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Moneycontrol.com India | Accounting Policy > Food Processing > Accounting Policy followed by SKM Egg Products Export (India) - BSE: 532143, NSE: SKMEGGPROD
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SKM Egg Products Export (India)

BSE: 532143|NSE: SKMEGGPROD|ISIN: INE411D01015|SECTOR: Food Processing
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Accounting Policy Year : Mar '18

Notes to the Standalone Financial Statements for the year ended 31st March ‘ 2018 1. CORPORATE INFORMATION

SKM Egg Products Export India Limited (“the company) is an Export Oriented Undertaking and engaged in the manufacture and sale of Egg Products. The company is a listed entity incorporated and domiciled in India.

The address of its registered office is No.185, Chennimalai Road, Erode - 638001 and the address of the principal place of business is Cholangapalayam, Erode which addresses are also disclosed in the introduction to the annual report. The Company has its primary listing with Bombay Stock Exchange and National Stock Exchange in India.

SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PREPARATION AND PRESENTATION:

The financial statements have been prepared on the historical cost basis except for the following assets and liabilities which have been measured at fair value amount :

i) Certain financial assets and liabilities (including derivative instruments)

ii) Defined benefit plans - plan assets

The financial statements of the company have been prepared to comply with the Indian Accounting Standards (‘Ind AS''), including the rules notified under the relevant provisions of the Companies Act, 2013.

Upto the year ended March 31, 2017, the Company has prepared its financial statements in accordance with the requirement of Indian Generally Accepted Accounting Principles (GAAP), which includes Standards notified under the Companies (Accounting Standards) Rules, 2006 and considered as ‘Previous GAAP''.

These financial statements are the Company''s first Ind AS standalone financial statements.

FUNCTIONAL AND PRESENTATION CURRENCY

The financial statements are presented in Indian rupees, the national currency of India, which is the functional currency of the company.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Inventories

Inventories are valued in line with Ind AS 2 - Inventories. Items of inventories are measured at lower of cost and net realisable value after providing for obsolescence, if any, except in case of by-products which are valued at net realisable value. Cost of inventories comprises of cost of purchase, cost of conversion and other costs including manufacturing overheads net of recoverable taxes incurred in bringing them to their respective present location and condition. . The formula used for arriving at the cost for various items of inventories are as follows:

i) Raw materials FIFO

ii) Packing Materials Weighted Average Cost

iii) Additives Weighted Average Cost

iv) Stores & Spares Weighted Average Cost

v) Semi-finished goods FIFO

vi) Finished goods Standard Cost

vii) Livestock Weighted Average Cost. The Carrying amount of the unamortized value of livestock in the financial statement is a close approximation of its fair value and hence in the best judgment of the management taking into consideration market and materiality factors it represents the fair value for livestock.

Revenue Recoginition

Revenue from sale of goods is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated cost can be estimated reliably, there is no continuing effective control or managerial involvement with the goods, and the amount of revenue can be measured reliably.

Revenue from sale of goods is meaured at the fair value of consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties collected on behalf of the government.

Revenue is recognized and expenditure is accounted for on their accrual

Sales of Finished goods, Eggs, Birds & Feeds are recognized on accrual basis and are accounted for in the books of accounts on the dates on which the goods are actually despatched from the Factory, Farm, Feed mill respectively.

Interest Income :

Interest income from a financial asset is recognized using effective interest rate method.

Dividend Income :

Revenue on account of dividend income recognized when the Company''s right to receive the payment has been established.

Government grants / assistance :

Revenue from grants, subsidies or government assistance in any form are recognized when the Company''s right to receive the payment has been established.

Finance Cost

Borrowing costs include exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Borrowing costs that are directly attributable to the acquisition or construction of qualifying assets are capitalized as part of the cost of such assets. A qualifying asset is one that necessarily takes substantial period of time to get ready for its intended use.

Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowing costs are charged to the Statement of Profit and Loss for the period for which they are incurred. Provisions

Provisions are recognized when the company has a present obligation (legal or constructive) as a result of a past event, if it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

Tax Expenses:

The tax expense for the period comprises current and deferred tax. Tax is recognized in Statement of Profit and Loss, except to the extent that it relates to items recognized in the comprehensive income or equity. In which case, the tax is also recognized in other comprehensive income or equity.

Current tax:

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities based on the tax rates that are enacted or substantively enacted at the Balance Sheet date.

Deferred Tax:

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The carrying amount of Deferred tax liabilities and assets are reviewed at the end of each reporting period.

