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Modern Dairies

BSE: 519287|ISIN: INE617B01011|SECTOR: Food Processing
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Mar 14
Accounting Policy Year : Mar '15
BACKGROUND AND NATURE OF OPERATIONS
 
 Modern Dairies Limited (''the Company'') was incorporated in 1992 and is
 primarily engaged in business of manufacturing/ processing of milk and
 milk products like milk powders, Cheese, Butter, Pure ghee and other
 milk based products like Casein, Whey protein concentrate and Lactose,
 etc.
 
 (i) Basis of preparation
 
 These financial statements have been prepared under the historical cost
 convention on a going concern basis, on the accrual basis of accounting
 in accordance with the Generally Accepted Accounting Principles in
 India (Indian GAAP).  Indian GAAP comprises mandatory accounting
 standards as specified under Section 133 of the Companies Act, 2013
 (''the Act''), read with Rule 7 of the Companies (Accounts) Rules, 2014
 (as amended) and other accounting pronouncements of The Institute of
 Chartered Accountants of India.
 
 All assets and liabilities have been classified as current or
 non-current as per the Company''s normal operating cycle and other
 criteria set out in the Revised Schedule III to the Companies Act,
 2013. Based on the nature of services and the time between the
 acquisition of assets for processing and their realisation in cash and
 cash equivalents, the Company has ascertained its operating cycle as
 twelve months for the purpose of current/ non-current classification of
 its assets and liabilities.
 
 (ii) Use of estimates
 
 In preparing the financial statements in conformity with accounting
 principles generally accepted in India, management is required to make
 estimates and assumptions that affect the reported amounts of assets
 and liabilities, the disclosure of contingent liabilities at the date
 of the financial statements and the reported amounts of revenues and
 expenses during the reporting period. Actual results could differ from
 those estimates. Any revisions to accounting estimates are recognised
 in the current and future periods.
 
 (iii) Fixed assets
 
 Tangible assets
 
 Fixed assets are stated at historic cost less accumulated depreciation
 and amortization and impairment losses (if any).
 
 Cost comprises the purchase price and any attributable costs of
 bringing the assets to their working condition for their intended use.
 
 Borrowing costs directly attributable to acquisition or construction of
 fxed assets, which necessarily take a substantial period of time to get
 ready for their intended use, are capitalized.
 
 Intangible assets
 
 Software which is not an integral part of the related hardware is
 classifed as an intangible asset.
 
 (iv) Depreciation and amortization
 
 Depreciation on fixed assets for the year ended 31st March, 2014 is
 provided on straight line method as per the useful life of assets
 estimated by the management, which correspond to the rates prescribed
 under Schedule xIV of the Companies Act, 1956.
 
 Pursuant to the notification in Part II of Schedule II to the Companies
 Act, 2013, effective from 1st April, 2014, the management has
 reassessed and changed, wherever necessary the useful lives to compute
 depreciation, to conform to the requirements of the Companies Act,
 2013. Depreciation on fixed assets for year ended 31st March, 2015 is
 provided on straight line method based on life prescribed as per
 Schedule II of the Companies Act, 2013.  Revised useful lives of assets
 are as below:
 
 (v) Investments
 
 - Investments that are readily realizable and intended to be held for
 not more than a year are classified as current investments. All other
 investments are classified as long term investments.
 
 Current investments are carried at lower of cost and Fair value
 determined on an individual investment basis. Long- term investments
 are carried at cost; however, provision for diminution in value is made
 to record other than temporary diminution in the value of such
 investments.  Profit/Loss on sale of investments is computed with
 reference to their average cost of investments.
 
 (vi) Inventories
 
 Inventories are valued as follows:
 
 a) Raw materials, packing materials, store and spare parts
 
 Lower of cost and net realizable value, Cost includes purchase price,
 taxes (those subsequently recoverable by the Company from the concerned
 revenue authorities), freight inwards and other expenditure incurred in
 bringing such inventories to their present location and condition. Cost
 is determined on first -in first-out basis.  However, materials and other
 items held for use in the production of inventories are not written
 down below cost if the finished products in which they will be
 incorporated are expected to be sold at or above cost.
 
 b) Work-in Progress and Finished goods
 
 Lower of cost and net realizable value. Cost includes direct materials
 and labour and a proportion of manufacturing overheads based on normal
 operating capacity. Cost is determined on monthly weighted average
 basis.
 
 c) By-Products
 
 At net realisable value. Net realisable value is the estimated selling
 price in the ordinary course of business, less estimated costs of
 completion and to make the sale.
 
