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Dhampur Sugar Mills

BSE: 500119|NSE: DHAMPURSUG|ISIN: INE041A01016|SECTOR: Sugar
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Notes to Accounts Year End : Mar '18

1) Corporate Information:

DhampurSugar Mills Limited (“DSML” or”the Company”) having CIN No. L15249UP1933PLC000511 is a public company domiciled in India and incorporated under the provisions of the Companies Act applicable in India and has its registered office at Dhampur, Uttar Pradesh, India.

Its shares are listed on two stock exchanges in India namely, National Stock Exchange of India and Bombay Stock Exchange of India. The company is engaged mainly in the manufacturing and selling of sugar, chemicals, ethanol and co-generation of power.

2. Use of estimates and management judgements

The preparation of financial statements in conformity with Indian Accounting Standards (Ind AS) requires management of the company to make judgments, estimates and assumptions that affect the reported amount of revenues, expenses, assets,liabilities and related disclosures concerning the items involved as well as contingent assets and liabilities at the balance sheet date.

The estimates and management’s judgments are based on previous experience and other factors considered reasonable and prudent in the circumstances. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected

The areas involving critical judgement are as follows:

i. Useful lives of property plant and equipment / intangible assets

Property, plant and equipment / intangible assets are depreciated / amortised over their estimated useful lives, after taking into account estimated residual value. Management reviews the estimated useful lives and residual values of the assets annually in order to determine the amount of depreciation / amortisation to be recorded during any reporting period. The useful lives and residual values are based on the Company’s historical experience with similar assets and take into account anticipated technological changes. The depreciation / amortisation for future periods is revised if there are significant changes from previous estimates.

ii. Provisions and contingencies

The assessments undertaken in recognizing provisions and contingencies have been made in accordance with Ind AS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’. The evaluation of the likelihood of the contingent events has required best judgment by management regarding the probability of exposure to potential loss The timing of recognition and quantification of the liability requires the application of judgement to existing facts and circumstances, which can be subject to change.

iii. Post-employment benefit plans

Employee benefit obligations are measured on the basis of actuarial assumptions which include mortality and withdrawal rates as well as assumptions concerning future developments in discount rates, the rate of salary increases and the inflation rate. The Company considers that the assumptions used to measure its obligations are appropriate and documented. However, any changes in these assumptions may have a material impact on the resulting calculations.

iv. Income taxes

The Company’s tax jurisdiction is India. Significant judgements are involved in estimating budgeted profits for the purpose of paying advance tax, determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions

Deferred tax assets are recognised for unused tax losses and unused tax credit to the extent that it is probable that taxable profit would be available against which the losses could be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

8 (a) The Company has fair valued its investments in its subsidiary “Dhampur International PTE Ltd.” and use that fair value as deemed cost for measuring such investments at the time of transition to Ind AS i.e. At April 01, 2016

# The investment is valued at ‘ 1/8 (b) During the previous year the Company has promoted and incorporated a Wholly Owned Subsidiary in the name of of EHAAT Limited and subscribed the 1,00,000 Equity Share Capital of the Company on October 22, 2016.

During the current financial year, the Company has been alloted 16,70,000 Equity Shares of EHAAT Limited of ‘ 10/- each fully paid up against the sale consideration of receivable in respect of transfer of Rural Distribution Division of Consumer Products through Slump Sale agreement. The Company has further subscribed 20,00,000 Equity Shares of EHAAT Limited of ‘ 10/- each fully paid up under right issue.

8 (c) During the previous year, the Company has acquired 4,28,400 equity shares of DETS Limited (Constituting 51% of Equity Share Capital of DETS Limited) and became the holding Company of the DETS Limited w.e.f. October 03, 2016.

Note 3. a - Terms/right attached to equity shares

i) The Company has only one class of equity shares having a par value of ‘ 10 per share. Each holder of equity shares is entitled to one vote per share.

ii) The Company declares and pays dividend in Indian rupees. The dividend if proposed by the Board of Directors, is subject to the approval of the shareholders in the ensuing Annual General Meeting. In the event of liquidation, the shareholders of equity shares are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding.

Note 3.b - During the previous year 2016-17, the Company has issued and allotted 61,72,655 equity shares of Rs. 10 each at a premium of Rs. 88.68 per equity share by way of Qualified Institutional Placement.