Cash Flow Statements

Cash Flow Statement has been prepared under “Indirect Method”. For the purposes of the cash flow statement, cash and cash equivalents include cash on hand, in banks and demand deposits with banks, net of outstanding bank overdrafts that are repayable on demand and are considered part of the Company''s cash management system. In the balance sheet, bank overdrafts are presented under borrowings within current liabilities.

Leases

Leases are classified as finance leases whenever the terms of the lease, transfers substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are initially recognized as assets of the company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in Statement of Profit and Loss, unless they are directly attributable to the qualifying assets, in which case they are capitalized. Contingent rentals are recognized as expenses in the periods in which they are incurred.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Operating lease payments are recognized as an expense in the Statement of Profit and Loss on a straight-line basis over the lease term except where another systematic basis is more representative of time pattern in which economic benefits from the leased assets are consumed.

Property, plant & equipment:

Property, plant & equipment are stated at cost, net of recoverable taxes, trade discount and rebates less accumulated depreciation and impairment losses, if any. Such cost includes purchase price, borrowing cost and any cost directly attributable to bringing the assets to its working condition for its intended use, net changes on foreign exchange contracts and adjustments arising from exchange rate variations attributable to the assets.

Subsequent costs are included in the asset''s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the entity and the cost can be measured reliably.

Expenses incurred relating to project, net of income earned during the project development stage prior to its intended use are considered as pre-operative expenses and disclosed under Capital Work-in-progress

Depreciation on property, plant & equipment is provided on straight line method as per the useful life prescribed in Schedule II of the Companies Act 2013, except for imported plant & machinery for which the useful life has been taken based upon the technical evaluation by the expert committee on the useful life of the assets. In respect of assets added/adjusted during the year, depreciation is provided on pro-rata basis.

The residual values, useful lives and method of depreciation of property, plant & equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.

Gains or losses arising from derecognition of a property, plant & equipment are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the Statement of Profit and Loss when the asset is derecognized.

Foreign currencies transactions and translation:

Transactions in foreign currencies are recorded at the exchange rate prevailing on the dates of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency closing rates of exchange at the reporting rate.

Exchange differences arising on settlement or translation of monetary items are recognized in Statement of Profit and Loss except to the extent of exchange differences which are regarded as an adjustment to interest costs on foreign currency borrowings that are directly attributable to the acquisition or construction of qualifying assets, are capitalized as cost of assets.

Non-monetary items that are measured in terms of historical cost in a foreign currency are recorded using exchange rates at the date of transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of nonmonetary items measured at fair value is treated in line with recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognized in OCI or Statement of Profit and Loss are also recognized in OCI or Statement of Profit and Loss, respectively.

Employee Benefits Expense:

Short Term Employment Benefits:

The undiscounted amount of short term employee benefits expected to be paid in exchange for the services rendered by employees are recognized as an expense during the period when the employees render the services.

Post-Employment Benefits:

Defined Contribution Plans:

A defined contribution plan is a post-employment benefit plan under which the company pays specified contributions to the specific entity. The company makes specified monthly contributions towards Provident Fund and Pension Scheme. The company''s contribution is recognized as an expense in the Statement of Profit and Loss during the period in which the employee renders the related service.

Defined benefit plans:

The gratuity liability amount is contributed to the gratuity fund approved by the respective IT authorities. The present value of the obligation is determined based on actuarial valuation using the Projected Unit credit method, which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

The estimates of rate of escalation in salary considered in actuarial valuation, take into account inflation, seniority, promotion and other relevant factors including supply and demand in the employment market.

Impairment of non-financial assets - property, plant and equipment:

The company assesses at each reporting date as to whether there is any indication that any property, plant and equipment or group of assets, called cash generating units (CGU) may be impaired. If any such indication exists, the recoverable amount of an asset or CGU is estimated to determine the extent of impairment, if any. When it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the CGU to which the asset belongs.

An impairment loss is recognized in the Statement of Profit and Loss to the extent, asset''s carrying amount exceeds the recoverable amount. The recoverable amount is the higher of an asset''s fair value less cost of disposal and value in use. Value in use is based on the estimated future cash flows, discounted to their present value using pre-tax discount rate that reflects current market assessments of the time value of money and risk specific to the assets. The impairment loss recognized in prior accounting period is reversed if there has been a change in the estimate of recoverable amount.

CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

The preparation of the company''s financial statement requires management to make judgment, estimates and assumptions that affect the reported amount of revenue, expenses, assets and liabilities and the accompanying disclosures. 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.

