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Ramkrishna Forgings

BSE: 532527|NSE: RKFORGE|ISIN: INE399G01015|SECTOR: Castings & Forgings
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Notes to Accounts Year End : Mar '18

1. Company Overview

Ramkrishna Forgings Limited (“the Company”) is a Public Company domiciled in India and incorporated under the provisions of the companies act applicable in India. Its shares are listed on National Stock Exchange of India (NSE) and Bombay Stock Exchange (BSE). The registered office of the Company is located at 72, Shakespeare Sarani, Kolkata - 700 017, West Bengal, India.

The Company is primarily engaged in manufacturing and sale of forged components of automobiles, railway, wagons and engineering parts. The Company presently has manufacturing facilities at Jamshedpur, Gamaria, and Saraikela in Jharkhand and at Liluah in West Bengal.

These standalone financial statements were approved and authorised for issue with the resolution of the Board of Directors on May 25, 2018.

2. Basis of Preparation of Financial Statements and Significant Accounting Policies

2.1 Basis of Preparation of financial statements and compliance with Indian Accounting Standards “Ind-AS”

The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time).

For all periods up to and including the year ended March 31, 2017, the Company had prepared its Standalone financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with Rule 7 of the Companies (Accounts) Rules, 2014 (as amended, to the extent applicable) [Previous GAAP]. These financial statements for the year ended March 31, 2018 are the first the Company has prepared in accordance with “Ind-AS”. Further, in accordance with the Rules, the Company has restated its Balance Sheet as at April 1, 2016 and financial statements for the year ended and as at March 31, 2017 also as per Ind-AS. For preparation of opening balance sheet under Ind-AS as at April 1, 2016, the Company has availed exemptions and first time adoption of policies in accordance with Ind-AS 101 ““First-time Adoption of Indian Accounting Standards”“, the details of which have been explained thereof in Note 42.

The financial statements have been prepared on a going concern basis under historical cost convention and on accrual method of accounting, except for certain financial assets/ liabilities measured at fair value as described in accounting policies regarding financial instruments. The financial statements are presented in INR (which is the Company’s functional and presentation currency) and all values are rounded to the nearest lakhs (INR 1,00,000), except when otherwise indicated.

2.2 Current v/s Non Current Classification

$e Company presents assets and liabilities in the Balance Sheet based on current / non-current classification. An asset is classified as current when it is:

a. expected to be realised or intended to be sold or consumed in the normal operating cycle,

b. held primarily for the purpose of trading,

c. expected to be realised within twelve months after the reporting period, or

d. cash or cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current.

A liability is classified as current when:

a. it is expected to be settled in the normal operating cycle,

b. it is held primarily for the purpose of trading,

c. it is due to be settled within twelve months after the reporting period, or

d. there is no unconditional right to defer settlement of the liability for at least twelve months after the reporting period.

All other liabilities are classified as non-current.

Deferred tax assets and liabilities are classified as non-current.

The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has identified twelve months as its operating cycle.

3. Key Accounting Estimates & Judgements

The preparation of the Company’s financial statements requires the management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below:

a. Income taxes

Deferred tax assets are recognised for unused tax losses / MAT carry forward to the extent is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies including amount expected to be paid / recovered for uncertain tax positions (Refer Note 10).

b. Property, Plant and Equipment and Useful Life of PPE and Intangible Assets

Property, Plant and Equipment represent a significant proportion of the asset base of the Company. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. The useful lives and residual values of Company’s assets are determined by the management at the time the asset is acquired and reviewed periodically, including at each financial year end. The life based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technical or commercial obsolescence arising from changes or improvements in production or from a change in market demand of the product or service output of the asset.

c. Defined Benefit Plans

Post-employment benefits represents obligation that will be settled in future and require assumptions to project benefit obligations. Post-employment benefits accounting is intended to reflect the recognition of future benefits cost over the employee’s approximate service period, based on the terms of plans and the investment and funding decisions made. The accounting requires the Company to make assumptions regarding variables such as discount rate, rate of compensation increase and future mortality rates. Changes in these key assumptions can have a significant impact on the defined benefit obligations, funding requirements and benefit costs incurred. Refer Note 41.