Note 4.1: This is item of other comprehensive income arising from remeasurement of defined benefit obligation net of income tax, which is directly recognised in retained earning.

Note 4.2 : Nature and purpose of reserves Capital redemption reserve

Capital redemption reserve of Rs. 3.72 crores was created against the redemption of cumulative preference shares Capital reserve

Capital reserve was created against amalgamation.

Securities premium reserves

Securities premium reserves is used to record the premium on issue of shares. The reserve is utilised in accordance with the provision of the Companies Act, 2013.

FVOCI equity investment

The Company has elected to recognise changes in fair value of certain investments in equity securities through OCI as Other Reserves. The Company transfers amount from this reserves to retained earnings when the relevant investment is sold and realised.

Storage fund/reserve for molasses

The storage fund for molasses has been created to meet the cost of construction of molasses storage tank as required under UttarPradesh Sheera Niyantran (Sansodhan) Adesh, 1974.

General reserve

This represents appropriation of profit after tax by the Company.

Retained earnings

This comprise Company’s undistributed profit after taxes.

b) Nature of security in respect of long term borrowings :

(i) Rupee term loan from PNB under the Government sponsored subvention Scheme for Extending Financial Assistance to Sugar Undertakings (SEFASU), 2014 are secured by third parri passu charge on block of fixed assets of Company and personal guarantee of four directors.

(ii) Rupee term loan from PNB under the Government sponsored Scheme for Extending Soft loan to sugar mills are secured by third parri passu charge on block of fixed assets of five units of the Company and personal guarantee of promoter directors.

(iii) Rupee term loan from PNB are secured by first parri passu charge on block of fixed assets of the Company and personal guarantee of promoter directors.

(iv) Rupee term loan from CBOI are secured by first parri passu charge on block of fixed assets of the Company and personal guarantee of promoter directors.

(v) Rupee term loan from UCO Bank are secured by subservient charge over land and building, plant & machinery and other immovable and movable fixed assets of the Company present and future and personal guarantee of two promoter directors.

(vi) Rupee term loan from Sugar Development Fund (SDF) are secured by first pari passu charge over the movable and immovable assets of DSM Sugar Rajpura, a unit of the Company, situated at Rajpura.

(vii) Rupee term loan from Sugar Development Fund (SDF) are secured by second exclusive charge over the movable and immovable assets of one of its unit i.e. Dhampur sugar unit, situated at Dhampur.

(viii) Rupee term loan from Sugar Development Fund (SDF) are secured by second exclusive charge over the movable and immovable assets of one of its unit i.e. DSM Sugar Asmoli, situated at Asmoli.

(ix) Rupee term loan from Sugar Development Fund (SDF) are secured by second exclusive charge over the movable and immovable assets of one of its unit i.e. DSM Sugar Rajpura, situated at Rajpura.

(x) Rupee term loan from Sugar Development Fund (SDF) are secured by second exclusive charge over the movable and immovable assets of one of its unit i.e. DSM Sugar Mansurpur, situated at Mansurpur.

(xi) All other term loans from banks are secured by first parri passu charge on all movable and immovable assets except book debts, stock in trade, raw material, spare parts and other current assets and are guaranteed by promoter directors.

c) Nature of security in respect of short term borrowings :

Working capital loans from Punjab National Bank are secured :

- by way of first parri passu charge and pledge of stocks of sugar and sugar-in-process both preseent and future.

- by way of first parri passu charge and hypothecation of molasses, bagasse, general stores, chemicals unit raw material, co-geneartion unit raw material, book debts etc. both present and future of the Company.

- by way of third parri passu charge on the block of fixed assets/immovabale propoerties of the Company

- by personal guarantee of promoter directors of the Company

Working capital loans from Bank of Baroda are secured :

- by way of pledge of stocks of sugar and sugar-in-process both preseent and future on parri passu basis with other banks.

- by way of hypothecation of stocks and other current assets both preseent and future of the Cogen-Amoli unit of the Company.

- by way of First parri passu charge on the book debts of the Company

- by way of Third parri passu charge on the block of fixed assets of the Company

- by personal guarantee of promoter directors of the Company

Working capital loans from Central Bank of India are secured :

- by way of pledge of stocks of sugar and sugar-in-process both preseent and future on parri passu basis with other banks.