 (vii) Revenue recognition
 
 Revenue is recognised to the extent that it can be reliably measured
 and is probable that the economic benefits will flow to the Company.
 
 Sale of goods
 
 Revenue from sale of goods is recognised when the significant risks and
 rewards of ownership of the goods are transferred to the customer. It
 includes excise duty wherever applicable but excludes value added tax/
 sales tax and is net of sales returns. Excise duty shown as deduction
 from revenue is the amount that is included in the amount of revenue
 and not the entire amount of liability that arose during the year.
 
 Interest income
 
 Revenue is recognized on a time proportion basis taking into account
 the amount outstanding and the applicable rate of interest.
 
 Dividends
 
 Dividend is recognised if the right to dividend is established by the
 balance sheet date.
 
 Export benefit/incentives
 
 Export benefits entitlements under the ''Duty Entitlement Pass Book''
 Scheme are recognised in the statement of Profit and loss when the right
 to receive credit as per the terms of the scheme is established in
 respect of the exports made.
 
 (viii) Foreign exchange transactions
 
 Investments in foreign entities are recorded at the exchange rate
 prevailing on the date of making the investment. Transactions in
 foreign currencies are recorded at the rates prevailing on the date of
 the transaction and monetary items denominated in foreign currency are
 restated at the rate prevailing on the balance sheet date.
 
 Differences arising on foreign currency translations of transactions
 settled during the year are recognised in the statement of Profit and
 loss.
 
 Forward exchange contracts not covered under Accounting Standard 11
 ''Effect of change in Foreign Exchange Rates'', that are entered to hedge
 the foreign currency risk of highly probable forecast transactions and
 unrecognized firm commitments are marked to market at the balance sheet
 date and exchange loss is recognised in the statement of Profit and loss
 immediately. Any gain is ignored and not recognised in the financial
 statements, in accordance with the principles of prudence enunciated in
 Accounting Standard 1- Disclosure of Accounting Policies.
 
 - The premium or discount arising at the inception of the forward
 contracts other than those entered into to hedge the foreign currency
 risk of firm commitments or highly probable forecast transactions is
 amortised as expense or income over the life of the contract.
 
 Any Profit or loss arising on cancellation or renewal of forward
 exchange contracts is recognised as income or expense for the year.
 
 (ix) Employee benefits
 
 Contribution to Provident Fund
 
 The Company makes contributions to statutory provident fund in
 accordance with Employees Provident Fund and Miscellaneous Provisions
 Act, 1952. Provident Fund is a defined contribution scheme and the
 contributions are charged to the statement of Profit and loss of the
 year when the contributions to the respective funds are due.  There are
 no other obligations other than the contribution payable to the Fund.
 
 Gratuity
 
 Gratuity liability are defined benefit obligations made at the end of
 each financial year and are provided for on the basis of an actuarial
 valuation on projected unit credit method made at the end of each
 financial year.
 
 Actuarial gains/ losses are immediately taken to the statement of Profit
 and loss and are not deferred.
 
 Compensated absences
 
 The employees of the Company are entitled to compensated absences which
 are non-accumulating in nature.  Expense on non-accumulating
 compensated absences is recognized in the period in which the absence
 is occurring.
 
 (x) Taxes on income
 
 Tax expense comprises current and deferred tax. Current income tax is
 measured at the amount expected to be paid to the tax authorities in
 accordance with the Indian Income Tax Act, 1961. Deferred income tax
 reflect the impact of current year timing differences between the
 taxable income and accounting income for the year and reversal of
 timing differences of earlier years.
 
 Deferred tax is measured based on the tax rates and tax laws enacted or
 substantively enacted at the balance sheet date. Deferred tax assets
 are recognized only to the extent that there is reasonable certainty
 that sufficient future taxable income will be available against which
 such deferred tax assets can be realised in situations where the
 Company has unabsorbed depreciation or carry forward tax losses, all
 deferred tax assets are recognised only if there is virtual certainty
 supported by convincing evidence that they can be realised against
 future taxable Profits.
 
