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Garden Silk Mills

BSE: 500155|NSE: GARDENSILK|ISIN: INE526A01016|SECTOR: Textiles - Weaving
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Notes to Accounts Year End : Mar '18

A. Corporate Information

Garden Silk Mills Limited (the ‘Company’) is domiciled in India.The Company’s registered office is at Tulsi Krupa Arcade, Puna-Kumbharia Road, Dumbhal, Surat-395010. Garden Silk Mills Ltd. is one of India’s leading man-made fibre-based textile companies. It is a vertically integrated manufacturer of a wide range of Polyester Chips, Polyester Filament Yarns (PFY), Preparatory Yarns, Woven (Grey) Fabric as well as Dyed and Printed Sarees and Dress Materials.

B. Critical Accounting Judgements and Key Sources of Estimation Uncertainty

In the application of the Company’s accounting policies, which are described in Note “B”, the Management of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

b.1. Impairment of Property, Plant and Equipment

Determining whether property, plant and equipment is impaired requires an estimation of the value in use of the cash-generating unit. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. When the actual future cash flows are less than expected, a material impairment loss may arise.

B.2. Useful Lives of Property, Plant and Equipment

The Company reviews the estimated useful lives of property, plant and equipment at the end of each reporting period. During the current year, the directors have determined that no changes are required to the useful lives of assets.

B.3. Discount Rate - Defined Benefit Obligation

The Company’s defined benefit obligation is discounted at a rate set by reference to market yields at the end of the reporting period on high quality corporate bonds. Significant judgement is required when setting the criteria for bonds to be included in the population from which the yield curve is derived. The most significant criteria considered for the selection of bonds include the issue size of the corporate bonds, quality of the bonds and the identification of outliers which are excluded.

B.4. Provision for Litigations and Contingencies

The provision for litigations and contingencies are determined based on evaluation made by the management of the present obligation arising from past events the settlement of which is expected to result in outflow of resources embodying economic benefits, which involves judgements around estimating the ultimate outcome of such past events and measurement of the obligation amount. Due to the judgements involved in such estimations the provisions are sensitive to the actual outcome in future periods.

C. Recent Indian Accounting Standards (Ind AS)

Ministry of Corporate Affairs (“MCA”) through Companies (Indian Accounting Standards) Amendment Rules, 2018 has notified the following new and amendments to Ind ASs which the Group has not applied as they are effectivefor annual periods beginning on or after April 1, 2018:

Ind AS 115 Revenue from Contracts with Customers Ind AS 21 The Effect of Changes in Foreign Exchange Rates Ind AS 115 - Revenue from Contracts with Customers

Ind AS 115 establishes a single comprehensive model for entities to use in accounting for revenue arising fromcontracts with customers.

Ind AS 115 will supersede the current revenue recognition standard Ind AS 18 - Revenue,

Ind AS 11 - Construction Contracts when it becomes effective.

The core principle of Ind AS 115 is that an entity should recognise revenue to depict the transfer of promised goodsor services to customers in an amount that reflects the consideration to which the entity expects to be entitled inexchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligation in contract Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation Under Ind AS 115, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’of the goods or services underlying the particular performance obligation is transferred to the customer.

The Company is currently evaluating the requirements of Ind AS 115 and its impact on the financial statements.

Ind AS 21 - The Effect of Changes in Foreign Exchange Rates

The amendment clarifies on the accounting of transactions that include the receipt or payment of advance consideration in a foreign currency. The appendix explains that the date of the transaction, for the purpose ofdetermining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferredincome liability. If there are multiple payments or receipts in advance, a date of transaction is established for eachpayment or receipt. The Group is evaluating the impact of this amendment on its financial statements.

D. First Time Adoption of Ind AS - Mandatory Exceptions and Optional Exemptions:

The Company has prepared the opening balance sheet as per Ind AS as of April 1, 2016 (the transition date) by recognizing all assets and liabilities whose recognition is required by Ind AS, not recognizing items of assets and liabilities which are not permitted by Ind AS, by reclassifying items from previous GAAP to Ind AS as required under Ind AS, and applying Ind AS in measurement of recognized assets and liabilities. However, this principle is subject to certain exceptions and certain optional exemptions availed by the company as detailed below:

D.1. De-recognition of Financial Assets and Financial Liabilities

The Company has applied the de-recognition requirements of financial assets and financial liabilities prospectively for transactions occurring on or after April 1, 2016 (the transition date).