- by way of hypothecation of molasses, bagasse, general stores both present and future on parri passu basis of the Company.

- by way of first parri passu charge on the current assets of the Company

- by way of third parri passu charge on the land and buildings of the Company Working capital loans from all District Co-operative Banks are secured :

- by way of pledge ofstocks ofsugar

- by personal guarantee of promoter directors of the Company Working capital loans from Prathma Bank are secured :

- by way of pledge of stocks of sugar and sugar-in-process

- by way third parri passu charge on the block of fixed assets , both present and future, of the Company

- by personal guarantee of promoter directors of the Company Working capital loans from Sarva U.P. Gramin Bank are secured :

- by way of first parri passu charge and pledge of stocks of sugar and sugar-in-process both preseent and future.

- by way of hypothecation of molasses, bagasse, general stores both preseent and future on parri passu basis of the Company.

- by way of third parri passu charge on the immovable properties of the Company

Working capital Demand loans from State Bank of India against Warehouse receipts of NBHC are secured :

- by way of first and exclusive charge on the stocks of sugar

- by personal guarantee of promoter directors of the Company

The Company has initiated steps for revising the TDS forms to remove various defects due to which demands were raised by authorities and is confident that the demand will be substantially reduced after these rectification.

The decision taken by the government of Uttar Pradesh to waive liability on interest payable by the sugar industry on delayed payment of cane price for the sugar seasons 2012-13, 2013-14 and 2014-15 is remanded back for reconsideration by honorable Allahabad High Court. The sugar industry and the Company believes that UP Government will not reverse its decision for waiver of interest.

The amount shown above represents the best possible estimates arrived on the basis of available information. The uncertainties and timing of the cash flows are dependent on the outcome of the different legal process which have been invoked by the Company or the claimants as the case may be, therefore it cannot be estimated accurately. The Company does not expect any reimbursement in respect of above contingent liabilities.

In the opinion of the management, no provision is considered necessary for the disputes mentioned above on the grounds that there are fair chances of successful outcome.

Note 5 The Company is eligible to receive various specific grants announced by Central and UP State Government for Sugar Industry by way of prduction subsidy, reimbursement of society commission and interest subvention on certain term loan, Loans at concessional rate etc. The Company is also eligible to receive grant announced by U.P State Government for promotion of industry in general under UPSIPP Scheme 2013. The Company has recognised these Government grants in the following manners:

Notes :

a) The Central Government vide its Notification No. 1(10)/2015-SP-I dated September 18, 2015 announced Minimum Indicative Export Quota (MIEQ) under tradeable export scrip scheme in order to export surplus sugar inventory out of the country. Under the said scheme, the Company was allotted quota of 65488.20 MT for export in respect of its all five sugar units. Further, the Central government vide its Notification No. 20(43)/2015-SP-I dated December 2, 2015 announced a scheme for extending production subsidy @ ‘ 4.50 per quintal of actual cane crushed during sugar season 2015-16 or the proportionate cane crushed for average sugar production of the Company’s each units in the last three sugar seasons, whichever is lower for the Company who fulfilled 75% of its export obligation.

b) Under the UPSIPP scheme 2013, the company is eligible for the reimbursement of interest payable on loans obtained from banks/ financial institutions/ sugar development fund on account of setting up of plant and machinery in an existing sugar mill @ 5% p.a.

Further the Company is also eligible for the reimbursement of society commission based on the criteria specified in the scheme.

c) Under Interest Subvention Scheme of Extending Financial Assistance to Sugar Undertaking 2014, the company is eligible for the reimbursement of interest payable on loan from banks taken against last three sugar seasons excise duty, cess and surcharge paid on sugar by the Company.

d) The Company was eligible for government grant by way of reimbursement of Society Cane Commission @ ‘ 3.00 per quintal of cane for the sugar season 2015-16 in accordance with the notification issued by the Government of Uttar Pradesh and accordingly had accounted for cane commission receivable aggregating to ‘ 13.06 crore during the year ended March 31, 2016. However, the Company has written off the said amount in accordance with the notification dated December 28, 2016 issued by the Government of Uttar Pradesh as the same is no more receivable during the year ended March 31 2017,. The said write off of cane commission has been included under”Cane commission subsidy written off” under Note No. 35 -”Other expenses”.

