NOTES TO FINANCIAL STATEMENTS
Asian Paints Limited (the 'Company') is a public limited Company incorporated under the Indian Companies Act 1913. The Company is engaged in the business of manufacturing, selling and distribution of paints, coatings, products related to home decor, bath fittings and providing of related services.
1 SIGNIFICANT ACCOUNTING POLICIES
1.1. Basis of brparation of financial statements
(a) Basis of Accounting:
The financial statements have been brpared and brsented under the historical cost convention, on the accrual basis of accounting in accordance with the accounting principles generally accepted in India ('Indian GAAP') and comply with the Accounting standards brscribed in the Companies (Accounting Standards) Rules, 2006 which continue to apply under Section 133 of the Companies Act, 2013 ('the Act') read with Rule 7 of the Companies (Accounts) Rules, 2014.
(b) Use of Estimates:
The brparation of financial statements in conformity with Indian GAAP requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosures of contingent liabilities at the end of reporting period.
(c) Current/Non Current Classification:
Any asset or liability is classified as current if it satisfies any of the following conditions:
i. it is expected to be realized or settled or is intended for sale or consumption in the company's normal operating cycle;
ii. it is expected to be realized or settled within twelve months from the reporting date;
iii. in the case of an asset,
• it is held primarily for the purpose of being traded; or
• it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date;
iv. in the case of a liability, the company does not have an unconditional right to defer settlement of the liability for at least twelve months from the reporting date.
All other assets and liabilities are classified as non-current.
For the purpose of current / non-current classification of assets and liabilities, the Company has ascertained its normal operating cycle as twelve months. This is based on the nature of services and the time between the acquisition of assets or inventories for processing and their realization in cash and cash equivalents.
1.2. Tangible and Intangible Assets
(a) Tangible Fixed Assets
Tangible fixed assets are carried at the cost of acquisition or construction, less accumulated debrciation/accumulated impairment. The cost of fixed assets comprises of its purchase price, including import duties and other non-refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use. Expenses directly attributable to new manufacturing facility during its construction period are capitalized. Know-how related to plans, designs and drawings of buildings or plant and machinery is capitalized under relevant tangible asset heads.
Pursuant to the requirements under Schedule II of the Companies Act, 2013, the Company has identified and determined the cost of each component of an asset separately when the component has a cost which is significant to the total cost of the asset and has useful life that is materially different from that of the remaining asset.
Profit or loss on disposal of tangible assets is recognized in the Statement of Profit and Loss. Tangible Fixed assets retired from active use and held for disposal are stated at the lower of their net book value and net realisable value and are disclosed separately under 'Other Current Assets'. Any expected loss is recognized immediately in the Statement of Profit and Loss.
(b) Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. Intangible assets arising on acquisition of business are measured at fair value
as at date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment loss, if any. Profit or Loss on disposal of intangible assets is recognised in the Statement of Profit and Loss.
(c) Capital Work in Progress & Capital Advances
Cost of Assets not ready for intended use, as on the balance sheet date, is shown as capital work in progress. Advances given towards acquisition of fixed assets outstanding at each balance sheet date are disclosed as Long Term Loans & Advances.
(d) Debrciation and Amortisation:
Debrciation on tangible fixed assets is provided using the Straight Line Method based on the useful lives of the assets as estimated by the management and is charged to the Statement of Profit and Loss as per the requirement of Schedule II of the Companies Act, 2013. The estimate of the useful life of the assets has been assessed based on technical advice which considered the nature of the asset, the usage of the asset, expected physical wear and tear, the operating conditions of the asset, anticipated technological changes, manufacturers warranties and maintenance support, etc.
Significant components of assets identified separately pursuant to the requirements under Schedule II of the Companies Act, 2013 are debrciated separately over their useful life.
The residual value, useful life and method of debrciation of an asset is reviewed at each financial year end and adjusted prospectively
Debrciation on tinting systems leased to dealers, is provided under Straight Line Method over the estimated useful life of nine years as per technical evaluation.