 At each balance sheet date, the Company re-assesses unorganized
 deferred tax assets. It recognises unrecognised deferred tax assets to
 the extent that it has become reasonably certain or virtually certain,
 as the case may be, that sufficient future taxable income be available
 against which such deferred tax assets can be realised.
 
 The carrying amount of deferred tax assets are reviewed at each balance
 sheet date. The Company writes down the carrying amount of a deferred
 tax asset to the extent that is no longer reasonably certain or
 virtually certain, as the case may be, that sufficient future taxable
 income will be available against which deferred tax asset can be
 realised. Any such right-down is reversed to the extent that it becomes
 reasonably certain or virtually certain, as the case may be, that
 suffcient future taxable income will be available.
 
 Minimum Alternate Tax (''MAT'') credit is recognised as an asset only
 when and to the extent there is convincing evidence that the company
 will pay normal income tax during the specified period. In the year in
 which the MAT credit becomes eligible to be recognized as an asset in
 accordance with the recommendations contained in Guidance Note issued
 by the Institute of Chartered Accountants of India (''ICAI''), the said
 asset is created by way of a credit to the statement of Profit and loss
 and shown as MAT Credit Entitlement. The Company reviews the same at
 each balance sheet date and writes down the carrying amount of MAT
 Credit Entitlement to the extent there is no longer convincing evidence
 to the effect that Company will pay normal income-tax during the
 specified period.
 
 (xi) Contingent liabilities and provisions
 
 The Company makes a provision when there is a present obligation as a
 result of a past event where the outflow of economic resources is
 probable and a reliable estimate of the amount of the obligation can be
 made.  A disclosure is made for a contingent liability when there is a
 
 i) Possible obligation, the existence of which will be confirmed by the
 occurrence/non-occurrence of one or more uncertain events, not fully
 with in the control of the Company; ii) Present obligation, where it is
 not probable that an outflow of resources embodying economic benefits
 will be required to settle the obligation; (iii) Present obligation,
 where a reliable estimate cannot be made.
 
 (xii) Earnings per share
 
 Basic earnings per share are calculated by dividing the net Profit or
 loss for the period attributable to equity shareholders (after
 deducting preference dividends and at attributable taxes) by the
 weighted average number of equity shares outstanding during the period.
 Partly paid equity shares are treated as a fraction of an equity share
 to the extent that they were entitled to participate in dividends
 relative to a fully paid equity share during the reporting period. The
 weighted average numbers of equity shares outstanding during the period
 are adjusted for events of bonus issue and share split.
 
 For the purpose of calculating diluted earnings per share, the net
 Profit or loss for the period attributable to equity shareholders and
 the weighted average number of shares outstanding during the period are
 adjusted for the effects of all dilutive potential equity shares.
 
 (xiii) Impairment of assets
 
 The Company assesses at each balance sheet date whether there is any
 indication that an asset may be impaired.  If any such indication
 exists, the Company estimates the recoverable amount of the asset. If
 such recoverable amount of the asset or the recoverable amount of the
 cash generating unit to which the asset belongs is less than its
 carrying amount, the carrying amount is reduced to its recoverable
 amount. The reduction is treated as an impairment loss and is
 recognised in the statement of Profit and loss. If at the balance sheet
 date there is an indication that if a previously assessed impairment
 loss no longer exists, the recoverable amount is reassessed and the
 asset is reflected at the recoverable amount subject to a maximum of
 depreciated historical cost.
 
 (xiv) Government grants and subsidies
 
 Grants and subsidies from the government are recognized when there is
 reasonable assurance that the grant/ subsidy will be received and all
 attaching conditions will be complied with.
 
 Government grants related to revenue are recognised on systematic basis
 in the statement of Profit and loss over the periods necessary to match
 them with the related cost which they are intended to compensate. Where
 the grant or subsidy relates to an asset, its value is deducted in
 arriving at the carrying amount of the related asset.  Government
 grants of the nature of promoters'' contribution are credited to capital
 reserve and treated as apart of shareholders'' funds.
 
 (xv) Cash and cash equivalents
 
 Cash and cash equivalents comprise cash and deposit with banks. The
 Company considers all highly liquid investments with a remaining
 maturity at the date of purchase of three months or less and that are
 readily convertible to known amounts of cash to be cash equivalents.
 
