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Moneycontrol.com India | Notes to Account > Textiles - Readymade Apparels > Notes to Account from Indian Terrain Fashions - BSE: 533329, NSE: INDTERRAIN
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Indian Terrain Fashions

BSE: 533329|NSE: INDTERRAIN|ISIN: INE611L01021|SECTOR: Textiles - Readymade Apparels
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Notes to Accounts Year End : Mar '18

Notes:

1. Intangible assets under development mainly comprises of amounts paid towards development of ERP Software

2. Property, plant and equipment and Intangible assets have been carried at deemed cost as at 1April, 2016 i.e. measured at carrying value as per previous GAAP

3. Computers include assets capitalised under finance lease – Rs. 0.48 crores (Previous year - NIL). For terms of the finance lease refer note 13(iii).

i) Terms and rights attached to equity shares

The company has one class of equity shares having a par value of Rs. 2 each Each shareholder is eligible for one vote per share held

In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the company after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders

iv) Shares reserved for issuance Employee Stock Options granted

The Employee Stock Option Scheme which was outstanding for exercise were fully exercised during the financial year 2016-17.

Accordingly there were no Stock Options pending for issuance as at 31March, 2017. (Refer Note 36)

v) Shares allotted for consideration other than cash - NIL in last 5 years

vi) The Shareholders of the Company approved the sub-division of each equity share having a face value of Rs. 10/- each into five equity shares having a face value of Rs. 2/- each through postal ballot on 1December, 2015. The record date for the sub-division was December 22, 2015. All shares and per share information in the finance statements reflect the effect of sub-division for each of period presented.

a) The secured term loan availed from State Bank of India has been pre-closed in full in April 2017. Accordingly the entire loan outstanding of Rs. 9 crs in financial year 2016-17 has been grouped under Other Current Liabilities

b) Secured Term loan from Axis Bank Limited represents the vehicle loan and the final instalment was repaid during FY2017-18

c) Secured Term loan from ICICI Bank Limited amounting to Rs. 0.12 crs (Previous Year Nil) represents the vehicle loan availed which carries interest rate of 8.30% p.a. This loan is repayable in 60 monthly installments from the date of the loan. The loan is secured by the hypothecation of the motor vehicle purchased under their assistance.

d) Secured Term loan from others represents:

Loan from Kotak Mahindra Prime Limited (Secured)

Vehicle loan availed from Kotak Mahindra Prime Limited carries interest rate of 10% p.a. This loan is repayable in 60 monthly instalments from the date of the loan. The loan is secured by the hypothecation of the motor vehicle purchased under their assistance.

f) Loan from Hewlett Packard Financial Services India Private Limited (HPFS) (Unsecured)

Unsecured loan from others represents the unsecured loan availed from HP Financial Services

The loan was availed towards financing of Software licenses and development. The loan is repayable in 20 Quarterly instalments and carries an interest rate of 10.8%

Significant estimate

Revenue recognition - Loyalty points

The Company estimates the fair value of points awarded under the loyalty programme by applying statistical techniques. Inputs to the model include making assumptions about expected redemption basis the Company''s historic trends of redemption and expiry period of the points and such estimates are subject to significant uncertainty.

1 Earnings per share

Basic EPS amounts are calculated by dividing the profit for the year attributable to equity holders of the company by the weighted average number of equity shares outstanding during the year.

Diluted EPS amounts are calculated by dividing the profit attributable to equity holders by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on conversion of all dilutive potential equity shares into equity shares.

(i) Fair value hierarchy

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 accounting standard. An explanation of each level follows underneath the table.

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments, traded bonds and mutual funds that have quoted price. The fair value of all equity instruments (including bonds) which are traded in the stock exchanges is valued using the closing price as at the reporting period. The mutual funds are valued using the closing NAV.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities, contingent consideration and indemnification asset included in level 3.

There are no transfers between levels 1 and 2 during the year.

The company''s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.

(ii) Valuation technique used to determine fair value

Specific valuation techniques used to value financial instruments include:

- the use of quoted market prices or dealer quotes for similar instruments

- the fair value of foreign currency option contracts is determined using Black Scholes valuation model.

- the fair value of the remaining financial instruments is determined using discounted cash flow analysis.