Depreciation / amortization and useful lives of property, plant and equipment and Livestock:

Property, plant and equipment / Livestock are depreciated / amortized over their estimated useful lives, after taking into account estimated residual value. Management reviews the estimated useful lives and residual values of the assets annually in order to determine the amount of depreciation / amortization to be recorded during any reporting period. The useful lives and residual values are based on the company''s historical experience with similar assets and take into account anticipated technological changes. The depreciation / amortization for the future periods is revised if there are significant changes from previous estimates.

Recoverability of trade receivable:

Judgments are required in assessing the recoverability of overdue trade receivables and determining whether a provision against those receivables is required. Factors considered include the credit rating of the counterparty, the amount and timing of anticipated future payments and any possible actions that can be taken to mitigate the risk of non-payment.

Provisions:

Provisions and liabilities are recognized in the period when it becomes probable that there will be a future outflow of funds resulting from past operations or events and the amount of cash outflow can be reliably estimated. The timing of recognition and quantification of the liability requires the application of judgments to existing facts and circumstances, which can be subject to change. The carrying amounts of provisions and liabilities are reviewed regularly and revised to take account of changing facts and circumstances.

Impairment of non-financial assets:

The company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, the company estimates the asset''s recoverable amount. An asset''s recoverable amount is the higher of an asset''s or Cash Generating Units (CGU''s) fair value less costs of disposal and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or a group of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account, if no such transactions can be identified, an appropriate valuation model is used.

Impairment of financial assets:

Though their is no impairment of assets during the year, the Company generally follows the impairment provisions for financial assets which are based on assumptions about risk of default and expected cash loss rates. The company uses judgments in making these assumptions and selecting the inputs to the impairment calculation, based on company''s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

FIRST TIME ADOPTION OF IND AS

The Company has adopted Ind AS with effect from 1 st April 2017 with comparable being restated and accordingly the company has prepared its first Financial Statements in accordance with Ind AS for the year ended 31 March 2018. For periods up to and including the year ended 31 March 2017, the company prepared its financial statements in accordance with Indian GAAP including accounting standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended). The effective date for Company''s Ind AS opening balance sheet is 1 April 2016 (the date of transition to Ind AS).

The accounting policies set out above have been applied in preparing the financial statements for the year ended 31 March 2018, the comparative information presented in these financial statements for the year ended 31 March 2017 and in preparation of an opening Ind AS Balance Sheet as at 1 April 2016 (the Company''s date of transition). According to Ind AS 101, the first Ind AS financial statements must use recognition and measurement principles

that are based on standards and interpretations that are effective as at 31 March 2018, the date of first time preparation of financial statements according to Ind AS. These accounting principles and measurement principles must be applied retrospectively to the date of transition to Ind AS and for all periods presented within the first Ind AS financial statements.

Exemptions and exceptions availed

In the Ind AS opening balance sheet as at 1st April 2016, the carrying amounts of assets and liabilities from the Indian GAAP as at 31st March 2016 are generally recognized and measured according to Ind AS in effect as on 31 March 2018. For certain individual cases, however, Ind AS 101 provides for optional exemptions and mandatory exceptions to the general principles of retrospective application of Ind AS.

Optional exemptions availed

(a) Property, plant and equipment

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognized in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for decommissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 - Intangible Assets. Accordingly, the company has elected to measure all of its property, plant and equipment at their previous GAAP carrying value.

Mandatory exemptions

(a) 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. Accordingly company has classified and measured all its financial assets at amortized cost on the basis of the facts and circumstances that exist at the date of transition to ind AS

(b) Estimates

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

Notes to first time adoption

(i) Other Comprehensive Income

Under Indian GAAP the company has not presented other comprehensive income (OCI) separately. Items that have been reclassified from statement of profit and loss to other comprehensive income. Income in come re-measurement of defined benefit plans (net of tax). An amount of Rs.71,60,113/- is being reclassified from Profit or Loss to Other Comprehensive

Income during year 2016-17.

(ii) Statement of cash flows

The transition from Indian GAAP to Ind AS has not had a material impact on the statement of cash flows except that the Cash Credit facility which was not netted off with the balance of cash and cash equivalents under erstwhile GAAP in the cash flow statement. But the Cash Credit facility is netted off with the balance of cash and cash equivalents under Statement of Cash flows under Ind AS.

There are no other adjustments to the amounts recognized as per Ind AS other than re-measurement of defined benefit obligations recognized on OCI. Hence, reconciliation statement required as per Para 24 of Ind AS 101 is not warranted.

(ii)No provision has been made in respect of the above demand of Excise Duties and Service Tax, for which the company has filed appeals with various Higher Appellate Forums, against the orders of the Lower Authorities since the company is confident of coming out successful in the Appeals as per the advice taken from the legal experts.