d. Fair value measurement of Financial Instruments

When the fair values of financial assets and financial liabilities recorded in the Balance Sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques, including the discounted cash flow model, which involve various judgements and assumptions.

e. Provisions and Contingencies

Legal proceedings covering a range of matters are pending against the Company. Due to the uncertainty inherent in such matters, it is often difficult to predict the final outcomes. The cases and claims against the Company often raise difficult and complex factual and legal issues that are subject to many uncertainties and complexities, including but not limited to the facts and circumstances of each particular case and claim, the jurisdiction and the differences in applicable law, in the normal course of business. The Company consults with legal counsel and certain other experts on matters related to litigations. The Company accrues a liability when it is determined that an adverse outcome is probable and the amount of the loss can be reasonably estimated. In the event an adverse outcome is possible or an estimate is not determinable, the matter is disclosed.

Additional Information:

a) These investments in equity instruments are not held for trading. Upon the application of Ind AS 109, the Company has chosen to designate these investments in equity instruments as at FVTOCI as the management believes that this provides a more meaningful presentation for long term investments, then reflecting changes in fair values immediately in statement of profit and loss. Based on the aforesaid election, fair value changes are accumulated within Equity under “Fair Value changes through Other Comprehensive Income - Equity Instruments”. The Company transfers amounts from this reserve to retained earnings when relevant equity shares are derecognized.

b) Refer Note 38 for information about fair value measurements.

c) The Outstanding Loan of Rs. 1,250.00 Lakhs as on October 31, 2016 to M/s.Globe Forex and Travels Limited was converted into 39,06,250 equity shares of Rs. 10/- each at a premium of Rs. 22/- each during the financial year 2016-2017.

* Refer Note 42C for exemption availed for valuation of Investments for first time adopters under Ind AS 101.

4.1: Trade receivables are non-interest bearing and are generally received within 180 days.

4.2: The carrying amount of trade receivables may be affected by the changes in the credit risk of the counterparties as well as the currency risk as explained in Note 39A 7.3: No trade receivables are due from directors or other officers of the Company either severally or jointly with any other person. 7.4: The carrying amount of trade receivables includes receivables which are discounted with bank on recourse basis. The Company has transferred the relevant receivables to the discounting bank in exchange for cash. However, the Company has retained the late payment and credit risk. Accordingly, the Company continues to recognise the transferred assets in entirety in its balance sheet. The amount repayable under the bill discounting arrangement are presented as borrowings. The relevant carrying amounts are as follows: 7.5: For lien / charge against trade receivables, refer Note 17.

5.1. Refer note 38 for determination of fair value

a) In view of profitability projections (considering additional contribution from new plants) the Company is confident that there would be sufficient taxable income in future periods to utilize MAT credit entitlements.

@ Includes goods-in-transit Nil (March 31, 2017: Rs.6.39 lakhs and April 1, 2016 Nil)

# Includes goods-in-transit Rs.123.19 lakhs (March 31, 2017: Nil and April 1, 2016 Nil)

Entire inventory has been hypothecated as security against certain bank borrowings of the Company as at March 31, 2018, March 31, 2017 and April 1, 2016 respectively. For more details of lien / charge against inventories, refer Note 17.

b) Terms / Rights attached to Equity Shares

The Company has one class of equity shares having a par value of Rs.10/- per share. Each share holder is eligible for one vote per share held. The dividend proposed by the Board of Director is subject to the approval of the shareholders in the ensuing Annual General meeting except in case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amount, in proportion to their shareholding. For the year ended March 31, 2018, the Board of Directors of the Company has recommended dividend of Rs.1/- per share (Previous year Rs.1/- per share) to equity shareholders aggregating to Rs.325.92 lakhs (Previous year Rs.286.70 Lakhs). Proposed dividend is recognised in the year in which it is approved by the shareholders.

c) The Company being ultimate holding company, there are no shares held by any other holding, ultimate holding company and their subsidiaries / associates. Details of shareholders holding more than 5% shares in the Company is given as below:

d) The Company, during the year, had issued and allotted 39,21,568 equity shares of face value Rs. 10/- at an issue price of Rs. 510/- per equity share to raise Rs. 1,99,99,99,680 by way of Qualified Institutional Placement (“QIP”) under Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 thereby increasing the Issued, Subscribed and Paid-up Capital from Rs. 2,866.99 lakhs to Rs. 3,259.15 lakhs.

