Permanent Magnets

Company Overview
 
Permanent Magnets Limited is one of the flagship Companies of Taparia Group, Mumbai and one of the
leading manufacturers of Alnico Cast Magnets and Yoke Assemblies, Parts and accessories of electricity meters
in the world. PML has started with supplies of Gas meters parts and accessories. The assembly includes Die
cast parts, Plastic parts, Brass parts, Bi-metal parts, Stainless steel parts and special copper alloy parts.
The combination is of these parts fitted together is further aligned under special conditions to be directly
used in gas meters. PML is adding similar range of product and forward integration of parts to assemblies in
current business based on customer demand. Company has good customer base in India as well as in Europe, USA,
South America and South East Asia. Permanent Magnets Limited (the ‘Company’) is listed on the
Bombay Stock Exchange (BSE).The Significant Accounting Policies are as follows:
 
1. In the opinion of Directors, the Current Assets, Loans & Advances and Investments have a value on
realization in the ordinary course of business, which is at least equal to the amount at which they are
stated in the Balance Sheet.
 
‘management has tried to resolve the issues of Central Excise Loan with higher authorities of
Ministry of Finance, Government of India and made various representations, but did not get proper response as
above scheme has been over and no proper documents are available with ministry of finance, Government of
India. Management of PML is providing simple interest on outstanding dues of above loan even though this was
interest free. Loan Principal amount repaid on during FY 17-18.
 
2.    Honorable Bombay High Court has passed winding up order on the petition of M/s Savino Del Beno
“Petitioner” (Freight forwarder agent & CHA of company).
 
Facts of the case - During the year 2010, Petitioner has raised bills for their services but failed to
submit Original EP copy to the company which is essential documents to claim Excise rebate and accordingly
company withheld their payment. Subsequently, petitioner has filed winding up petition against the Company of
dues of INR 12,95,305/-. Honorable Bombay High Court has passed an order allowing the petition and issued
direction for appointment of official liquidator in winding up order.
 
On the appeal against this order made by the company before Honorable Bombay High Court, Honorable Bombay
High Court has given interim stay order against the winding up order passed (against the Company) dated
15/04/2015. Company has deposited INR 19,05,179/- with interest as per direction of honorable Bombay High
Court. Matter is pending before Bombay High Court. Next hearing in this matter shall come up as per listing
of the court.
 
Amount deposited of INR 19,05,179/-with court is shown in Balance sheet under Current Assets.
 
3.    Balance under the head ‘Trade Receivables’, ‘Trade Payables’, ‘Loan
and Advances Receivable and Payable’ are shown as per books of accounts subject to confirmation by
concerned parties and adjustment if any, on reconciliation thereof. Confirmation letters have been issued to
parties for confirmation of balances with the request to confirm or send / comments by the stipulated date
failing which the balances as appearing in the letter would be taken as confirmed. Confirmation letters have
been received in very few cases; however no adverse communication has been received from the parties.
 
4.    During the year INR 15.77 Lakh (P. Y. INR 104.40 Lakh credit) has been debited to the Statement of
Profit and Loss in respect of the Foreign Exchange Differences.
 
5.    Segment reporting
 
The Chief Operational Decision Maker identifies and monitors the operating results of its business
segments separately for purpose of making decision about resource allocation and performance assessment.
Segment performance is evaluated based on profit or loss and is measured consistently with profit or loss in
the financial statements. The Operating segments have been identified on the basis of the nature of
products/services.
 
6.    Leases:
 
The company has operating lease agreements, primarily for leasing office space. Most of these lease
agreements provide for cancellation by either party with a notice period ranging from 30 days to 120 days and
contain a clause for renewal of lease agreement at the option of the company. There are no non-cancelable
operating leases. There are no assets are taken on finance lease.
 
During the year the Company has recognized following rental expenses
 
7. Related Party Disclosure:
 
As per the Ind AS 24 details of related parties & transactions with them are given below:
 
Note: Reimbursement of expenses incurred by the related parties for and on behalf of the company and
vice-versa has not been included above. Provision for Gratuity being on actuarial valuation, is not included
as separate figure for related party is not available.
 
Note: Previous year’s figures are given in italic
 
8. Disclosure as required by Ind AS-19, Employee Benefits
 
I.    Gratuity
 
The Company provides gratuity for employees in India as per the Payment of Gratuity Act, 1972. The amount
of gratuity payable on retirement/termination is the employees last drawn basic salary per month computed
proportionately for 15 days salary multiplied for the number of years of service. The company contribution
“on the basis of actuarially ascertained by the Independent Actuaries” is charged to profit and
loss account. The amount debited to profit and loss account is INR 10.67 Lakhs Other long-term employee
benefits:
 
II.    Leave encashment
 
The Company provides for the expected cost of accumulating paid leave which can be carried forward and
used in future periods by the employees. The obligation for accumulating paid leaves has been recognised at
the end of the reporting period.
 
