost exemption

Under previous GAAP, certain items of property, plant and equipment were revalued and a revaluation reserve was created. Under Ind AS, the revaluation reserve outstanding as at the date of transition (i.e. April 1, 2016) amounting to Rs. 1,602.89 lakhs have been recognised in retained earnings. The profit for the year ended March 31, 2017 decreased by Rs. 134.95 lakhs as a result of increased depreciation expense.

2. Fair valuation of investments in mutual funds

Under previous GAAP, investments in mutual funds were carried at lower of cost or market price. Under Ind AS, these investments are required to be measured at fair value. The resulting fair value changes of these investments amounting to Rs. 32.08 lakhs have been recognised in total equity as at the date of transition (i.e. April 1, 2016). The profit for the year ended March 31, 2017 has decreased by Rs 7.66 lakhs and total equity for the year ended March 31, 2017 has increased by Rs. 24.42 lakhs due to the fair value changes.

3. 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 rate method. Under previous GAAP, these transaction costs were charged to profit or loss as and when incurred. Accordingly, borrowings as at March 31, 2017 have been reduced by Rs. 20.56 lakhs (April 1, 2016 - Rs. 70.36 lakhs) with a corresponding increase in retained earnings. The transaction costs amounting to Rs. 1.98 lakhs on undrawn amount of borrowings have been recognised under other current assets as on 1 April, 2016 with a corresponding increase in retained earnings. The profit for the year ended March 31, 2017 reduced by Rs. 49.01 lakhs as a result of the additional interest expense based on the effective interest method.

4. Security deposits

Under Previous Indian GAAP, interest free security deposits (that are refundable in cash on completion of the term) are recorded at their transaction value. Under Ind AS, such financial assets are required to be recognised initially at their fair value and subsequently at amortised cost. Difference between the fair value and transaction value of the security deposit has been recognised as deferred rent. Consequent to this change the amount of security deposit as on March 31, 2017 has decreased by Rs.7.51 lakhs (April 1, 2016 : Rs. 11.38 lakhs) with a creation of deferred rent (included in other noncurrent and current assets) of Rs. 7.38 lakhs (April 1, 2016 : Rs. 11.38 lakhs). The unwinding of security deposit happens by recognition of a notional interest income in Statement of Profit and Loss at effective interest rate. The deferred rent gets amortised on a straight line basis over the term of the security deposits. The profit and total equity for the year ended March 31, 2017 decreased by Rs. 0.13 lakhs due to amortisation of deferred rent by Rs. 4.00 lakhs and increase in notional interest income of Rs. 3.87 lakhs recognised on security deposits (included in other income).

5. Proposed dividend

Under the previous GAAP upto March 31, 2016, dividends proposed by the board of directors after the balance sheet date but before the approval of the financial statements were considered as adjusting events. Accordingly, provision for proposed dividend was recognised as a liability. Under Ind AS, such dividends are recognised when the same is approved by the shareholders in the general meeting. Accordingly, the liability for proposed dividend and corporate dividend tax of Rs. Nil lakhs as at March 31, 2017 (April 1, 2016 - Rs. 628.21 lakhs) included under provisions has been reversed with corresponding adjustment to retained earnings. Consequently, the total equity increased by an equivalent amount.

6. Government grant

Under the previous GAAP, interest expense was recorded net of interest subvention. Under Ind AS, the amount of interest expense is recorded on gross basis and the benefit of interest subvention is recorded as government grant under other income. As a result, other income for the year ended March 31, 2017 is increased by Rs. 696.08 lakhs with a corresponding increase in finance cost amounting to Rs. 696.08 lakhs. There is no impact on the total equity as at March 31, 2017.

7. Employee benefits: Remeasurement of post employment benefit plans

Under Ind AS, remeasurements i.e. actuarial gains and losses on the net defined benefit liability are recognised in other comprehensive income instead of statement of profit and loss. Under previous GAAP these were forming part of the statement of profit and loss for the year. As a result. employee benefit expense to the extent of actuarial loss amounting to Rs. 109.65 lakhs (net of taxes) for the year ended March 31, 2017 has been reduced and the same has been reclassified to other comprehensive income. There is no impact on the total equity as at March 31, 2017.

8. Grossing up of bills discounting

Under previous GAAP, trade receivables and current borrowings were set -off on discounting of bills. Under Ind AS, such bills dicounting is presented on gross basis as these do not meet the conditions of set-off. Consequent to this change the amount of trade receivables as on March 31, 2017 has increased by Rs. 1120.71 lakhs (April 1, 2016 : Rs. 989.24 lakhs) with a corresponding increase in current borrowings by Rs. 1120.71 lakhs (April 1, 2016 : Rs. 989.24 lakhs). There is no impact on the total equity as at March 31, 2017.

9. Revenue from operations

Under previous GAAP, revenue from operations was disclosed net of excise duty on sales. Under Ind AS, revenue is shown gross of excise duty and the amount of excise duty is shown as expense in the statement of profit and loss. Consequent to this change the amount of revenue from operations for the year ended March 31, 2017 has increased by Rs. 6332.34 lakhs and a separate line item for expense on account of excise duty amounting to Rs. 6332.34 lakhs is presented in the statement of profit and loss. There is no impact on the total equity as at March 31, 2017.

10. Deferred tax

Previous GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12 requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base.

In addition, the various transitional adjustments lead to temporary differences. Deferred tax adjustments are recognised in correlation to the underlying transaction either in reserve and surplus or a separate component of equity. On the date of transition (i.e April 1, 2016), the net impact on deferred tax liabilities is of Rs. 317.56 lakhs (March 31, 2017: Rs. 250.40 lakhs). The profit and total equity for the year ended March 31, 2017 increased by Rs. 67.16 lakhs due to differences in taxable profits and accounting profits.

11. Other comprehensive income

Under previous GAAP, there was no requirement to disclose any item of statement of profit and loss in other comprehensive income. However as per requirement of Ind AS certain items of profit or loss are to be reclassified to other comprehensive income. Consequent to this, the Company has reclassified remeasurement of defined benefit plans from the statement of profit and loss to other comprehensive income.

11. Research and development expenses amounting to Rs. 472.95 lakhs (March 31, 2017: Rs. 170.33 lakhs) have been charged to the respective revenue accounts. Capital expenditure relating to research and development amounting to Rs. 48.61 lakhs (March 31, 2017: Rs. 18.05 lakhs) has been included in property, plant and equipment.

12. Parties covered under “The Micro, Small and Medium Enterprise Development Act, 2006” (MSMED Act, 2006) have been identified on the basis of confirmation received.

Based upon the information available, the balance due to the Micro and Small Enterprises as defined under the MSMED Act, 2006 is Rs. Nil (March 31, 2017: Rs. Nil, April 1, 2016: Rs. Nil). Further no interest during the year has been paid or is payable under the terms of the MSMED Act, 2006.

13. Disclosures related to government grant

The government grant/government assistance recognised are as under:

Source : Dion Global Solutions Limited
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