e) The Company had availed government grant by way of reduction of cane society commission for sugar season 2012-13 to 2014-15 as per the notifications dtd. June 12, 2015 and for the sugar season 2015-16 for retrospective effect. The Hon’ble Allahabad High Court vide Order dated December 21, 2017 quashed the UP State Government notifications order for reduction in cane commission rate to societies from retrospective against which UP State Government has preferred appeal before Supreme Court. Pending final decision in the matter, the Company has not recognised such claims estimated at ‘ 47.04 crore as debts by the Company.

f) The Company was eligible for various incentives under U.P. Sugar Incentive Promotion Policy, 2004 (the scheme) which was subsequently scrapped by the State Government. The Company has filed writ petition before Hon’ble Allahabad High Court (Lucknow Bench) for enforcement of the scheme and settlement of incentive claims. As per the erstwhile scheme, the Company was eligible for capital subsidy of Rs. 89.89 crores i.e. @10% of the investments made (already vetted Rs. 50.80 crores) and revenue subsidy for reimbursement of taxes and other charges aggregating to Rs. 60.50 crores upto the prescribe period of ten years for incentive. The Company has not recognised these grants.

Note 40 Details of loans and advances; investment made; guarantee given and security provided as required to be disclosed as per provision of section 186(4) of Companies Act, 2013 have been disclosed in Note. No. 8, Note No. 9

Note 6 Disclosures as required by the Listing Agreement :

Loans and advances given to Subsidiary : (Also refer note no. 44)

Note 7 Operating lease

I Operating lease obligation (As a lessee): - The Company has taken various premises on operating lease for lease period of 1 year to 3 years from the date of lease. The lease period may be further extended as per mutual decision of the parties. In all the leases, there is escalation clause for increase in rentals yearly or alternative year. Details of future minimum lease payments under non cancellable operating lease are as follows:

II Operating lease recognized (As a lessor): - The Company has given various premises on operating lease for lease period of 1 year to 15 years from the date of lease. The lease period may be further extended as per mutual decision of the parties. In all the leases, there is escalation clause for increase in rentals yearly or alternative year or after 5 years Details of future minimum lease rentals to be received under non cancellable operating lease are as follows:

III Operating lease recognized (Sub-lease):- The Company has given premises on sublease in year 2017-18. The Company has classified the sublease as an operating lease. Details of future minimum lease rentals to be received under non cancellable operating lease are as follows:

Note 8 In the opinion of the Board, current assets and loans and advances have realisable value in the ordinary course of business at least equal to the value at which they are stated in the balance sheet. The Board is also of opinion that the diminution in the value of investments in EHAAT Limited (wholly owned subsidiary) and DETS Limited (Holding 51% of Equity Shares), is due to initial losses of new start up businesses, which is of temporary nature.

# Short term benefits Including remunerations, bonus, due leave, sitting fee, commission on accrual basis and value of perquisites.

* As the liability for gratuity is provided on actuarial basis for the Company as a whole, amounts accrued pertaining to key managerial personnel are not included above.

C. Terms and Conditions and Settlement

The transactions with the related parties are made on term equivalent to those that prevail in arm’s length transactions. The assessment is under taken each financial year through examining the financial position of the related party and in the market in which the related party operates. Outstanding balances at the year end are un-secured and settlement occurs in cash.

Note 9 Disclosures As Required By Indian Accounting Standard (Ind As) 108 Operating Segments Identification of Segments

The Company’s operating segments are established on the basis of those components of the Company that are evaluated regularly by the Board of Directors (the’Chief Operating Decision Maker’ as defined in Ind AS 108 -’Operating Segments’).

The Chief Operational Decision Maker evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators by Business Segment. Segment performance is evaluated based on their revenue growth, operating income and return on capital employeed. Operating Segments have been identified by the management and reported taking into account, the nature of products and services, the differing risks and returns, the organization structure, and the internal financial reporting systems.

Operating Segments

The Company is organized into three main business segments based on the products include :

- Sugar which consists of manufacture and sale of Sugar and its byproducts and,

- Chemicals/Distillery which consists of manufacture and sale of RS, SDS, ENA, Ethanol, Ethyl Acetate, IMFL etc.