The purpose of fund raising was for capital expenditure for ongoing and future expansion projects, acquisition, working capital, repayment of loans and for general corporate purposes.

The expenses incurred in relation to QIP amounting to Rs. 322.26 lakhs has been adjusted from Securities Premium Account during the year ended March 31, 2018. The balance proceeds of Rs. 19,677.73 lakhs has been utilized for the purpose as mentioned above.

e) The Company during the preceding 5 years -

i. has not allotted shares pursuant to contracts without payment received in cash.

ii. has not allotted shares as fully paid up by way of bonus shares

iii. has not bought back any shares

f) There are no calls unpaid by Directors / Officers of the Company.

g) The Company has not converted any securities into equity shares /preference shares during the above financial years.

h) The Company has not forfeited any shares during the above financial years.

a) Capital Reserve

This reserve had been created on Account of capital subsidy received in the form of sales tax refund under Jharkhand Industrial Policy, 2001 and on account of forfeiture of share warrants money.

b) Securities Premium Reserve

Securities Premium Account is used to record the premium on issue of shares. The same is utilised in accordance with the provisions of The Companies Act, 2013.

@ Includes amount paid to erswhile statutory auditors amounting to Rs.8.00 Lakhs

# Includes payment to a firm of solicitors in which a director is a partner amounting to Rs.35.36 Lakhs

c) General reserve

Under the erstwhile Companies Act 1956, general reserve was created through an annual transfer of net profit at a specified percentage in accordance with applicable regulations. Consequent to introduction of Companies Act 2013, the requirement to mandatorily transfer a specified percentage of the net profit to general reserve has been withdrawn though the Company may transfer such percentage of its profits for the financial year as it may consider appropriate. Declaration of dividend out of such reserve shall not be made except in accordance with rules prescribed in this behalf under the Act.

d) Employee’s Stock Options Outstanding Reserve (ESOP)

Employee’s Stock Options Outstanding is a stock option guaranteed to specified employees of the Company. It offers option’s holder the right but not an obligation to purchase shares of the Company on fulfilment of conditions mentioned in ESOP scheme at the price decided at the time of grant of options. (Refer Note 30 )

6.1. The Company has discounted trade receivable on recourse basis of Rs.9,052.79 Lakhs as on March 31, 2018 (March 31, 2017: Rs.9,079.92 lakhs and April 01, 2016: Rs.4,983.16 Lakhs). Accordingly, the monies received on this account are shown as borrowings as the trade receivable does not meet de-recognition criteria. These are secured against the underlying debtors. Subsequent to the Balance sheet date, such balances have been fully realised by the bank. As on date the Company is not availing the above facility. Also refer Note 7.4.

6.2. Represents purchase bill discounted with bank Rs.2,567.83 lakhs (March 31, 2017: Rs. Nil and April 01, 2016: Rs. Nil)

6.3 The Company has taken borrowings in domestic and foreign currencies towards funding of its acquisitions, capital expenditure and working capital requirements. The borrowings comprise funding arrangements from various banks . The Company’s total secured borrowings and a summary of security provided by the Company are as follows -

7. Ramkrishna Forgings Limited - Employee Stock Option Plan 2015 (RKFL ESOP Scheme 2015)

The Board of Directors at its meeting held on 7th August, 2015, approved the Employee Stock Option Scheme 2015 (TheSOP Scheme 2015”) for the grant upto 7,00,000 stock option to its permanent employees working in India and wholetime Directors of the Company, in one or more tranches. Each option would be converted into one fully paid-up equity share of Rs. 10/- each of the Company. The same was approved by the members in the 33rd Annual General Meeting of the Company held on September 12, 2015. The ESOP Scheme 2015 shall be administered by the Nomination and Remuneration Committee through the Ramkrishna Forgings Limited Employee Welfare Trust. The Board of Directors at its meeting held on 7th November 2015 approved the grant of 3,23,675 options to the eligible employees of the Company. The Scheme was further amended in the 34th Annual General Meeting held on September 24, 2016 wherein the exercise price per share was reduced from Rs. 505.58 per share to Rs. 400/- per share.