There are Income Tax Demands to the tune of of Rs.2,25,20,850/- for the Assessment year 2014-2015 (Net of Payments being 20% of the tax demand payable on appeal) which is on account of denial of the benefit of brought forward losses under the MAT Provisions of the Income Tax Act 1961. Based on the decisions of Appellate Authorities / interpretations of other relevant provisions, the company has been legally advised that the demand is likely to be either deleted or substantially reduced and accordingly no provision has been made for the balance amount of tax liability. Success in the appeal will result in the company receiving the refund of the tax paid and the result to the contrary would still benefit the company in availing a credit for Rs.1.90 crores out of the above tax demand under the MAT provisions, in the subsequent years and hence this constitutes a contingent asset.

The company was successful in the matter relating to the appeals filed for the Assessment year 2012-2013 which has the impact of restoring the brought forward losses to the tune of Rs.2.07 Crores.

The carried forward losses under the Income Tax Act, 1961 of the earlier assessment year A.Y.2013-14 has been reduced by the Assessing Officer while completing the assessment by making some adjustments to the returned Loss. The Company has preferred appeals before the immediate superior authority which appeals are pending for disposal as on the date of the financial reports. Since the adjustments have resulted only in the reduction of carry forward losses, there is no immediate demand raised for the relevant assessment years. The tax impact could not be immediately ascertained since it hinges upon the outcome of the appeals concerning the other assessment years.

During the year, on the outcome of the ITAT verdict on the issue concerning section 10B of the Income Tax Act 1961, the company''s entire tax liability for the Assessment years 2008-2009 and 2009-2010 to the extent of Rs. 3,28,67,800/- and Rs.3,02,73,520/- respectively got nullified by way of adjustment of refunds for the earlier

assessment years and by way of payment of the balance amount. Hence the company has no liability for the above mentioned two assessment years. However the company, since denied the benefit because of the wrong interpretation of the department of the order of the Commissioner of Income Tax, CBE made under section 264 of the Income Tax Act 1961, had again preferred an appeal before the First Appellate Authority being the Commissioner of Income Tax, Appeals Coimbatore, which appeals are pending before the same Authority. The success in the appeals would result in the company receiving the refunds of taxes paid for the above mentioned two assessment years and also it will enable the company to enjoy the benefits, fully or partially, of tax credits available under the MAT provisions in the subsequent years. The company is confident of coming out successful in the appeals. Due to uncertainty in the outcome of the appeals for other years preferred by the Income Tax Department and the Company on other issues, the resulting exact benefit cannot be immediately quantified.

Impairment of Assets :

The recoverable amount of the CGU is determined on the basis of Fair Value less Cost of Disposal (FVLCD). The FVLCD of the CGU is determined based on the market capitalization approach, using the turnover and earnings multiples derived from observable market data. The fair value measurement is categorized as a level 3 fair value based on the inputs in the valuation techniques used.

Based on the above, no impairment was identified as of March 31, 2018 and 2017 as the recoverable value of the CGUs exceeded the carrying value. Further, none of the CGU''s tested for impairment as of March 31, 2018 and 2017 were at risk of impairment. An analysis of the calculation''s sensitivity to a change in the key parameters (revenue growth, operating margin, discount rate and long-term growth rate) based on reasonably probable assumptions, did not identify any probable scenarios where the CGU''s recoverable amount would fall below its carrying amount.

Mortgage / Charge on Property, plant & equipment’s:

The fixed assets are under the second charge for short term borrowings with banks.

The Company''s cash and cash equivalents consist of cash on hand and in banks and demand deposits with banks, which can be withdrawn at any time, without prior notice and without penalty on the principal.

For the purposes of the cash flow statement, cash and cash equivalents include cash on hand, in banks, demand deposits with banks and net of outstanding bank overdrafts that are repayable on demand and are considered part of the Company''s cash management system. In the balance sheet, bank overdrafts are presented under borrowings within current liabilities.

The company has not received any intimation from the suppliers regarding status under the Micro, Small and Medium enterprises development Act, 2006 (The Act) and hence disclosure regarding:

i) Amount due and outstanding to suppliers as at the end of the accounting year.

ii) Interest paid during the year.

iii) Interest payable at the end of the accounting year.

iv) Interest accrued and unpaid at the end of the accounting year, have not been provided.

The company is making efforts to get the confirmations from the suppliers as regards their status under the Act. *(The Disclosure requirement under Micro, Small and Medium Enterprise’s Development Act 2006 has not been made since the company has requested for the details from the parties and which are yet to be received on the date of signing of this Financial Report).

Source : Dion Global Solutions Limited
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