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Moneycontrol.com India | Notes to Account > Textiles - Readymade Apparels > Notes to Account from Kitex Garments - BSE: 521248, NSE: KITEX
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Kitex Garments

BSE: 521248|NSE: KITEX|ISIN: INE602G01020|SECTOR: Textiles - Readymade Apparels
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Notes to Accounts Year End : Mar '18

1) Liquidity Risk

Liquidity risk is the risk that the Company will encounter due to difficulty in raising funds to meet commitments associated with financial instruments that are settled by delivering cash or another financial asset. Liquidity risk may result from an inability to sell a financial asset quickly at close to its fair value.

The company has sound financial strength represented by its aggregate current assets as against aggregate current liabilities and its strong equity base and lower working capital debt.

2) Credit Risk

Credit risk refers to risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company Credit risk arises primarily from financial assets such as trade receivables, other balances with banks and other receivables.

Credit risk arising from balances with banks is limited because the counterparties are banks with high credit ratings.

B Trade Receivables

Trade receivables are typically unsecured and are derived from revenue earned from customers primarily located in India and USA. Credit risk has always been managed by the Company through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.

For trade receivables, as a practical expedient, the company computes credit loss allowance based on a provision matrix. The provision matrix is prepared based on historically observed default rates over the expected life of trade receivables and is adjusted for forward-looking estimates and also takes into account available external and internal credit risk factors.

3) Market Risk

The Company is exposed to market risk through its use of financial instruments and specifically to currency risk and interest rate risk, which result from both its operating and investing activities. A Interest Rate Risk

As the Company is having low debt liabilities and its deferred payment liabilities do not carry interest, the exposure to interest rate risk from the perspective of Financial Liabilities is negligible.

B Foreign Currency Risk

The Company undertakes transactions denominated in foreign currency (mainly US Dollar) which are subject to the risk of exchange rate fluctuations. Financial assets and liabilities denominated in foreign currency, are also subject to reinstatement risks.

The Company uses forward exchange contracts to hedge its exposures in foreign currency arising from firm commitments and highly probable forecast transactions. The carrying amount of foreign currency denominated financial assets and liabilities including derivative contracts, are detailed in Note No.2.41

The following table details the Company''s sensitivity to a 1% increase and decrease in the rupee against the relevant foreign currencies net of forward contracts.

The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year-end for a 1% change in foreign currency rates, with all other variables held constant.

4 Capital Management

For the purpose of the Company''s capital management, capital includes issued capital and all other equity reserves attributable to the equity shareholders of the Company. The primary objective of the Company when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure so as to maximize shareholder value.

The Company''s financial strategy aims to support its strategic priorities and provide adequate capital to its businesses for growth and creation of sustainable stakeholder value. The Company funds its operations through internal accruals. The Company aims at maintaining a strong capital base largely towards supporting the future growth of its businesses as a going concern.

As at 31st March, 2018, the Company has only one class of equity shares and has low debt liabilities. The company is not subject to any externally imposed capital requirements.

5 First Time Adoption of Ind AS

These financial statements, for the period ended 31st March 2018, are the first financial statements prepared by the company in accordance with Ind AS. For periods up to and including the year ended 31st March 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).

Accordingly, the company has prepared financial statements which comply with Ind AS applicable for periods ending on or after 31st March 2018, together with the comparative period data as at and for the year ended 31st March 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 1st April 2016, the Company''s 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 1st April 2017 and the financial statements as at and for the year ended 31st March 2017.

Exemptions applied:

Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS.

The Company has applied the following exemptions:

a. Deemed cost for Property, plant and equipment and intangible assets

The Company has elected to continue with the carrying value of all of its property, plant and equipment and intangible assets recognised 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.

b. Determining whether an arrangement contains a lease

Appendix C of Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease, at the inception of the contract or arrangement. However, Company has used Ind AS 101 exemption and assessed all arrangements based for embedded leases based on conditions in place as at the date of transition.

c. Deemed cost for investments in Associate

Ind AS 101 First-time Adoption of Indian Accounting Standards, permits a first-time adopter to elect to continue with the carrying value for investments in Associates 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. Accordingly, the Company has elected to measure its investments in Associate Enterprise in the standalone financial statements at their previous GAAP carrying value.

IND AS mandatory exemptions

The following exceptions have been applied in accordance with Ind AS 101 in preparing the financial statements.

a. Estimates

In accordance with Ind AS, as at the date of transition to Ind AS an entity''s estimates shall be consistent with the estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

Ind AS estimates as at 1 April 2016 are consistent with the estimates as at the same date made in conformity with previous GAAP except impairment of financial assets based on expected credit loss model in accordance with Ind AS at the date of transition this was not required under the previous GAAP.

b. Derecognition of financial assets and financial liabilities

Company has elected to apply the derecognition requirements for financial assets and financial liabilities in Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS.

c. Classification and measurement of financial assets

Company has classified the financial assets in accordance with Ind AS 109 on the basis of facts and circumstances that exist at the date of transition to Ind AS.

2.43A Reconciliations between previous GAAP and Ind AS are as given below

i. Reconciliation of Equity as previously reported on account of transition from the previous Indian GAAP to IND AS :

Details of Measurement and recognition difference between Ind AS and Previous GAAP for the year ended 31st March 2017

1) Proposed dividend

Under Previous GAAP up to 1.4.2016, proposed dividend including dividend distribution tax (DDT), are recognized as liability in the period to which they relate, irrespective of when they are declared. Under Ind AS, proposed dividend is recognized as liability in the period in which it is declared by Company, usually when approved by shareholders in a general meeting or paid.