Fair Valuation:

The fair value of the options used to compute net profit and earnings per share have been done by an independent valuer using Black-Scholes-Model. The details of options granted, the key assumptions and the Fair Value on the date of grant are as under:

Stock Price: Closing price on National Stock Exchange on the date of grant has been considered.

Volatility: The historical volatility over the expected life has been considered to calculate the fair value.

Risk-free rate of return: The risk-free interest rate being considered for the calculation is the interest rate applicable for a maturity equal to the expected life of the options based on the zero-coupon yield curve for Government Securities. Exercise Price: Exercise Price of each specific grant has been considered.

Time to Maturity: Time to Maturity / Expected Life of options is the period for which the Company expects the options to be live.

Expected dividend yield: Expected dividend yield has been calculated as an average of dividend yields for five financial years preceding the date of the grant.

8. Leases

Operating Leases:

The Company’s leasing agreements are in respect of lease for lands. These leasing agreements range between 30 to 99 years. The aggregate lease rental payables are charged as rent in the Statement of Profit and Loss.

9. Segment information

The Company manufactures “Forging components” and the management reviews the performance of the Company as a single operating segment in accordance with Ind AS 108 “Operating Segments” notified pursuant to Companies (Accounting Standards) Rule, 2015. The Company has presented segment information in the consolidated financial statements. Accordingly, in accordance with paragraph 4 of Ind AS 108 no separate segment information has been furnished herewith.

10. The Company has been granted certificate of registration for its in- house research and development unit of its plant located at village Baliguma, P. O. Kolabera, P.S. Saraikela, Dist Saraikela Kharswan, Jamshedpur, Jharkhand, by the Ministry of Science and Technology, Government of India. The below mentioned expenditure are related to research and development facilities of the Company.

Note

# Excludes leave encashment and gratuity which is based on actuarial valuation provided on overall Company basis.

* The Independent Directors have been considered as Key Management Personnel only for above reporting as per the requirements of Ind AS 24 - Related Party Disclosures.

** The Corporate guarantee given pertains to the outstanding loan as on March 31, 2018 is Rs. 2,182.86 lakhs (March 31, 2017: Rs. 2,118.58 lakhs, April 1, 2016: Rs. 1,874.61 lakhs).

11. Financial instruments

A. Financial Assets and liabilities:

The accounting classification of each category of financial instruments, and their carrying amounts, are set out below:

The management assessed that the fair value of cash and cash equivalents, trade receivables, derivative instruments, trade payables and other current financial assets and liabilities approximate their carrying amounts largely due to the short term maturities of these instruments.

B. Fair value hierarchy:

The Company uses the following hierarchy for determining and/or disclosing the fair value of financial instruments by valuation techniques:

(i) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

(ii) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

(iii) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

$e below table summarises the categories of financial assets and liabilities as at March 31, 2018, March 31, 2017 and April 1, 2016 measured at fair value:

Fair valuation method and assumptions:

The fair value of the 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. The following methods and assumptions are used to estimate the fair values.

i ) The fair value of derivative financial instruments is determined based on observable market inputs including currency spot and forward rates, yield curves, currency volatility etc. These derivatives are estimated by using the pricing models, where the inputs to those models are based on readily observable market parameters, contractual terms, period to maturity, maturity parameters and foreign exchange rates. These models do not contain a high level of subjectivity as the valuation techniques used do not require significant judgement, and inputs thereto are readily observable from market rates. The said valuation has been carried out by the counter party with whom the contract has been entered with and management has evaluated the credit and non-performance risks associated with the counterparties and believes them to be insignificant and not requiring any credit adjustments.

ii) The Company has determined the carrying value of the non-current investment as its fair value in the absence of any available observable inputs.

iii) There has been no transfer between Level 1, Level 2 and Level 3 during the above periods.

12A Financial Risk Management Objectives and Policies:

The Company’s principal financial liabilities comprises borrowings, trade and other payables and other financial liabilities. The main purpose of these financial liabilities is to finance and support the operations of the Company. The Company’s principal financial assets include trade and other receivables, loans and cash and cash equivalents that derive directly from its operations.