D.2. Classification of Debt Instruments

The Company has determined that classification of debt instruments in terms of whether they meet the amortized cost criteria or the fair value through profit or loss criteria based on facts and circumstances that existed as of the transition date.

D.3. Deemed Cost for Property, Plant and Equipment and Intangible Assets

The Company has elected to continue with the carrying value of all its plant and equipment assets recognized as of April 1, 2016 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.

D.4. Impairment of Financial Assets

The Company has applied the impairment requirements of Ind AS 109 retrospectively; however, as permitted by Ind AS 101, it has used reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial instruments were initially recognized in order to compare it with the credit risk at the transition date. Further, the Company has not undertaken an exhaustive search for information when determining, at the date of transition to Ind AS, whether there has been significant increase in credit risk since the initial recognition, as permitted by Ind AS 101.

Additional Information to Financial Statements and Disclosures under Accounting Standards:

1. Contingent Liabilities:

(i) Disputed liabilities for Excise Duty not acknowledged as debts Rs. 8646.06Lakhs. (31 March 2017 : Rs. 7217.84, 01 April 2016 : Rs. 3470.23 Lakhs)

(ii) Disputed liabilities for Income - Tax not acknowledged as debts Rs. NIL (31 March 2017 : Rs. NIL, 01 April 2016 : Rs. 133.13 Lakhs)

(iii) Disputed liabilities for Gujarat Sales Tax not acknowledged as debts Rs. NIL (31 March 2017 : Rs. 58.18, 01 April 2016 : Rs. 70.51 Lakhs)

(iv) Unpaid dividend on 0.001% Optionally Convertible Cumulative Preference shares(now converted into equity shares) not acknowledged as debts Rs.0.01 Lakhs. (31 March 2017 : Rs.0.01, 01 April 2016 : Rs.0.01 Lakhs)

(v) Counter-guarantees to Banks against guarantees issued to third parties Rs.0.50 Lakhs. (31 March 2017 : Rs.0.50, 01 April 2016 : Rs.0.50 Lakhs)

(vi) Custom Duty on Raw materials Imported under advance license againt which export obligation is to be fulfilled is Rs. NIL (31 March 2017 : Rs. 3.72, 01 April 2016 : Rs. 143.69 Lakhs)

2. Capital Management:

The Company’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may issue new shares or sell assets to reduce debt. The capital structure of the Company consists of debt and total equity of the Company.

The Company determines the amount of capital required on the basis of annual operating plans and long-term product and other strategic investment plans. The funding requirements are met through equity, External-commercial borrowings and short-term borrowings. The Company’s policy is aimed at combination of short-term and long-term borrowings. The Company monitors the capital structure on the basis of total debt to equity ratio and maturity profile of the overall debt portfolio of the Company.

The Company is not subject to any externally imposed capital requirements.

Total debt includes all long and short term debts as disclosed in notes 12 to the financial statements.

The Gearing Ratio at the end of the reporting period was as follows:

3. Financial Instruments:

3.1 Categories of Financial Instruments and Fair Value Measurement:

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the Ind AS 113 - Fair Value Measurement. An explanation of each level is as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Unobservable inputs for the asset or liability.

Valuation Technique -

Fair value of forward contract is computed -

i. Spot Reference of original forward deal is compared with Spot Rate by FEDAI as at the reporting date.

ii. Residual Forward Points of original forward deal is compared with prevailing market forward points for the residual tenor as at the reporting date

iii. Gain/Loss (at an undiscounted amount) is computed as at reporting date.

iv. Depending upon the tenor remaining as at the reporting date appropriate discounting factor is used to compute present value of such gain/loss.

v. The Company has disclosed financial instruments such as cash and cash equivalents, other bank balances, trade receivables, current account balances with group companies and joint venture, trade payables and unpaid dividends at carrying value because their carrying amounts are a reasonable approximation of the fair values due to their short term nature.

B. Income, Expense, Gains or Losses on Financial Instruments

Interest income and expesnes, gains or losses recognsied on financial asstes and liabilities in the statement of Profit and Loss are as follows:

3.2 Financial Risk Management Framework:

The Company is exposed primarily to market risk, credit risk and liquidity risk which may adversely impact the fair value of its financial instruments. The Company assesses the unpredictability of the financial environment and seeks to mitigate potential adverse effects on the financial performance of the Company.