Leasehold land and Leasehold improvements are amortized over the primary period of lease.
Intangible Assets are amortised on a Straight Line basis over the estimated useful economic life. Purchase cost, user license fees and consultancy fees for major software are amortized over a period of four years. Acquired Trademark is amortised over a period of five years. Acquired Goodwill is amortised over a period of ten years.
Estimated useful life of each acquired Brand is assessed separately for the purpose of amortization. Brand acquired pursuant to acquisition of bath fittings business is amortised over a period of two years.
At Balance Sheet date, an assessment is done to determine whether there is any indication of impairment in the carrying amount of the Company's assets. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount.
An assessment is also done at each Balance Sheet date whether there is any indication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased. If any such indication exists the asset's recoverable amount is estimated. The carrying amount of the fixed asset is increased to the revised estimate of its recoverable amount but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss is recognised in the Statement of Profit and Loss for the year.
After recognition of impairment loss or reversal of impairment loss as applicable, the debrciation charge for the fixed asset is adjusted in future periods to allocate the asset's revised carrying amount, less its residual value (if any), on straight line basis over its remaining useful life.
1.3. Revenue Recognition
Revenue from sale of goods is recognised on transfer of all significant risks and rewards of ownership to the buyer. The amount recognised as sale is exclusive of sales tax/VAT and is net of returns & discounts. Sales are stated gross of excise duty as well as net of excise duty (on goods manufactured and outsourced), excise duty being the amount included in the amount of gross turnover. The excise duty related to the difference between the closing stock and opening stock is recognised separately as part of changes in inventories of finished goods, work in progress and stock in trade.
Revenue from service is recognized as per the completed service contract method.
Processing income is recognized on accrual basis as per the contractual arrangements.
Dividend income is recognised when the right to receive payment is established.
Interest income is recognised on the time proportion basis.
1.4. Lease Accounting
Assets taken on operating lease:
Lease rentals on assets taken on operating lease are recognised as expense in the Statement of Profit and Loss on straight line basis.
a) Raw materials, work in progress, finished goods, packing materials, stores, spares, components, consumables and stock-in-trade are carried at the lower of cost and net realisable value. However, materials and other items held for use in production of inventories are not written down below cost if the finished goods in which they will be incorporated are expected to be sold at or above cost. The comparison of cost and net realisable value is made on an item-by-item basis. Damaged, unserviceable and inert stocks are valued at net realizable value.
(b) In determining cost of raw materials, packing materials, stock-in-trade, stores, spares, components and consumables, weighted average cost method is used. Cost of inventory comprises all costs of purchase, duties, taxes (other than those subsequently recoverable from tax authorities) and all other costs incurred in bringing the inventory to their brsent location and condition.
c) Cost of finished goods and work-in-progress includes the cost of raw materials, packing materials, an appropriate share of fixed and variable production overheads, excise duty as applicable and other costs incurred in bringing the inventories to their brsent location and condition. Fixed production overheads are allocated on the basis of normal capacity of production facilities.
Investments are classified into current and long-term investments. Investments that are readily realizable and intended to be held for not more than a year from the date of acquisition are classified as current investments. All other investments are classified as long-term investments. However, that part of long term investments which are expected to be realized within twelve months from Balance Sheet date is also brsented under "Current Investment" under "Current portion of long term investments" in consonance with the current / non-current classification of Schedule III of the Act.
Current investments are stated at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each category of investments.
Long-term investments are stated at cost. A provision for diminution in the value of long-term investments is made only if such a decline is other than temporary in the opinion of the management. Reversal of such provision for diminution is made when there is a rise in the value of long-term investment, or if the reasons for the decline no longer exist.
On disposal of an investment, the difference between its carrying amount and net disposal proceeds is recognized in the Statement of Profit and Loss.