The Company’s business activities are exposed to a variety of risks including liquidity risk, credit risk and market risk. The Company seeks to minimize potential adverse effects of these risks on its financial performance and capital. Financial risk activities are identified, measured and managed in accordance with the Company’s policies and risk objectives which are summarized below and are reviewed by the senior management.

(A) Credit risk

Credit risk refers to risk of financial loss to the Company if customers or counterparties fail to meet their contractual obligations. The Company is exposed to credit risk from its operating activities (mainly trade receivables).

(i) Credit risk management

(a) Trade Receivables

Customer credit risk is managed by the Company through its established policies and procedures which involve setting up credit limits based on credit profiling of individual customers, credit approvals for enhancement of limits and regular monitoring of important developments viz. payment history, change in credit rating, regulatory changes, industry outlook etc. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 7. Outstanding receivables are regularly monitored and an impairment analysis is performed at each reporting date on an individual basis for each major customer. On account of adoption of Ind AS 109, the Company uses expected credit loss model to assess the impairment loss or reversal thereof.

(b) Deposits and financial assets (Other than trade receivables):

Credit risk from balances with banks is managed by the Company’s treasury department in accordance with the Company’s policy.

(B) Liquidity Risk

Liquidity risk implies that the Company may not be able to meet its obligations associated with its financial liabilities. The Company manages its liquidity risk on the basis of the business plan that ensures that the funds required for financing the business operations and meeting financial liabilities are available in a timely manner and in the currency required at optimal costs. The Management regularly monitors rolling forecasts of the Company’s liquidity position to ensure it has sufficient cash on an ongoing basis to meet operational fund requirements.

Additionally, the Company has committed fund and non-fund based credit lines from banks which may be drawn anytime based on Company’s fund requirements. The Company endeavours to maintain a cautious liquidity strategy with positive cash balance and undrawn bank lines throughout the year.

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include contractual interest payments.

*The borrowings include discounted trade receivable on recourse basis of Rs. 9,052.79 Lakhs as on March 31, 2018 (March 31, 2017: Rs. 9,079.92 lakhs and April 1, 2016: Rs. 4,983.16 Lakhs). Accordingly, the monies received on this account are shown as borrowings as the trade receivable does not meet de-recognition criteria.

(C) Market Risk

Market risk is the risk that the fair value of future cash flow of financial instruments may fluctuate because of changes in market conditions. Market risk broadly comprises three types of risks namely foreign currency risk, interest rate risk and price risk (for commodities) . The above risks may affect the Company’s income and expense and profit. The Company’s exposure to and management of these risks are explained below:

(i) Foreign currency risk

The Company operates in international markets and therefore is exposed to foreign currency risk arising from foreign currency transactions. The exposure relates primarily to the Company’s operating activities (when the revenue or expense is denominated in foreign currency), borrowings in foreign currencies. Majority of the Company’s foreign currency transactions are in USD while the rest are in EURO, JPY and GBP. The major imports are only in respect of capital goods.The risk is measured through forecast of highly probable foreign currency cash flows.

The risk of fluctuations in foreign currency exchange rates on its financial liabilities including trade and other payables etc, which are mainly in US Dollars, are mitigated through the natural hedge alignment, as Company’s export sales are predominantly in US dollars and such economic exposure through trade and other receivables in US dollars provide natural alignment. Hence, a reasonable variation in the Foreign exchange rate would not have much impact on the profit/ equity of the Company.

(b) Foreign currency Rate Sensitivity

A fluctuation in the exchange rates of 1% with other conditions remaining unchanged would have the following effect on Company’s profit or loss before taxes as at March 31, 2018 and March 31, 2017:

(ii) Interest rate risk

The Company is exposed to interest rate risk on short-term and long-term floating rate instruments. The borrowings of the Company are principally denominated in Indian Rupees , Euro and US dollars with a mix of fixed and floating rates of interest. The Company has a policy of selectively using interest rate swaps and other derivative instruments to manage its exposure to interest rate movements. These exposures are reviewed by appropriate levels of management on a regular basis. The majority of the borrowings are at floating rates and its future cash flows will fluctuate because of changes in market interest rates.