Therefore, the dividend liability (proposed dividend) including dividend distribution tax liability amounting to Rs.428.77 Lakhs upto 1.4.2016 has been derecognised in the retained earnings as on the date of transition.

Proposed dividend including dividend distribution tax liability amounting to Rs.428.77 Lakhs upto 1.4.2016 which was derecognised as on the transition date, has been recognised in retained earnings during the year ended 31st March,2017 as declared and paid.

2) Remeasurement benefit of defined benefit plans

In the financial statements prepared under Previous GAAP, remeasurement benefit of defined plans (gratuity), arising primarily due to change in actuarial assumptions was recognised as employee benefits expense in the Statement of Profit and Loss. Under Ind AS, such remeasurement benefits relating to defined benefit plans is recognised in Other Comprehensive Income as per the requirements of Ind AS

19 - Employee benefits. Consequently, the related tax effect of the same has also been recognised in Other Comprehensive Income.

For the year ended 31st March, 2017, remeasurement of gratuity liability resulted in a net expenses of Rs.16.18 Lakhs which has now been reclassified from employee benefits expense in the Statement of Profit and Loss and recognised separately in Other Comprehensive Income. This has resulted in increase in employee benefits expense by Rs.16.18 Lakhs and Other Comprehensive Income by Rs.16.18 Lakhs for the year ended 31st March, 2017. Consequently, tax effect of the same amounting to Rs.5.60 Lakhs is also recognised separately in Other Comprehensive Income. The above changes do not affect Equity as at date of transition to Ind AS and as at 31st March, 2017.

3) Government Grant

As per previous GAAP, Government grants specifically relatable to capital assets are credited to the carrying value of the respective asset. As per Ind AS, Government grants relating to depreciable assets are recognised as deferred income and are transferred to the Statement of Profit and Loss over the periods and in the proportions in which depreciation expense on those assets are recognised. Accordingly, unamortised Government Grants under Liabilities includes Rs 965.02 Lakhs as on transition date which has been grossed up in the Property, Plant and Equipment and Rs.120.10 Lakhs received in relation to assets purchased subsequently. Deferred grant amounting to Rs 146.64 Lakhs has been transferred to the Statement of Profit and Loss during the year 2016-17 in the proportions in which depreciation expense on those assets are recognised and the balance in the deferred grant as on 31.03.2017 is Rs 1,134.51 Lakhs (including grossing up of grant amounting to Rs 196.02 Lakhs received during the year). Consequently, depreciation expense for such assets have been increased by the same amount for the year 2016-17. The treatment has no impact in the net profit as per the Statement of Profit and Loss for the year ended 31.03.2017.

4) Other comprehensive income

Under Ind AS, all items of income and expense recognized in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expenses that are not recognized in profit or loss, but are shown in the statement of profit and loss as ''other comprehensive income'' includes remeasurements of defined benefit plans, effective portion of cash flow hedge and change in fair value of equity instruments. The concept of other comprehensive income did not exist under the previous GAAP.

5) Cash Flow Hedge

Under the previous GAAP, Premium or discount arising at the inception of a forward exchange contract is amortised as expense or income over the life of the contract. Exchange differences on such contracts are recognised in the Statement of Profit and Loss in the reporting period in which the exchange rates change. Under Ind AS, forward exchange contract are initially measured at fair value and are remeasured at subsequent reporting dates. Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognised in Other Comprehensive Income in the cash flow hedge reserve and later reclassified to profit or loss when the hedge item affects profit or loss. This has resulted in increase of Other Current Financial Assets by Rs 33.21 Lakhs and corresponding increase in Other Equity by Rs 21.72 Lakhs (Net of tax of Rs 11.49 Lakhs) as at the transition date and subsequent adjustments to Foreign Exchange Rate Translation and deferred tax in the Statement of Profit and Loss on subsequent settlement in the year ended 31.03.2017. This has no impact to the Other Equity as at 31.03.2017 on closing of the forward contract.

6) Equity

Under the Previous GAAP, the Company accounted for long term investments in quoted equity shares as investment measured at cost less provision for other than temporary diminution in the value of investments. Under Ind AS, the Company has designated such investments as Fair Value through Other Comprehensive Income (FVTOCI) investments. Ind AS requires FVTOCI investments to be measured at fair value. At the date of transition to Ind AS, difference between the instruments fair value and Indian GAAP carrying amount amounting to Rs 5.50 Lakhs has been recognised as a separate component of

equity, in the Equity Instrument through Other Comprehensive Income reserve with corresponding adjustment to the carrying value of investments. The amount recognised in Other Comprehensive Income for the year ended 31.03.2017 is Rs 4.62 Lakhs

7) 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. Consequent deferred tax adjustments in relation to transactions referred to above have also been made in the books of accounts.

8) Other matters

In the preparation of these Ind-AS Financial Statements, Company has made several presentation differences between previous GAAP and Ind-AS. These differences have no impact on reported profit or total equity. Accordingly, some assets and liabilities have been reclassified into another line item under Ind-AS at the date of transition. Further, in these Financial Statement, some line items as described differently under Ind-AS compared to previous GAAP although the assets and liabilities included in these line items are unaffected.

9. Figures have been stated to the nearest rupee in Lakhs. Previous GAAP figures have been reclasified to conform to Ind AS presentation requirements.

Source : Dion Global Solutions Limited
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