 Note:
 
 i) Excise duty: During 2005-06, the Company had availed CENVAT credit
 of M 77.21 lacs on certain steel and other similar items (i.e.
 ''supporting goods'') as inputs used in fabrication of storage tanks and
 other structures. As per the Excise Authorities, this credit of M 77.21
 lacs pertains to inputs used in fabrication of milk storage tanks and
 other supporting structures of storage tanks and has therefore denied
 all the aforesaid credit on the ground that the inputs and goods
 mentioned above neither qualify as capital goods nor inputs as per
 CENVAT Credit Rules, 2004 for manufacture of the final products viz.
 Casein and Lactose. The Company has deposited demand of M 77.21 lacs
 together with interest thereon of M 5.19 lacs under protest. The case
 is pending in CESTAT and is awaited for regular hearing.
 
 Further during the year 2007-08 to 2009-10 the Company also availed
 CENVAT credit of M 78.30 lacs on certain steel items & other items as
 input used in fabrication of storage tanks. The excise authority
 (Panchkula) issued show cause notice for denial of the said CENVAT
 credit. The Company fled an appeal before Commissioner and commissioner
 confirmed a demand of CEVAT Credit amounting to M 78.30 lacs along with
 a penalty of amount equal to the Cenvat Credit, interest of M 4.57 lacs
 and M 17.68 lacs of CENVAT Credit wrongly taken and reversed.  The
 Company had fled appeal before CESTAT and hearing on stay application
 was fixed on 14th October, 2012 which was adjourned to 11th December,
 2012 and thereafter on the request of department representative the
 same was adjourned to 12th February, 2013. On this date, CESTAT ordered
 to deposit M 15 lacs as redeposit within 12 weeks which was deposited
 by Company on 15th May, 2013.
 
 Based upon the legal advise obtained by the Company, the management
 believes that the Company has reasonably good chances of winning the
 case and hence currently no provision has been recorded.
 
 ii) Custom Duty: During 2011-12, the Company had exported 17.070 MT of
 Cheese Curd to a customer in Saudi Arabia and out of total 17.070 MT
 Cheese Curd of 14.218 MT was rejected by customer due to some
 functionality issues in stretching. The Company re-imported the goods.
 The Additional Commissioner of Customs (Imports) vide its order dated
 7th May, 2012 confiscated the goods and imposed a penalty of M 3.6 lacs
 and redemption fine of M 7 lacs stating that re-imported goods had
 violated the prescribed condition under the Food Safety and Standards
 Act, 2006 (FSA) and hence were liable for confiscation. The Company
 deposited penalty of M 3.6 lacs and redemption fine of M 7 lacs on and
 got the goods released. The Company filled an appeal before Commissioner
 of Customs (Appeals), Mumbai against the order of Additional
 Commissioner of Customs (Imports) imposing penalty and fne stating that
 re-import was not against the provisions of FSA Act.  The Commissioner
 of Customs (Appeals), Mumbai upheld the order of Additional
 Commissioner of Customs (Imports) and rejected the claim of Company
 vide order dated 27th June, 2013. The Company aggreived by the order of
 Commissioner of Customs (Appeals), Mumbai has preferred an appeal
 before CESTAT, Mumbai on 10th October, 2013. The case is pending in
 CESTAT and is awaited for regular hearing.
 
 (iii) Entry tax: Local Area Development Tax (''LADT'') was imposed in the
 state of Haryana with effect from 1st April, 2000. In 2007-08, the LADT
 was quashed and declared ultra-vires by the Hon''ble High Court of
 Punjab and Haryana in its order dated 1st April, 2008. The State
 Government replaced the LADT with Entry Tax and it was also declared
 ultra-vires by the Hon''ble High Court of Punjab and Haryana. The State
 Government fled an appeal in the Hon''ble Supreme Court. The Hon''ble
 Supreme Court passed an order dated 30th October, 2009, directing all
 assesses to file all the returns and staying recovery of tax till final
 order. The final order is still awaited.
 