(a) Interest Rate Risk Exposure

The exposure of the Company’s borrowings to interest rate changes at the end of the reporting period are as follows:

(b) Sensitivity

Profit or loss is sensitive to higher / lower interest expense from borrowings as a result of changes in interest rates.

* Holding all other variable constant

(iii) Commodity Price Risk

Commodity price risk results from changes in market prices for raw materials, mainly steel in the form of rounds and billets which forms the largest portion of Company’s cost of sales.

The principal raw materials for the Company products are alloy and carbon steel which are purchased by the Company from the approved list of suppliers. Most of the input materials are procured from domestic vendors. Raw material procurement is subject to price negotiation. Further, a significant portion of the Company’s volume is sold based on price adjustment mechanism which allows for recovery of the changed raw material cost from its customers.

12B Capital management

For the purposes of the Company’s capital management, capital includes issued capital, free reserves and borrowed capital less reported cash and cash equivalents. The primary objective of the Company’s capital management is to maintain an efficient capital structure to reduce the cost of capital, support the corporate strategy and to maximise shareholder’s value. The Company’s policy is to borrow primarily through banks to maintain sufficient liquidity. The Company also maintains certain undrawn committed credit facilities to provide additional liquidity. These borrowings, together with cash generated from operations are utilised for operations of the Company. The Company monitors capital on the basis of cost of capital.

No changes were made in the objectives policies or processes for managing capital during the years ended March 31, 2018 and March 31, 2017.

Proposed dividends on equity shares are subject to approval at the annual general meeting and hence are not recognised as a liability (including DDT thereon).

* Includes dividend paid on 39,21,568 equity shares issued by way of qualified institutional placement before the dividend record date.

13. Employee Benefits

a) Gratuity plan Funded scheme

The Company has a defined benefit gratuity plan for its employees (“Gratuity Scheme”). The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the Act, every employee who has completed five years of service is entitled to specific benefit. The level of benefits provided depends on the employee’s length of service and salary at retirement age. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn) for each completed year of service as per the provisions of the Payment of Gratuity Act, 1972. The scheme is funded with an insurance company in the form of a qualifying insurance policy.

b) Provident Fund:

In accordance with the law, all employees of the Company are entitled to receive benefits under the provident fund. The Company has a defined contribution plan. Under the defined contribution plan, provident fund is contributed to the Government administered provident fund. The Company has no further contractual nor any constructive obligation, other than the contribution payable to the provident fund. The expense recognised during the period towards defined contribution plan is Rs. 364.95 Lakhs (March 31, 2017: Rs. 336.29 Lakhs)

14. First-time adoption of Ind AS

These are the Company’s first financial statements prepared in accordance with Ind AS. The accounting policies set out in Note 2 have been applied in preparing the financial statements for the year ended March 31, 2018 and the comparative period information.

For all periods upto and including the year ended March 31, 2017, the Company prepared its financial statements in accordance with Generally Accepted Accounting Principles (GAAP) in India and complied with the accounting standards as notified under Section 133 of the Companies Act, 2013 read together with Rule 7 of the Companies (Accounts) Rules, 2014, to the extent applicable, and the presentation requirements of the Companies Act, 2013 (Previous GAAP). The transition to Ind AS was carried out in accordance with Ind AS 101, with April 1, 2016 being the date of transition. This note explains the exemptions on the first-time adoption of Ind AS availed in accordance with Ind AS 101 and an explanation of how the transition from previous GAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows.

Exemptions availed and mandatory exceptions Ind AS 101 First-time Adoption of Indian Accounting Standards allows firsttime adopters certain exemptions from retrospective application of certain requirements under Ind AS. Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.

Ind AS optional exemptions

A. Deemed cost for property, plant and equipment and intangible assets

The Company has elected to continue with carrying value as recognised in its Indian GAAP Financial Statements of following items as deemed cost at the transition date, viz., April 1, 2016 in accordance with Ind-AS 101- First-time Adoption of Indian Accounting Standards.

i) Property Plant and Equipment

ii) Intangible Assets

B. Designation of previously recognised financial instruments

Ind AS 101 allows an entity to designate investments in equity instruments at FVOCI on the basis of the facts and circumstances at the date of transition to Ind AS. The Company has elected to apply this exemption for its investments in unquoted equity instruments other than investments in subsidiaries.