1.7. Transactions in Foreign Currency (a) Initial recognition:
Transactions in foreign currencies entered into by the Company are accounted at the exchange rates brvailing on the date of the transaction. Exchange differences arising on foreign exchange transactions settled during the year are recognized in the Statement of Profit and Loss.
(b) Measurement of foreign currency items at the Balance Sheet date:
Foreign currency monetary items of the Company are restated at the closing exchange rates. Non-monetary items are recorded at the exchange rate brvailing on the date of the transaction. Exchange differences arising out of these translations are recognized in the Statement of Profit and Loss.
(c) Forward exchange contracts:
The Company enters into forward exchange contracts to hedge against its foreign currency exposures relating to the underlying transactions and firm commitments. The Company does not enter into any derivative instruments for trading or speculative purposes.
The brmium or discount arising at the inception of forward exchange contract is amortized and recognized as an expense/income over the life of the contract. Exchange differences on such contracts are recognized in the Statement of Profit and Loss in the period in which the exchange rates change. Any Profit or Loss arising on cancellation or renewal of such forward exchange contract is also recognized as income or expense for the period.
1.8. Trade receivables
Trade receivables are stated after writing off debts considered as bad. Adequate provision is made for debts considered doubtful. Discounts due, yet to be quantified at the customer level are included under Other Current Liabilities.
1.9. Employee Benefits
A. Short Term Employee Benefits:
All employee benefits payable wholly within twelve months of rendering the service are classified as short term employee benefits and they are recognized in the period in which the employee renders the related service. The Company recognizes the undiscounted amount of short term employee benefits expected to be paid in exchange for services rendered as a liability (accrued expense) after deducting any amount already paid.
B. Post-employment benefits:
(a) Defined contribution plans
Defined contribution plans are employee state insurance scheme and Government administered pension fund scheme for all applicable employees and superannuation scheme for eligible employees. The Company's contribution to defined contribution plans are recognised in the Statement of Profit and Loss in the financial year to which they relate.
(b) Defined benefit plans
(i) Provident fund scheme
The Company makes specified monthly contributions towards Employee Provident Fund scheme to a separate trust administered by the Company. The minimum interest payable by the trust to the beneficiaries is being notified by the Government every year. The Company has an obligation to make good the shortfall, if any, between the return on investments of the trust and the notified interest rate.
(ii) Gratuity scheme
The Company operates a defined benefit gratuity plan for employees. The Company contributes to a separate entity (a fund), towards meeting the Gratuity obligation.
(iii) Pension scheme
The Company operates a defined benefit pension plan for certain specified employees and is payable upon the employee satisfying certain conditions, as approved by the Board of Directors.
(iv) Post Retirement Medical benefit plan
The Company operates a defined post retirement medical benefit plan for certain specified employees and payable upon the employee satisfying certain conditions
The cost of providing defined benefits is determined using the Projected Unit Credit method with actuarial valuations being carried out at each Balance Sheet date. Past service cost is recognized immediately to the extent that the benefits are already vested, else is amortised on a straight-line basis over the average period until the amended benefits become vested. Actuarial gains and losses in respect of the defined benefit plans are recognized in the Statement of Profit and Loss in the year in which they arise.
The defined benefit obligations recognized in the Balance Sheet rebrsent the brsent value of the defined benefit obligations as reduced by the fair value of plan assets, if applicable. Any defined benefit asset (negative defined benefit obligations resulting from this calculation) is recognized rebrsenting the brsent value of available refunds and reductions in future contributions to the plan.
The Company brsents the above liabilities as current and non-current in the balance sheet as per actuarial valuation by the independent actuary; however, the entire liability towards gratuity is considered as current as the Company will contribute this amount to the gratuity fund within the next 12 months.
(c) Other long term employee benefits
Entitlements to annual leave and sick leave are recognized when they accrue to employees. Sick leave can only be availed while annual leave can either be availed or encashed subject to a restriction on the maximum number of accumulation of leave. The Company determines the liability for such accumulated leaves using the Projected Accrued Benefit method with actuarial valuations being carried out at each Balance Sheet date.