All of the resulting fair value estimates are included in level 2

Fair value of financial assets and liabilities held at amortised cost

The carrying amounts of trade receivables, trade payables, cash and cash equivalent, other financial liabilities, are considered to be the same as their fair values, due to their short-term nature.

The carrying value of borrowings, security deposits paid and received approximate to fair value.

2 Financial risk management

The company''s activities expose it to market risk, liquidity risk and credit risk.

(A) Credit risk

Company faces credit risk from cash and cash equivalents, deposits with banks and financial institutions and unsecured trade receivables. The company doesn''t face any credit risk with other financial assets

Credit risk management

Credit risk on deposit is mitigated by depositing the funds in reputed public sector bank.

For trade receivables, the primary source of credit risk is that these are unsecured. The Company sells the products to customers only when the collection of trade receivables is certain and whether there has been a significant increase in the credit risk on an on-going basis is monitored throughout each reporting period. As at the balance sheet date, based on the credit assessment the historical trend of low default is expected to continue. Historical trends showed as at the transition date and 31st March 2017 company had no significant credit risk.

(B) Liquidity risk

Objective of liquidity risk management is to maintain sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due. Management monitors rolling forecasts of the company''s liquidity position (comprising the undrawn borrowing facilities below) and cash and cash equivalents on the basis of expected cash flows. The company''s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal requirements.

The credit facilities may be drawn at any time by the Company. Subject to the continuance of satisfactory credit ratings, the loan facilities may be withdrawn at any time by the Bank

ii) Maturities of financial liabilities

The tables below analyses the company''s financial liabilities into relevant maturity groupings based on their contractual maturities

The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months are equal to their carrying balances as the impact of discounting is insignificant.

(C) Market risk

The only risk that the company faces with respect to market risk is fluctuation in foreign currency movements against INR

Foreign currency risk

The company activities exposes it to foreign exchange risk arising from foreign currency transactions, primarily with respect to the USD. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the company''s functional currency (INR). The risk is measured through a forecast of highly probable foreign currency cash flows.

3 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.

Consistent with others in the industry, the company monitors capital on the basis of the following gearing ratio:

Net debt (total borrowings net of cash and cash equivalents) divided by Total ''equity'' (as shown in the balance sheet).

Loan covenants

Under the terms of borrowings, the company is required to comply with the following financial covenants:

Minimum Current Ratio of 2.21

The company has complied with the above covenant throughout the year

4 Share based payments (a) Employee option plan

The Shareholders in the Annual General Meeting held on 30th September 2011, have approved the issue of 11,16,000 Options

under the Scheme titled Employee Stock Option Scheme (ESOP) 2011 to Key Managerial Executives of the Company.

Each Option comprises one underlying Equity Share. The Details of the Scheme is provided in the Annexure to the Directors'' Report.

The difference between the Fair Price of the Share underlying the Options on the date of grant and the exercise price of the Options (being the intrinsic value of the option) representing Stock Compensation expense is expensed over the Vesting Period.

Assumptions regarding future mortality for pension and medical benefits are set based on actuarial advice in accordance with published statistics and experience. These assumptions translate into an average life expectancy in years for a pensioner retiring at age :

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the balance sheet.

Risk exposure

Through its defined benefit plans, the company is exposed to a number of risks, the most significant of which are detailed below:

Asset volatility: The plan liabilities are calculated using a discount rate set with reference to bond yields; if plan assets under perform this yield, this will create a deficit.

Changes in bond: A decrease in bond yields will increase plan liabilities, although this will be partially offset by an yields increase in the value of the plans'' bond holdings.

Significant Estimates

The cost of the defined benefit gratuity plan and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates.

Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation. The mortality rate is based on publicly available mortality tables for India. Those mortality tables tend to change only at intervals in response to demographic changes.

5 Transition to Ind AS

These are the Company''s first financial statements prepared in accordance with Ind AS.

The accounting policies set out in note 1 have been applied in preparing the financial statements for the year ended 31s March, 2018, the comparative information presented in these financial statements for the year ended 31March, 2017 and in the preparation of opening Ind AS balance sheet at 1April, 2016 (The company''s date of transition). In preparing its opening Ind AS balance sheet, the company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP or Indian GAAP).

An explanation of how the transition from previous GAAP to Ind AS has affected the company''s financial position, financial performance and cash flows is set out in the following tables and notes.