C. Investments in subsidiaries

Ind AS 101 permits a first-time adopter to measure its investments in subsidiaries at deemed cost. The deemed cost of such an investment could be either

(a) its fair value at the date of transition; or

(b) previous GAAP carrying amount at that date.

The option may be exercised individually and separately for each item of investment.

Accordingly, the Company has opted to measure its investments in subsidiaries at previous GAAP carrying amount as its deemed cost.

D. Translation of long term foreign currency monetary items

The Company, being a first-time adopter, has continued the policy adopted for accounting for exchange differences arising from translation of long-term foreign currency monetary items recognised in the financial statements for the period ending immediately before the beginning of the first Ind AS financial reporting period as per the previous GAAP i.e. March 31, 2016. Hence, exchange difference of such monetary items will continue to be capitalised.

15. Details of the Loan given, Investment made and Guarantee given covered under section 186(4) of the Companies Act, 2013

Details of loan given and Investment made are provided under the respective heads.

Corporate Guarantee given by the Company is in respect of the Working Capital Loan taken by Subsidiary as on March 31, 2018.

Footnotes to the reconciliation Note 1

Dies, Spares and inventory

As per Ind AS 16, Property, plant and equipment (PPE) are tangible items that are held for use in the production or supply of goods or services and are expected to be used during more than one accounting period. Accordingly , the Company has reclassified certain spares and dies as PPE which were earlier classified as Inventories under Previous GAAP. Depreciation on such items have been computed retrospectively and the net amount is considered for reclassification purposes while the balance impact in inventory pertains to adjustments done in in valuation of work-in-progress inventory.

Note 2

Derivative Financial Instruments

Under the previous GAAP, forward contract cost were accounted for as prescribed under AS 11 “The Effects of Changes in Foreign Exchange Rates” under which forward premium was amortised over the period of forward contracts and forward contracts were stated at the year-end spot exchange rate and gains / losses on settlement on aforesaid contracts and mark to market loss relating to outstanding contracts as at the balance sheet date in respect of derivative contracts (other than forward exchange contract covered under Accounting Standard 11 on “The Effects of Changes in Foreign Exchange Rates”), were recognized in the statement of profit and loss.

Under Ind AS 109, all derivative financial instrument are to be mark to market and any resultant gain or loss on settlement as well as on outstanding contracts as at the balance sheet date is to be charged or credited to the statement of profit and loss.

Accordingly, the marked to market gain/loss has been recognized on all derivative contracts and unamortized forward premium balance and exchange gain / loss on reinstatement of forward contracts under aforesaid AS 11 has been reversed.

Note 3 Deferred Tax

In the financial statements prepared under Previous GAAP, deferred tax was accounted as per the income statement approach which required creation of deferred tax asset/liability on temporary differences between taxable profit and accounting profit. Under Ind AS, deferred tax is accounted as per the Balance Sheet approach which requires creation of deferred tax asset/liability on temporary differences between the carrying amount of an asset/liability in the Balance Sheet and its corresponding tax base.

The application of Ind AS has resulted in recognition of deferred tax on new temporary differences which were not required to be recognised under Previous GAAP.

MAT entitlement credit being of the nature of deferred tax, on transition to Ind AS, MAT credit entitlement of Rs 3243.53 lakhs and Rs 3774.53 lakhs for April 1, 2016 and March 31, 2017 respectively has been regrouped under deferred tax assets from Current tax assets (net).

Note 4

Employees Stock Options

Under Previous GAAP, Employees Stock Options were accounted for as per intrinsic value method. Under Ind AS employees stock options are required to be fair valued. Accordingly the same has been fair valued as on the opening balance sheet date and as at March 31, 2017. Further compensation cost has been recognized through Other Equity as on transition date, and through statement of profit and loss during FY 2016-17.

Note 5

Proposed Dividend

Under Indian GAAP, as at the date of transition, proposed final dividends including Dividend Distribution Taxes (DDT) are recognised as a liability in the period to which they relate, irrespective of when they are approved. Under Ind AS, such dividend is recognised as a liability when approved by shareholders.