- Power which consists of co-generation and sale of power

No operating segments have been aggregated in arriving at the reportable segments of the Company

Geographical segments

Since the Company’s activities/ operations are primarily within the country and considering the nature of products/ services it deals in, the risks and returns are same and as such there is only one geographical segment.

Segment Accounting Policies: In addition to the significant accounting policies applicable to the operating segments as set out in note 2, the accounting policies in relation to segment accounting are as under:

a. Segment revenue and results:

Revenue and expenses directly attributable to segments are reported under each reportable segment.

Other expenses and incomes which are not directly attributable to any business segment are shown as unallocable expenditure (net of unallocated income).

b. Segment assets and liabilities:

“Assets and liabilities that are directly attributable or allocable to segments are disclosed under each reportable segment. Unallocated assets include deferred tax, investments, interest bearing deposits loans to subsidiary and income tax refund. Unallocated liabilities include interest bearing liabilities, tax provisions and deferred tax.Capital expenditure pertains to additions made to fixed assets during the year and includes capital work in progress”

c. Inter segment sales/transfer:

Transactions between segments are primarily for materials which are transferred at cost /market determined prices. These transactions are eliminated in consolidation.

(i) Defined contribution plan :

Details of contribution to defined contribution plan to Regional Provident Commissioner and the Central Provident Fund recognised as expense during the period are as under :

(ii) Defined benefit plan :

(a) In respect of Non funded defined benefit scheme of gratuity (Based on Actuarial Valuation) :

The gratuity plan is governed by the payment of Gratuity Act,1972. Under the said Act an employee who has completed five years of services is entitled to specific benefit. The Gratuity plans provide a lumpsum payments to employee at retirement, death, incapacitation or termination of employment . The level of benefits provided depends on the member’s length of service & salary at retirement age.

The company is exposed to various risks in providing the above gratuity benefit which are as follows:

Interest rate risk : The plan exposes the Company to the risk of fall in interest rates. A fall in interest rates will result in an increase in the ultimate cost of providing the above benefit and will thus result in an increase in the value of the liability (as shown in financial statements).

Salary Escalation Risk : The present value of the defined benefit plan is calculated with the assumption of salary increase 0.50% per annum of plan participants in future. Deviation in the rate of increase of salary in future for plan participants from the rate of increase in salary used to determine the present value of obligation will have a bearing on the plan’s liability.

Actual mortality & disability : deaths & disability cases proving lower or higher than assumed in the valuation can impact the liabilities.

The following tables summarise the components of net benefit expense recognised in the statement of Profit and Loss

Sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

The sensitivity analysis above has been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonable changes in key assumptions occurring as at the balance sheet date.

All sensitives are calculated using the same actuarial method as for the disclosed present value of the defined benefits obligation at year end.

b) In respect of funded defined benefit scheme of provident fund (Based on actuarial valuation) :

The Company’s Contribution to defined benefit plan to the irrecoverable trust, set up by the Company aggregating to Rs. 5.47 Crore (P. Y. Rs. 3.91 Crore) has been recognised in statement of profit and loss account. The Company is under obligation to markup any short fall in the fund.

The following table sets out the status of Provident Fund as per the actuarial valuation by the independent Actuary appointed by the Company:

Note 10 : Financial Risk Management

The Company’s principal financial liabilities comprise borrowings, trade and other payables. The main purpose of these financial liabilities is to manage finances for the Company’s operations. The Company principal financial asset includes loan , trade and other receivables, and cash and others financial assets that arise directly from its operations.

The Company’s activities are exposed to market risk, credit risk and liquidity risk.

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other risks, such as regulatory risk and commodity price risk. The sensitivity of the relevant profit or loss item is the effect of the assumed changes in respective market risks. “

(a) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s borrowings obligations with floating interest rates.

(b) Foreign currency risk

“Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates.

The Company’s exposure to the risk of changes in foreign exchange rates is limited to the Company’s operating activities (when revenue or expense is denominated in a foreign currency), which are not material.”

Foreign currency sensitivity

1% increase or decrease in foreign exchange rates will have no material impact on Profit.