A. 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.

A.1 Ind AS optional exemptions A.1.1 Deemed cost

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment 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 decommissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets.

Accordingly, the company has elected to measure all of its property, plant and equipment, intangible assets at their previous GAAP carrying values.

A.1.2 Employee Stock Options Plans (ESOP)

Ind AS 102 deals with the accounting and disclosure requirements related to share-based payment transactions. The standard addresses three types of share-based payment transactions: equity-settled, cash-settled, and with cash-alternatives. A first-time adopter is encouraged, but is not required, to apply Ind AS 102 to equity instruments that vested before the date of transition to Ind AS

Accordingly, the company has elected not to remeasure the ESOP vested prior to transition date at fair value.

A.2 Ind AS mandatory exceptions A.2.1 Estimates

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

- Impairment of financial assets based on expected credit loss model.

- Estimate of revenue to be deferred on account of loyalty points

A.2.2 Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification and measurement of financial assets (investment in debt instruments) on the basis of the facts and circumstances that exist at the date of transition to Ind AS.

C: Notes to first-time adoption:

Note 1: Deferred tax

Deferred tax have been recognised on the adjustments made on transition to Ind AS.

Note 2: Remeasurements of post-employment benefit obligations

Under Ind AS, remeasurements i.e. actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognised in other comprehensive income instead of profit or loss. Under the previous GAAP, these remeasurements were forming part of the profit or loss for the year. As a result of this change, the profit for the year ended 31s March, 2017 decreased by Rs. 0.08 crores. There is no impact on the total equity as at 31March, 2017.

Note 3: Security deposits and rent straight lining

Under the previous GAAP, interest free lease security deposits (that are refundable in cash on completion of the 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 the fair value and transaction value of the security deposit has been recognised as prepaid rent.

The rent has been accounted on straight line basis after providing for rent free period and not considering escalations which is in-line with inflation.

Due to the above impact retained earning reduced by Rs. 0.46 crores as at 31s March, 2017 (1April, 2016 Rs. 0.46 crores).

Note 4: Loyalty Points

The company operates a customer reward points program. The programme allows customers to accumulate points products. The points can be redeemed by the customers for free products/reduction in future price of products sold.

Under Ind AS, sales consideration received has been allocated between the products sold and the reward points issued. The consideration allocated to the customer reward points has been deferred and will be recognised as revenue when the reward points are redeemed or lapsed. Accordingly, the company has recognised deferred revenue to the extent of Rs. 0.83 crores as at 31March, 2017 (1st April, 2016 - Rs. 0.48 crores) with corresponding adjustment to retained earnings.

Note 5: Borrowing cost

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 31st March, 2017 have been reduced by Rs. 0.08 crores (1April, 2016 - Rs. 0.11 crores) with a corresponding adjustment to retained earnings. The total equity increased by an equivalent amount. The profit for the year ended 31March, 2017 decreased by Rs. 0.04 crores.

Note 6: Revenue Recognition

Reassessment of revenues under the previous GAAP where there is a right to return - The Company under the previous GAAP recognised revenues net of returns and provisions (where there is a right to return) based on historical trends. In keeping with contemporaneous shift towards a more a retail centric / modern trade business environment, the Company has reassessed its revenue where there is a right to return and has accordingly made changes.

Consequent to the same, the revenues for the year ending 31st March, 2017 has been restated and the impact net of expenses has been correspondingly adjusted to the retained earnings. Profits for the year ended 31s March, 2017 decreased by Rs. 6.42 crs and the total equity decreased by Rs. 15.65 crs as at 31March, 2017 (Rs. 9.23 crs as at 1s April, 2016).

Note 7: Discounts

Under previous GAAP, dealer discounts were shown under selling expenses, As per Ind-AS any form of discounts given has to be netted of to Revenue, consequent to this revenue and other expenses has reduced by Rs. 63.67 crores in the year ended 31March, 2017 and there is no impact in profit or equity to this extent.

6 Segment Information

Chief Operating Decision Makers (CODM) evaluates the company''s performance and allocate resources based on the analysis of various performance indicators of the company as a single unit. Therefore there is single reportable segment for the company.

7 Previous year figures have been regrouped and reclassified wherever necessary to be in conformity with current year disclosure requirements.

The accompanying notes are an integral part of the financial statements

Source : Dion Global Solutions Limited
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