Note 6

Government Grant

Grants received from the Government relating to the purchase of property, plant and equipment (PPE) and deducted from the carrying amount of corresponding PPE under previous GAAP and outstanding as on transition date has been recognized as deferred income under Ind AS with the corresponding adjustment to the carrying amount of Property, plant and equipment (net of cumulative depreciation impact) and opening retained earnings.

Note 7

Leases

In respect of certain long-term arrangements, existing at the date of transition and identified to be in the nature of operating lease where the Company is lessee, the underlying assets have been derecognized on the date of transition and prepaid lease rentals have been recognized which is amortized by way of rent over the remaining useful life of the leased asset.

Note 8

Borrowings and related transaction costs

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 statement of profit and loss over the tenure of the borrowing as part of the other borrowing cost by applying the effective interest rate method.

Under previous GAAP, these transaction costs were either charged to Statement of Profit and Loss or capitalised as and when incurred.

Note 9 Excise Duty

Under previous GAAP, revenue from sale of goods was presented net of excise duty whereas under Ind AS the revenue from sale of goods is presented inclusive of excise duty. The excise duty is presented on the face of the Statement of Profit and Loss as part of expenses.

Note 10 Revenue

Under previous GAAP, revenue is measured at transaction value. Under Ind AS revenue is recognized at fair value of consideration received or receivable which require adjustment of all discounts and rebates as netted from revenue. Accordingly, discounts earlier grouped under other expenses is netted off with revenue.

Note 11

Defined 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 liability, are recognized in other comprehensive income instead of profit or loss as in previous GAAP.

Note 12

Bills of exchange discounted

Under IGAAP, trade receivables derecognised by way of bills of exchange were shown as contingent liability, wherever the facility availed was with recourse to the bank. Under Ind AS, the trade receivables have been restated with corresponding recognition of short term borrowings of Rs.9,052.79 lakhs (March 31, 2017: Rs.9,079.92 lakhs and April 1, 2016: Rs.4,983.16 lakhs).

16. Standards issued but not effective

The amendments to standards that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective. The Ministry of Corporate Affairs (MCA) has issued the Companies (Indian Accounting Standards) Amendment Rules, 2017 and Companies (Indian Accounting Standards) Amendment Rules, 2018 amending the following standards:

Ind AS 115 Revenue from Contracts with Customers

The Company is currently evaluating the impact of implementation of Ind AS 115 “Revenue from Contracts with Customers” which is applicable to it w.e.f April 01, 2018. However, based on the evaluation done so far and based on the arrangement that the Company has with its customers for sale of its products, the implementation of Ind AS 115 will not have any significant recognition and measurement impact. However, there will be additional presentation and disclosure requirement which will be provided in the next year’s financial statements.

Amendments to Ind AS 12 Recognition of Deferred Tax Assets for Unrealised Losses

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

These amendments are effective for annual periods beginning on or after 1 April 2018. These amendments are not expected to have any impact on the Company as the Company has no deductible temporary differences or assets that are in the scope of the amendments.

Appendix B to Ind AS 21 Foreign Currency Transactions and Advance Consideration

The Appendix clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration.

The Appendix is effective for annual periods beginning on or after 1 April 2018. However, since the Company’s current practice is in line with the Interpretation, the Company does not expect any effect on its financial statements.

Amendments to Ind AS 112 Disclosure of Interests in Other Entities, Ind AS 40 Investment Property and Ind AS 28 Investments in Associates and Joint Ventures are not applicable to the Company.”

17. The Ind AS comparative financial information of the Company for the year ended March 31, 2017 and the transition date opening balance sheet as at April 1, 2016 included in these standalone Ind AS financial statements, are based on the previously issued statutory financial statements prepared in accordance with the accounting principles generally accepted in India, including the Companies (Accounting Standards) Rules, 2006 (as amended) specified under section 133 of the Act, read with the Companies (Accounts) Rules, 2014 audited by the predecessor auditor whose report for the year ended March 31, 2017 and March 31, 2016 dated May 19, 2017 and May 21, 2016 respectively expressed an unmodified opinion on those standalone financial statements, as adjusted for the differences in the accounting principles adopted by the Company on transition to the Ind AS.

Source : Dion Global Solutions Limited
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