 (iv) Income tax: During the year ended 31st March, 2012, the Income Tax
 Department carried out assessment for assessment years 2006-07, 2008-09
 and 2009-10 and issued a notice of demand u/s 156 of the Income Tax
 Act, 1961 for M 6.06 lacs, M 0.40 lacs and M 4.95 lacs respectively.
 For assessment years 2006-07 and 2008-09 Company has preferred an
 appeal with Income Tax Appellate Tribunal (ITAT), New Delhi against the
 order of Commissioner of Income Tax (Appeals). Whereas for assessment
 year 2009-10 the Company''s appeal is pending with Commissioner of Income
 Tax (CIT), Gurgaon.
 
 The provisions of ''The Haryana Murrah Buffalo and Other Milch Animal
 Breed (Presentation and Development of Animal Husbandry and Dairy
 Development Sector) Act, 2001 (''Act'')'', requires every milk processing
 company to pay milk cess not exceeding fifteen paisa per liter on
 registered capacity of a milk plant under Milk and Milk Product Order,
 1992. Accordingly Haryana State Government, vide its notification no.
 6388-AH-4-2001/16142 dated 9th September, 2001, imposed a milk-cess of
 ten paisa per liter on the registered capacity of plants.  In 2001, the
 Company fled a writ petition before the Hon''ble High Court of Punjab
 and Haryana challenging the imposition of such cess as against the
 Constitution of India. The Hon''ble High Court of Punjab and Haryana
 issued a stay order dated 9th July, 2004 on such imposition and
 directed the Company to continue to pay 1/3rd of the total milk-cess
 amount to the State Government on registered capacity till the final
 outcome of the case. Till 2004-05, the Company had provided milk-cess
 amounting to M 353.75 lacs in the books of account. In 2004, a similar
 cess was levied in the state of Punjab by the Government of Punjab
 under the Punjab Dairy Development Board Ordinance, 2000, and was
 upheld unconstitutional by the Hon''ble Supreme Court. Based upon this
 order of the Hon''ble Supreme Court, the stay order from the Hon''ble
 High Court of Punjab and Haryana and as per the legal advice obtained
 by the Company at that point of time, the Company discontinued the
 provision of milk-cess in the books of account as it was believed that
 the chances of cess being levied on the Company for the period after
 the year 2004-2005 of M 421.88 lacs would be remote and hence no
 provision against this was considered necessary. On 28th May, 2010 the
 Hon''ble High Court of Punjab and Haryana dismissed the Company''s writ
 petition and upheld the levy of cess by State Government on milk
 plants. On 18th August, 2010 the Company fled a review application with
 the Hon''ble High Court. Subsequently, the Company''s review application
 with Hon''ble High Court of Punjab and Haryana has been dismissed. On
 18th October, 2010 the Company also fled a special leave petition
 before the Hon''ble Supreme Court challenging the impugned judgment. The
 matter was listed before the Hon''ble Supreme Court on 5th August, 2011.
 The Hon''ble Supreme Court has issued a notice to the Govt.  of Haryana
 on Special Leave Petition fled by the Company as well as on the
 application for interim stay. On 20th April, 2012, the Government of
 Haryana fled its reply and The Hon''ble Supreme Court has ordered the
 case to be put before the Hon''ble Bench. The Company had also received
 a notice dated 1st April, 2011 from Semen Bank Officer, Haryana
 Livestock Development Board, Karnal demanding the payment of M 21,25.75
 lacs as arrears of Cess and M 1,28.72 lacs towards interest on the full
 unpaid amount for the period 1st January, 2011 to 31st March, 2011.
 However, The Hon''ble Supreme Court in its order dated 7th September,
 2012 granted an interim stay on impugned judgment passed by The Hon''ble
 High Court, subject to petitioners depositing 50% of the cess levied
 and demanded by the State Government for expediting the hearing in this
 case. Based on the order of The Hon''ble Supreme Court, the Company has
 deposited 50% of milk cess liability amounting to M 5,91 lacs till 7th
 September, 2012 (date of the order) after which there has been no
 hearing held in the Supreme Court till date.
 
 c) Interest and claims by customers may be payble as and when the
 outcome of the related matters are finally determined and hence not been
 included above. Management based on legal advice and historical trends
 believes that no material liability will devolve on the company in
 respect of these matters.
 
 d) Particulars of unhedged foreign currency exposure as at the
 reporting date: Unhedged foreign currency exposure as at year end
Source : Dion Global Solutions Limited
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