(c) Regulatory risk

Sugar industry is regulated both by Central Government as well as State Government. Central and State Governments policies and regulations affects the Sugar industry and the Company’s operations and profitability. Distillery business is also dependent on the Government policy.

(d) Commodity price risk

Sugar industry being cyclical in nature, realisations get adversely affected during downturn. Higher cane price or higher production than the demand ultimately affect profitability. The Company has mitigated this risk by well integrated business model by diversifying into co-generation and distillation, thereby utilizing the by-products.

Credit risk

“Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company’s sugar sales are mostly in cash. Power and ethanol are sold to state government entities, thereby the credit default risk is significantly mitigated.

The impairment for trade receivables are based on assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Company’s past history, existing market conditions as well as forward looking estimates at the end of each balance sheet date.”

Financial assets are written off when there is no reasonable expectation of recovery, however, the Company continues to attempt to recover the receivables. Where recoveries are made, subsequently these are recognised in the Statement of Profit and Loss.

The Company major exposure of credit risk is from trade receivables, which are unsecured and derived from external customers.

Expected credit loss for trade receivable on simplified approach :

The ageing analysis of the trade receivables (gross of provision) has been considered from the date the invoice falls due:

The Company uses a provision matrix to determine impairment loss on portfolio of its trade receivable. The provision matrix is based on its historically observed default data over the expected life of the trade receivable and is adjusted for forward- looking estimates. At every reporting date, the historically observed default rates are updated and changes in forward-looking estimates are analysed. In case of probability of non collection, default rate is 100%. However, there is no material expected credit loss based on the past experience.

“There is no change in the loss allowances measured using expected credit loss model (ECL).The credit risk on cash and bank balances is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.”

Liquidity Risk

The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of cash credit facilities and short term loans.

Note 11 : Capital Management

(a) Risk Management

“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 of the Company. The Company’s capital management is intended to maximise the return to shareholders for meeting the long-term and short-term goals of the Company through the optimization of the debt and equity balance.

The Company manages its capital structure and makes adjustments in light of changes in the financial condition and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders (buy back its shares) or issue new shares.

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 loans and borrowings that define capital structure requirements. The Company has complied with these covenants and there have been no breaches in the financial covenants of any interest-bearing loans and borrowings.

No changes were made in the objectives, policies or processes for managing capital during the year ended March 31, 2018 and March 31, 2017.

Note 12: Transition to Ind AS

These financial statements for the year ended March 31,2018 are the first Ind AS financials prepared in accoradnce with Ind AS notified under Companies (Indian Accounting Standards) Rules, 2015 (as amended). The adoption of Ind AS was carried out in accordance with Ind AS 101, using April 1, 2016 as the transition date. Ind AS 101 requires that all Ind AS standards and interpretations that are effective for the Ind AS financial statements for year ended March 31, 2018, be applied consistently and retrospectively for all fiscal years presented. All applicable Ind AS have been applied consistently and retrospectively wherever required. For the periods upto and including the year ended March 31, 2017, the Company prepared its financial statements in accordance with the accounting standards notified under section 133 of the Companies Act 2013, read together with Paragraph 7 of the Companies(Accounts) Rules,2014(Indian GAAP).

Accordingly, the Company has prepared its financial statement to comply with the Ind AS for the year ending March 31, 2018, together with the comparative date as at and for the year ended March 31, 2017, as described in the summary of significant accounting policies. In preparing these financial statements, Company’s opening balance sheet was prepared as at April 01, 2016, the date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the balance sheet as at April 01, 2016 and the financial statements as at and for the year ended March 31, 2017.

Note 13 (A): Exemptions and Exceptions opted by the Company on the date of transition:-

Ind AS 101 allows first-time adopters certain exemptions and exceptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions and exceptions:

a) Exemptions and Exceptions from retrospective application

1. The Company has elected not to apply Ind AS 103- Business Combinations, retrospectively to past business combinations that occurred before April 01, 2016. Consequent to use of this exemption from retrospective application:

i) The carrying amount of assets and liabilities acquired pursuant to past business combinations and recognised in the financial statements prepared under Previous GAAP, are considered to be the deemed cost under Ind AS, on the date of acquisition. After the date of acquisition, measurement of such assets and liabilities is in accordance with respective Ind AS. Also, there is no change in classification of such assets and liabilities;

ii) The Company had not recognised assets and liabilities that neither were recognised in the financial statements prepared under Previous GAAP nor qualify for recognition under Ind AS in the Balance Sheet of the acquire;

iii) The Company had excluded from its opening Balance Sheet (As at April 1, 2016), those assets and liabilities which were recognised in accordance with Previous GAAP but do not qualify for recognition as an asset or liability under Ind AS.