In respect of Gratuity & Leave Encashment, provision is made based on the actuarial valuation by an
independent actuary. The following information as required under Ind AS-19 are based on the report of the
Actuary:
 
9.    Component Accounting for Fixed Assets
 
In opinion of the management, based on internal verification of the assets of the company, there is no
major part, in case of any asset, which is significant to total cost of the asset and whose useful life is
different from the useful life of the asset. Hence, there is no change in accounting of fixed assets and
depreciation thereon as required under Ind AS 16: Property, Plant and Equipment.
 
10.    Segment Reporting :
 
The company is operating in single segment i.e. manufacturing of Cast Magnets& part and accessories of
electricity meters There have been no other reportable segments identified by Chief Operating Decision Maker
and hence no segment reporting is presented under IND AS 108.
 
11.    Impairment of Assets:
 
During the year under consideration, none of the assets has been impaired.
 
12. Micro, Small and Medium Enterprises Development Act, 2006:
 
As per requirement of Section 22 of Micro, Small & Medium Enterprises Development Act, 2006 following
information is disclosed to the extent identifiable:
 
The information has been given in respect of such vendors to the extent they could be identified as micro
and small enterprises on the basis of information available with the company.
 
13. Financial instruments and risk management Fair values
 
1.    The carrying amounts of trade payables, other financial liabilities (current), borrowings
(current), trade receivables, cash and cash equivalents, other bank balances and loans are considered to be
the same as fair value due to their short term nature.
 
2.    Borrowings (non-current) consists of loans from banks and government authorities, other financial
liabilities (noncurrent) consists of interest accrued but not due on deposits other financial assets consists
of employee advances where the fair value is considered based on the discounted cash flow.
 
The fair value of financial assets and liabilities is included at the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than in a forced or liquidation
sale.
 
Set out below, is a comparison by class of the carrying amounts and fair value of the Company’s
financial instruments, other than those with carrying amounts that are reasonable approximation of fair
values:
 
*Fair value of instruments is classified in various fair value hierarchies based on the following three
levels:
 
Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices.
 
Level 2: The fair value of financial instruments that are not traded in an active market is determined
using valuation techniques, which maximise the use of observable market data and rely as little as possible
on entity specific estimates. If significant inputs required to fair value an instruments are observable, the
instrument is included in Level 2.
 
Level 3: If one or more of the significant inputs are not based on observable market data, the
instruments is included in level 3
 
Management uses its best judgement in estimating the fair value of its financial instruments. However,
there are inherent limitations in any estimation technique. Therefore, for substantially all financial
instruments, the fair value estimates presented above are not necessarily indicative of the amounts that the
Company could have realized or paid in sale transactions as of respective dates. As such, the fair value of
financial instruments subsequent to the reporting dates may be different from the amounts reported at each
reporting date. In respect of investments as at the transaction date, the Company has assessed the fair value
to be the carrying value of the investments as these companies are in their initial years of operations
obtaining necessary regulatory approvals to commence their business.
 
14. Financial risk management
 
The Company is exposed to market risk (fluctuation in foreign currency exchange rates, price and interest
rate), liquidity risk and credit 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.
 
(A)    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 of currency risk, interest rate risk and price
risk. Financial instruments affected by market risk include loans and borrowings, trade receivables and trade
payables involving foreign currency exposure. The sensitivity analysis in the following sections relate to the
position as at March 31, 2018 and March 31, 2017.
 
The analysis exclude the impact of movements in market variables on the carrying values of financial
assets and liabilties.
 
The sensitivity of the relevant profit or loss item is the effect of the assumed changes in respective
market risks. This is based on the financial assets and financial liabilities held at 31 March 2018 and 31
March 2017.
 
(i)    Foreign currency exchange rate 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 relates primarily to the trade/other payables, trade/other receivables assets/liabilities. The
risks primarily relate to fluctuations in US Dollar & EURO against the functional currencies of the Company.
To mitigate the Group’s exposure to foreign currency risk, cash flows are monitored and natural hedge
is used. (Amounts to be paid and received in a specific currency are expected to largely offset one another).
The Company evaluates the impact of foreign exchange rate fluctuations by assessing its exposure to exchange
rate risks.
 
(ii)    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 change in market interest rates. The Company’s exposure to the risk of changes in
market interest rates relates primarily to the Company’s debt obligations with floating interest rates.
As the Company has certain debt obligations with floating interest rates, exposure to the risk of changes in
market interest rates are dependent of changes in market interest rates. Management monitors the movement in
interest rate and, wherever possible, reacts to material movements in such rates by restructuring its
financing arrangement.
 
As the Company has no significant interest bearing assets, the income and operating cash flows are
substantially independent of changes in market interest rates.
 
(B)    Credit Risk
 
Credit risk is the risk arising from credit exposure to customers, cash and cash equivalents held with
banks and current and non-current held-to maturity financial assets.
 
With respect to credit exposure from customers, the Company has a procedure in place aiming to minimise
collection losses. Credit Control team assesses the credit quality of the customers, their financial
position, past experience in payments and other relevant factors. Cash and other collaterals are obtained
from customers when considered necessary under the circumstances.
 