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. Such changes in the values of financial instruments may result from changes in the foreign currency exchange rates, interest rates and other market changes. The Company’s exposure to market risk is primarily on account of foreign currency exchange rate risk.

Foreign Currency Risk Management:

The Company undertakes transactions denominated in foreign currencies and consequently, exposures to exchange rate fluctuations arise. Exposure to currency risk relates primarily to the company’s operating activities and borrowings when transactions are denominated in a different currency from the Company’s functional currency.

The fluctuation in foreign currency exchange rates may have potential impact on the statement of profit or loss and other comprehensive income and 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. The Company evaluates the impact of foreign exchange rate fluctuations by assessing its exposure to exchange rate risks. It hedges a part of these risks by using forward contracts in line with its risk management policies.

The following tables demonstrate the sensitivity to a reasonably possible change in USD,Euro and JPY exchange rates, with all other variables held constant. The impact on the Company’s profit before tax is due to changes in the fair value of monetary assets and liabilities. The Company’s exposure to other foreign currencies is not material.

Foreign Currency Exposure:

The Company uses plain forward contracts for hedging purpose. Foreign currency Loans / ECB which are covered by full currency & interest rate swap. All the contracts are for hedging purpose only and not for any speculative purpose.

The Company has entered into forward contracts to hedge the foreign currency risk of firm commitments / highly probable forecast transactions.

The carrying amount of company’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows:

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 variable rate short-term debt obligations and external commercial borrowings.

Interest Rate Sensitivity:

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected. With all other variables held constant, the company’s profit before tax is affected through the impact on floating rate borrowings, as follows:

Credit Risk:

Credit risk is the risk of financial loss arising from counterparty failure to repay or service debt according to the contractual terms or obligations. Credit risk encompasses of both, the direct risk of default and the risk of deterioration of creditworthiness as well as concentration of risks. Credit risk is controlled by analyzing credit limits and creditworthiness of customers on a continuous basis to whom the credit has been granted after obtaining necessary approvals for credit. Outstanding customer receivables are regularly monitored. The Company maintains its cash and cash equivalents and deposits with banks having good reputation and high quality credit ratings.

Liquidity Risk:

Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

4. Segment Reporting:

The Company has only one reportable segment viz. ‘Textiles’ as per Ind As 108 operating segments.Further, Sale of Product can be bifurcated between Domestic and Export segment as below:

5. There are no amounts due and outstanding to be credited to Investor Education and Protection Fund (IEPF) as at March 31, 2018.

6. Contribution to political parties during the year 2017-18 is Rs. NIL (previous year Rs. NIL).

7. Figures for the previous year have been regrouped/reclassified wherever necessary.

8.1 Effect of Ind AS Adoption on the Statement of Cash Flows for the year ended March 31, 2017

There was no significant items between cash flow prepared under IGAAP and those prepared under Ind AS.

Notes:

1. Mark to Market of Forward Contracts instead of Amortisation of Premium: As per I-GAAP the premium or discount arising at the inception of the contract was amortised as expense or income over the life of the contract, however as per Ind-AS forward contract is marked to market through statement of profit and loss.

2. Unwinding of Interest for Interest free loan to Subsidiary: As per I-GAAP transaction was recorded at its transaction price, however as per Ind AS interest free loan given to subsidiary is required to be fair valued. Difference between fair value and transaction price is treated as additional investment in a subsidiary.

3. Deferral of Revenue as per Ind AS 18: In line with requirements of Ind AS 18 certain revenue was deferred.

4. Re-measurements of Defined Benefit Obligations: Under previous GAAP, actuarial gains and losses were recognized in statement of profit and loss, however under Ind AS, actuarial gains and losses forming part of remeasurement of the net defined benefit plan asset/obligation are recognized in the Other Comprehensive Income. Being reclassification from statement of profit and loss to other comprehensive income it will not have any impact on total comprehensive income or equity as such.

5. Expected Credit Loss in Trade Receivables: As per I-GAAP provision against trade receivable was made on case-to-case assessment of parties. As per Ind AS 109 provision is made against trade receivables as per expected credit loss model.

6. FV of Equity Investments Classified in OCI: Under I-GAAP current investments were carried at cost less diminution, if any, and long-term investments at cost less permanent diminution, if any. As per Ind AS all investments except investment in group company have been fair valued in accordance with Ind AS 109.

7. Previous year I-GAAP figures have been re-grouped/re-classified to make them comparable with presentation as per Ind AS.

Source : Dion Global Solutions Limited
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