2 The Company has elected to continue with carrying value of all Property, plant and equipment under the previous GAAP as deemed cost as at the transition date i.e. April 01, 2016. Under the previous GAAP, Property, plant and equipment were stated at their original cost (net of accumulated depreciation, amortization and impairment), if any, adjusted by revaluation of certain assets.

The Company has elected to continue with the carrying value of Capital work in progress as recognized under the previous GAAP as deemed cost as at the transition date.

The Company has elected to continue with the carrying value for intangible assets (computer softwares) as recognized under the previous GAAP as deemed cost as at the transition date. Under the previous GAAP, Computer Software was stated at its original cost, net of accumulated amortization.

3. The Company fair valued its investments in its subsidiaries and used that fair value as deemed cost for measuring such investments at the time of transition to Ind AS.

Under Ind AS 109, at initial recognition of a financial asset, an entity may make an irrevocable election to present subsequent changes in the fair value of an investment in an equity instrument in other comprehensive income. Ind AS 101 allows such designation of previously recognized financial assets, as ‘FVTOCI’ on the basis of the facts and circumstances that existed at the date of transition to Ind AS.

Accordingly, the Company has designated its investments in certain equity instruments at fair value through other comprehensive income on the basis of the facts and circumstances that existed as at the date of transition to Ind AS.

4. The requirements of Ind AS 20 - Accounting for Government Grants and Disclosure of Government Assistance and Ind AS 109 -Financial Instruments, in respect of recognition and measurement of interest free loans from government authorities is opted to be applied prospectively to all grants received after the date of transition to Ind AS. Consequently, the carrying amount of such interest free loans as per the financial statements of the Company prepared under Previous GAAP is considered for recognition in the opening Ind AS Balance Sheet.

5. 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, the Company has used Ind AS 101 exemption and assessed all arrangements for embedded leases based on conditions in place as at the date of transition.

6. Designation of previously recognised financial instruments : Ind AS 101 allows an entity to designate investments in equity instruments at FVTOCI on the basis of the facts and circumstances at the date of transition to Ind AS.

b) Estimates

The estimates as at April 01, 2016 and as at March 31, 2017 are consistent with those made for the same dates in accordance with Indian GAAP (after adjustments to reflect any differences in accounting policies).

* Notes to first time adoption of Ind AS

1) FairValue of Investments

Under the previous GAAP, Long term investments were carried at cost less provision for other than temporary diminution in the value of such investment. Current investment were carried at lower of cost and fair value. Under Ind AS, the Company has the option to designate such investments either as FVTOCI or FVTPL investments. Further, in case of a subsidiary, the Company has the option to account for investment in shares either at cost/deemed cost or FVTOCI or FVTPL as at the transition date.

a) Under Ind AS, financial assets designated at fair value through profit and loss (FVTPL) are fair valued at each reporting date with changes in fair value recognized in the statement of profit and loss. Mutual fund investments have been classified as FVTPL.

b) Under Ind AS, financial assets designated at fair value through other comprehensive income (FVTOCI) are fair valued at each reporting date with changes in fair value (net of deferred taxes) recognized directly in other comprehensive income. The Company has make an irrevocable election to measure its certain equity Investments through OCI. Consequently, fair value of such equity instruments designated at FVTOCI has resulted in a increase in other comprehensive income.

c) Under Ind AS 101,The Company has an option to fair value its investments in its subsidiary Company and treated that fair value as deemed cost for measuring such investments in the opening Ind AS Balance Sheet. Accordingly the Company has fair valued one of its subsidiaries and treat that value as deemed cost for subsequent measeurement.

2) Defined benefit liabilities

Under previous GAAP, actuarial gains and losses were recognised in the statement of profit and loss. Under Ind AS, the actuarial gains and losses form part of remeasurement of the net defined benefit liability/ asset which is recognised in other comprehensive income. Consequently, the tax effect of the same has also been recognised in other comprehensive income under Ind AS instead of the statement of profit and loss.