The Company brsents this liability as current and non-current in the balance sheet as per actuarial valuation by the independent actuary.
10. Research and Development
Research and Development expenditure of a revenue nature is expensed out under the respective heads of account in the year in which it is incurred.
Fixed assets utilized for research and development are capitalized and debrciated in accordance with the policies stated for Tangible Fixed Assets and Intangible Assets.
1.11. Provision for Taxation
Tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with the Income Tax Act, 1961) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period).
The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates that have been enacted or substantively enacted by the Balance Sheet date.
Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed debrciation or carry forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty of realisation of such assets. Deferred tax assets are reviewed as at each Balance Sheet date to reassess realisation.
1.12. Provisions and Contingencies
The Company creates a provision when there exists a brsent obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a brsent obligation that may, but probably will not require an outflow of resources. When there is a possible obligation or a brsent obligation in respect of which likelihood of outflow of resources is remote, no provision or disclosure is made.
1.13. Earnings Per Share
The Basic and Diluted Earnings Per Share ("EPS") is computed by dividing the profit after tax for the year by weighted average number of equity shares outstanding during the year.
1.14. Proposed Dividend
Dividend recommended by the Board of Directors is provided for in the accounts, pending approval at the Annual General Meeting.
1.15. Borrowing Cost
Borrowing cost includes interest, amortization of ancillary costs incurred in connection with the arrangement of borrowings and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost.
Borrowing costs, if any, directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized. All other borrowing costs are expensed in the period they occur.
1.16. Cash and Cash Equivalents
Cash and cash equivalents include cash and cheques in hand, bank balances, demand deposits with banks and other short-term highly liquid investments where the original maturity is three months or less.
1.17.Government Grants and Subsidies
The Company is entitled to subsidy from government authorities in respect of manufacturing units located in specified regions:
• Grants in the nature of subsidy which are non-refundable are credited to the Statement of Profit and Loss, on accrual basis, where there is reasonable assurance that the Company will comply with all the necessary conditions attached to them.
• Grants in the nature of subsidy which are refundable are shown as Liabilities in the Balance Sheet.
1.18. Measurement of EBITDA
The Company has opted to brsent earnings before interest (finance cost), tax, debrciation and amortization (EBITDA) as a separate line item on the face of the Statement of Profit and Loss for the year. The Company measures EBITDA on the basis of profit/ (loss) from continuing operations.
1.19. Segment Reporting
Segments are identified having regard to the dominant source and nature of risks and returns and internal organization and management structure. The Company has considered business segments as the primary segments for disclosure. The business segments are 'Paints' and 'Home Improvement'.
The Company does not have any geographical segment.
NOTE 1 : During the year, based on queries received from certain shareholders and the Securities Exchange Board of India ('SEBI'), the Company conducted brliminary internal investigations and discovered certain irregularities at M/s Sharepro Services (India) Private Limited ('Sharepro'), the Company's erstwhile Registrar and Share Transfer Agent. Subsequently the Company has filed a criminal complaint against Sharepro and its employees. Pursuant to the directions issued by SEBI in its interim order dated 22nd March, 2016, the Company has appointed an independent external agency to conduct a thorough audit of the records and systems of Sharepro with respect to the past transactions. The Company will take appropriate steps based on the findings of the audit by the independent external agency and in accordance with the directions of SEBI or any other regulatory authorities.
Note2 : Previous year's figures have been regrouped, reclassified wherever necessary to correspond with the current year classification/disclosure.
As per our report of even date
Asian Paints Limited
For B S R & Co. LLP
Firm's Registration No: 101248W/W-100022
Membership No: 042070
For and on behalf of the Board of Directors of
Ashwin Choksi Chairman
M. K. Sharma Director
Managing Director & CEO
CFO & Company Secretary,
President - Industrial JVs
Place : Mumbai
Date : 11th May, 2016