The carrying amount of trade receivables, loans, advances, deposits, cash and bank balances, bank
deposits and interest receivable on deposits represents company’s maximum exposure to the credit risk.
No other financial asset carry a significant exposure with respect to the credit risk. Bank deposits and cash
balances are placed with reputable banks and deposits are with reputable government, public bodies and
others.
 
The credit quality of financial assets is satisfactory, taking into account the allowance for credit
losses.
 
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of
each customer. However, management also considers the factors that may influence the credit risk of its
customer base, including default risk associate with the industry and country in which customers operate.
Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit
limits are defined in accordance with this assessment.
 
An impairment analysis is performed at each reporting date on an individual basis for major receivables.
In addition, a large number of minor receivables are grouped into homogenous groups and assessed for
impairment collectively. The maximum exposure to credit risk at the reporting date is the carrying value of
each class of financial assets. The Company also holds deposits as security from certain customers to
mitigate credit risk.
 
15. First-time adoption of Ind AS Transition to Ind AS
 
These are the Company’s first financial statements prepared in accordance with Ind AS. For periods
up to and including the year ended 31 March 2017, the Company prepared its financial statements in accordance
with Companies (Accounting Standard) Rules, 2006, notified under section 133 of the Act and other relevant
provisions of the Act (Previous GAAP). Accordingly, the Company has prepared financial statements which
comply with Ind AS applicable for periods ending on or after 31 March 2018, together with the comparative
period data as at and for the year ended 31 March 2017. This note explains the principal adjustments made by
the Company in restating its statement of financial position as at 1 April 2016 and its previously published
financial statements as at and for the year ended 31 March 2016 under previous GAAP.
 
Exemptions and Exceptions availed
 
Upon transition, Ind AS 101 permits certain exemptions from full retrospective application of Ind AS. The
Company has applied the mandatory exceptions and certain optional exemptions, as set out below:
 
A.    Ind AS optional exemptions
 
(i)    Deemed cost
 
Ind AS 101 permits a first time adopter to elect to continue with the carrying value for all of its
Property, Plant & 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.
 
Accordingly, the Company has elected to measure all of its Property, Plant & Equipment and Intangible
Assets at their previous GAAP carrying value.
 
(ii)    Impairment of financial assets
 
The Company has applied the exception related to impairment of financial assets given in 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 assets were initially recognised and compared that to the credit
risk as at 01 April 2016.
 
(iii)    Lease
 
Appendix C to Ind AS 17, Leases, requires an entity to assess whether a contract or arrangement contains
a lease. As per Ind AS 17, this assessment should be carried out at inception of the contract or arrangement.
However, the 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.
 
B.    Ind AS mandatory exceptions
 
(i)    Estimates
 
An entity’s estimates in accordance with Ind ASs at the date of transition to Ind As 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. The Company made estimates for following item in accordance with Ind AS at the
date of transition as these were not required under previous GAAP:
 
-    Investment in equity instruments carried at Fair value through Profit and Loss.
 
-    Impairment of financial asset based on expected credit loss model.
 
(ii)    Classification and measurement of Financial Assets
 
Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis
of the facts and circumstances that exist at the date of transition to Ind AS.
 
C.    Reconciliation between previous GAAP and Ind AS (as at 31 March 2017 and 1 April
2016)
 
Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for prior
periods.
 
The following tables represent the reconciliations from previous GAAP to Ind AS.
 
* The previous GAAP figures have been reclassified to conform to Ind AS presentation requirements for the
purposes of this note
 
D. Notes to first-time adoption:
 
i.    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 differences between the
carrying amount of an asset or liability in the Balance Sheet and its tax base. It requires recognition of
tax consequences of differences between the carrying amounts of assets and liabilities and their tax base. As
a result, deferred tax assets have been decreased by INR 2413/- as at 31 March 2017 with a corresponding
increase in retained earnings and net profit respectively.
 
ii.    Re-measurements of post-employment benefit obligations
 
Under Ind AS, re-measurements 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 re-measurements were forming
part of the profit or loss for the year. There is no impact on the total equity as at 31 March 2017.
 
iii.    Other equity
 
Retained earnings as at April 1, 2016 has been adjusted consequent to the above Ind AS transition
adjustments on the date of transition. The company has transferred on April 1,2016 an amount of INR 25.25
Lakh from General reserve to retained earnings as the conditions attached to it are fulfilled as at the date
of transition. However there is no impact on other equity on account of this adjustment.
 
iv.    Other comprehensive income
 
Under Ind AS, all items of income and expense recognized in a period should be included in the profit or
loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are
not recognised in profit or loss but are shown in the statement of profit or loss as ‘other
comprehensive income’ includes remeasurements of defined benefit plans. The concept of ‘other
comprehensive income’ did not exist under previous GAAP
 
v. Cash flow from financing activities
 
Other bank balances (disclosed under Note 11 of Financial statement) are not considered as part of cash
and cash equivalents under Ind AS and the movement of other bank balances is the variance in net
increase/decrease in cash and cash equivalents as at 31 March 2017.
 
16. The previous year’s figures have been regrouped, rearranged and reclassified wherever necessary
to conform to the current year presentation.