3) Deferred tax

Under 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. The application of Ind AS 12 approach has resulted in recognition of deferred tax on new temporary differences which was not required under previous GAAP. Moreover, carryforward of unused tax credits are to be treated as deferred tax assets which was earlier considered as other non-financial assets.

In addition, the various transitional adjustments lead to temporary differences. According to the accounting policies, the Company has to account for such differences. Deferred tax adjustments are recognised in correlation to the underlying transaction either in retained earnings or a separate component of equity.

4) Sale of goods

Under previous GAAP, sale of goods was presented as net of excise duty. However, under Ind AS, sale of goods includes excise duty. Excise duty on sale of goods is presented as a part of other expenses in statement of profit and loss.

5) Government Grant- Related to assets

Under previous GAAP, grants received related to assets has been deducted from the carrying cost of related assets. Under Ind AS, grants related to assets shall be presented in the balance sheet by setting up the grant as deferred income. The grant set up as deferred income is recognised in profit and loss on systematic basis over the useful life of assets. Consequently the Company has presented the grant as deferred income and recognised in profit and loss.

6) Borrowings and Government Grant

Under Ind AS when loans or similar assistance are provided by governments or other related institutions, with an interest rate below the current applicable market rate, the effect of this favourable interest is regarded as a government grant. The loan or assistance is initially recognised and measured at fair value and the government grant is measured as the difference between the initial carrying value of the loan and the proceeds received.

7) Security deposits

Under previous GAAP ,interest free lease security deposits(that are refundable in cash on completion of lease term) are recorded at their transaction value. Under Ind AS all financial assets are required to be recognised at fair value. Accordingly, the Company has fair valued these security deposits under Ind AS. Difference between fair value and transaction value of the security deposit has been recognised as prepaid rent. Consequent to this change, the amount of security deposits decreased as at the date of transition to Ind AS with corresponding increase in prepaid rent.

8) Equity dividend

Under previous GAAP, proposed dividends including Dividend Distribution tax (DDT) is recognised as a liability in the period to which it relates, irrespective of when it is declared. Under Ind AS, a proposed dividend is recognised as a liability in the period in which it is declared by the Company (usually when approved by shareholders in a general meeting) or paid.

Therefore, the liability for the year ended on March 31, 2016 recorded for dividend has been derecognised against retained earnings on April 01, 2016. The proposed dividend for the year ended on March 31, 2017 recognized under Indian GAAP was reduced with a corresponding impact in the retained earnings.

9) Preference share capital and dividend thereon

Under previous GAAP, the cumulative redeemable preference shares issued by the Company are treated as part of share capital and cumulative dividend which is not declared has been shown as contingent liability. Under Ind AS the same are classified as liabilities. The dividend including DDT on preference shares is recognised in Statement of Profit and Loss as finance costs.

10) Retained earnings

Retained earnings as at the transition date has been adjusted consequent to the above Ind AS transitional adjustments.

11) Cash flow statement

The transition from the previous GAAP to Ind AS has not had a material impact on Cash Flow Statement

12) Total comprehensive income and other comprehensive income

Under the previous GAAP, the Company did not present total comprehensive income and other comprehensive income. Hence, it has reconciled the previous GAAP profit to profit as per Ind AS. Further, the previous GAAP profit is reconciled to other comprehensive income and total comprehensive income as per Ind AS.

Note 14 Recent Accounting Pronouncements

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 is evaluating the effect of this on the financial statements.

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 Customer The core principle of the new standard is that an entity should recognize 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 April 1, 2018 by using the cumulative catch-up transition method and accordingly comparatives for the year ending or ended March 31, 2018 will not be retrospectively adjusted. The Company is evaluating the effect on adoption of Ind AS 115.

Note : 15 The previous year’s including figures as on the date of transition have been reworked, regrouped, rearranged and reclassified wherever necessary. Amounts and other disclosures for the preceding year including figures as at the date of transition are included as an integral part of the current year financial statements and are to be read in relation to the amounts and other disclosures relating to the current year.

This is the notes to the financial statement referred to our report of evendate

Source : Dion Global Solutions Limited
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