Notes to financial statements 1. COMPANY BACKGROUND Arvind Limited is one of India's leading vertically integrated textile companies with the brsence of almost eight decades in this industry. It is among the largest denim manufacturers in the world. It also manufactures a range of cotton shirting, denim, knits and bottom weights (Khakis) fabrics and Jeans and Shirts Garments. Arvind, through its subsidiary company Arvind Lifestyle Brands Limited, is marketing in India the branded apparel under various brands and is also licensee in India for various international brands. The brands portfolio of the company includes International brands like Arrow, US Polo, Izod, Elle, Cherokee etc. It also operates apparel Value Retail stores MEGAMART. Arvind also has the brsence in Telecom business directly and through joint venture companies. Recently Arvind has made foray in to Technical Textiles on its own and in joint venture with leading global players. 2. SIGNIFICANT ACCOUNTING POLICIES (A) BASIS OF brPARATION These financial statements have been brpared in accordance with the generally accepted accounting principles in India (Indian GAAP) under the historical cost convention on accrual basis (except so far as they relate to (a) revaluation of fixed assets and providing for debrciation on revalued amounts and (b) items covered under Accounting Standard (AS) - 30' on "Financial Instruments: Recognition and Measurement" which have been measured at their fair value). Indian GAAP comprises mandatory accounting standards as brscribed under Section 133 of the Companies Act, 2013 ('the Act') read with Rule 7 of the Companies (Accounts) Rules, 2014 and the provisions of the Act (to the extent notified). Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use. All assets and liabilities have been classified as current or non-current as per the Company's normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013. Based on the nature of products and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current - noncurrent classification of assets and liabilities. (B) USE OF ESTIMATES The brparation of Financial Statements in conformity with Indian GAAP requires the management to make estimates and assumptions in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in brparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Difference between the actual results and estimates are recognized in the period in which the results are known or materialize. (C) INFLATION Assets and liabilities are recorded at historical cost to the Company (except so far as they relate to (a) revaluation of fixed assets and providing for debrciation on revalued amounts and (b) items covered under 'Accounting Standard (AS) - 30' on 'Financial Instruments: Recognition and Measurement" which have been measured at their fair value). These costs are not adjusted to reflect the changing value in the purchasing power of money. (D) REVENUE RECOGNITION Sales and operating income includes sale of products, by-products and waste, income from job work services and gain or loss on forward contracts. Sales are recognized based on passage of title to goods which generally coincides with dispatch and on transfer of all significant risk and rewards of ownership to the buyer. Revenue from export sales are recognized on shipment basis. The company brsents sales net of returns, excise duty and Sales tax. Export incentives are accounted on accrual basis at the time of export of goods, if the entitlement can be estimated with reasonable accuracy and conditions brcedent to claim are fulfilled. Revenue from job work services is recognized based on the services rendered in accordance with the terms of contracts. Revenue in respect of projects for Construction of Plants and Systems, execution of which is sbrad over different accounting periods, is recognised on the basis of percentage of completion method in accordance with Accounting Standard 7 - Accounting for Construction Contracts. Percentage of completion is determined by the proportion that contract costs incurred for work done till date bears to the estimated total contract cost. Difference between costs incurred plus recognised profit/less recognised losses and the amount invoiced is treated as contract in progress. Determination of revenues under the percentage of completion method necessarily involves making estimates by the Company, some of which are of a technical nature, relating to the percentage of completion, costs to completion, expected revenue from the contract and the foreseeable losses to completion. Dividend is accounted for as and when right to receive payment is established. Interest income is recognised on time proportion basis taking into account the amount outstanding and the rate applicable. Profit or Loss on sale of investments is recorded on transfer of title from the Company, and is determined as the difference between the sale price and carrying value of investment and other incidental expenses. Claims receivable on account of Insurance are accounted for to the extent the Company is reasonably certain of their ultimate collection. (E) VALUATION OF INVENTORY The stock of Raw Material, Work-in-progress, Stock in trade and finished goods has been valued at the lower of cost and net realizable value. However, materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. Cost is measured on actual average for the year and includes cost of materials and cost of conversion. All other inventories of stores, consumables, project material at site are valued at cost. The stock of waste is valued at market price. Excise duty wherever applicable is provided on finished goods lying within the factory and bonded warehouse at the end of the year. (F) FIXED ASSETS AND DEbrCIATION/AMORTISATION Tangible Assets Fixed assets are stated at their original cost of acquisition/revalued cost wherever applicable less accumulated debrciation and impairment losses. Cost comprises of all costs incurred to bring the assets to their location and working condition. Subsequent expenditure related to an item of fixed assets are added to its book value only if they increase future benefits from the existing assets beyond its brviously assessed standard of performance. Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements. Any expected loss is recognised immediately in the Statement of Profit and Loss. Losses arising from the retirement of, and gains or losses arising from disposal of fixed assets are recognised in the Statement of Profit and Loss except to the extent such a loss is related to an increase which was brviously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilized, it is charged directly to that account. The amount standing in revaluation reserve following the retirement or disposal of an asset which relates to that asset is transferred to general reserve. Exchange rate gain or loss on foreign currency loans related to acquisition of debrciable assets are being capitalized as per the notification dated 31st March, 2009 as amended from time to time issued by Ministry of Corporate Affairs, New Delhi. Additions to fixed assets after 1st October 2006 have been stated at cost net of CENVAT wherever applicable. Directly identifiable broperative expenses of new projects of capital nature under implementation are carried forward under capital work-in-progress, pending capitalization. Intangible Assets Intangible assets are stated at their cost of acquisition, less accumulated amortization and impairment losses. An intangible asset is recognised, where it is probable that the future economic benefits attributable to the asset will flow to the enterprise and where its value/cost can be reliably measured. The Company capitalizes software and related implementation costs where it is reasonably estimated that the software has an enduring useful life. Gains or losses arising from disposal or retirement of intangible assets are recognised in the Statement of Profit and Loss. Debrciation of Tangible Assets The carrying value of the tangible fixed assets as on April 1, 2014 is debrciated over remaining useful life of the assets based on independent technical evaluation carried out by external valuer. Debrciation on additions to tangible fixed assets is provided on the straight line method over useful lives of the assets as brscribed under Part C of Schedule II to the Companies Act 2013 except for Plant and Machinery other than Lab Equipments and Leasehold Improvements. When parts of an item of Property, Plant and Equipment have different useful life, they are accounted for as separate items (Major Components) and are debrciated over the useful life respectively. Debrciation on Plant and Machinery other than Lab Equipments and Leasehold Improvements is provided on straight line basis over the useful lives of the assets as estimated by management based on internal assessment. The management estimates the useful lives as follows: The management believes that the useful life as given above best rebrsent the period over which management expects to use these assets. Hence the useful lives for these assets are different from the useful lives as brscribed under Part C of Schedule II to the Companies Act 2013. Debrciation for assets purchased/sold during a period is proportionately charged for the period of use. Debrciation on exchange rate difference capitalized is provided over the balance life of the assets as per the notification dated 31st March, 2009 as amended from time to time issued by the Ministry of Corporate Affairs. Amortisation of Intangible Assets Software is amortized over management estimate of its useful life of 5 years or License Period whichever is lower and Patent/Knowhow is amortized over its useful validity period. Website is amortized over 5 years. (G) IMPAIRMENT OF ASSETS An asset is considered as impaired in accordance with Accounting Standard 28 on Impairment of Assets when at balance sheet date there are indications of impairment and the carrying amount of the asset, or where applicable the cash generating unit to which the asset belongs, exceeds its recoverable amount (i.e. the higher of the asset's net selling price and value in use). The carrying amount is reduced to the recoverable amount and the reduction is recognized as an impairment loss in the Statement of Profit and Loss Assessment is also done at each Balance Sheet date as to 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. (H) INVESTMENTS Investments are classified as Long Term Investments and Current Investments. Long term investments are stated at cost less permanent diminution in value, if any. Current Investments are stated at lower of cost and fair value. Investments in subsidiaries are valued at cost less any provision for impairment. Investments are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. Investment property: Investment in Land and buildings that are not intended to be occupied substantially for use by, or in the operations of the Company, have been classified as investment property. Investment properties are carried at cost less accumulated debrciation. (I) FOREIGN CURRENCY TRANSACTIONS Transactions denominated in foreign currencies are normally recorded at the exchange rate brvailing at the time of the transaction. Foreign currency monetary items are restated using exchange rate brvailing at the reporting date. Non-monetary foreign currency items are carried at cost. The Company has opted to avail the choice provided under paragraph 46A of AS 11: The Effects of Changes in Foreign Exchange Rates inserted vide Notification dated December 29, 2011. Consequently, all long term foreign currency monetary items consisting of loans which relate to acquisition of debrciable capital assets at the end of the year have been restated at the rate brvailing at the balance sheet date. The difference arising as a result has been added to or deducted from the cost of the assets. Exchange rate difference on other long term foreign currency monetary items is carried to 'Foreign Currency Monetary Item Translation Difference Account' to be amortized up to the period of such foreign currency monetary items. Any income or expense on account of exchange difference either on settlement or on translation other than as mentioned above is recognised in the Statement of Profit and Loss. Expenses of overseas offices are translated and accounted at the monthly average rate. (J) DERIVATIVES & COMMODITY HEDGING TRANSACTIONS The company uses forward contracts and options to hedge its risk associated with fluctuations in foreign currency relating to foreign currency assets and liabilities and highly probable forecast transactions. The use of aforesaid financial instruments is governed by the Company's overall risk management strategy. The Company neither holds nor issues any derivative financial instruments for speculative purposes. Derivative financial instruments are initially recorded at their fair value on the date of the derivative transaction and are re-measured at their fair value at subsequent balance sheet dates. Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and are determined to be an effective hedge are recorded in hedging reserve account. To designate a forward contract or option as an effective hedge, management objectively evaluates and evidences with appropriate supporting documents at the inception of each contract whether the contract is effective in achieving offsetting cash flows attributable to hedged risk. Any cumulative gain or loss on the hedging instrument recognised in hedging reserve is kept in hedging reserve until the forecast transaction occurs or the hedged accounting is discontinued. Amounts deferred to hedging reserve are recycled in the Statement of Profit and Loss in the periods when the hedged item is recognised in the Statement of Profit and Loss or when the portion of the gain or loss is determined to be an ineffective hedge. Derivative financial instruments that do not qualify for hedge accounting are marked to market at the balance sheet date and gains or losses are recognised in the Statement of Profit and Loss immediately. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in hedging reserve is transferred to profit or loss for the year. (K) EMPLOYEE BENEFITS The Company has Defined Contribution Plans for post employment benefits namely Provident Fund and Superannuation Fund which are recognized by the Income Tax Authorities. These funds are administered through trustees and the Company's contributions thereto are charged to revenue every year. The Company also pays insurance brmiums to fund a post-employment medical assistance scheme, a Defined Contribution Plan administered by ICICI Lombard General Insurance Company Limited which is charged to revenue every year. The Company's Contribution to State Plans namely Employee's State Insurance Fund and Employee's Pension Scheme are charged to revenue every year. The Company has Defined Benefit Plans namely leave encashment / compensated absences and Gratuity for all the employees, the liability for which is determined on the basis of an actuarial valuation at the year end and incremental liability, if any, is provided for in the books. The actuarial valuation is done based on Projected Unit Credit Method. Gratuity scheme is administered through trust recognised by the Income Tax Authorities and / or by Life Insurance Corporation of India. Actuarial Gains and Losses comprise of experience adjustments and the effects of changes in actuarial assumptions are recognised immediately in the Statement of Profit and Loss as income or expense. (L) BORROWING COST Borrowing costs include interest, fees and other charges incurred in connection with the borrowing of funds. It is calculated on the basis of effective interest rate in accordance with Accounting Standard (AS) -30 and considered as revenue expenditure and charged to Statement of Profit and Loss over the period of borrowing except for borrowing costs either generally or specifically attributed directly to the acquisition/improvement of qualifying assets up to the date when such assets are ready for intended use which are capitalised as a part of the cost of such asset. (M) LEASE ACCOUNTING Assets acquired under Finance Lease are segregated from the assets owned and recognized as asset at an amount equal to the fair value of the leased assets at the inception of the lease or the brsent value of the minimum lease payments whichever is lower with corresponding outstanding liability. Lease rental payable on such finance lease has been apportioned between finance charge and the reduction in the outstanding liability. The finance charge has been allocated to periods during the lease term so as to produce constant periodic rate of interest on the remaining balance of liability for each period. Lease Rentals for assets acquired under operating lease are recognised as an expense in Statement of Profit and Loss on a straight line basis over the lease term. (N) TAXES ON INCOME Tax expense consists of both current as well as deferred tax. Current tax rebrsents amount of income tax payable including the tax payable u/s 115JB, if any, in respect of taxable income for the year. Minimum Alternate Tax Credit is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax within the specified period. The said asset is created by way of a credit to the Statement of Profit and Loss and is shown as MAT Credit Entitlement. Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the recognised amounts. Deferred tax is recognised on timing difference between the accounting income and the taxable income for the year that originates in one period and are capable of reversal in one or more subsequent periods. Such deferred tax is quantified using the tax rates and laws enacted or substantively enacted as on the Balance Sheet date. Deferred tax asset is recognised and carried forward to the extent that there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax asset can be realized. (O) GOVERNMENT GRANTS AND SUBSIDIES Grants/Subsidies from the government are recognised when there is reasonable assurance that the Company will comply with the conditions attached to them and the grant/subsidy will be received. When the grant/subsidy relates to revenue, it is recognised as income on a systematic basis in the Statement of Profit and Loss over the periods necessary to match them with the related costs, which they are intended to compensate. Where the grant/subsidy relates to an asset, it is shown as a deduction from the gross value of the asset concerned in arriving at its book value. (P) EARNING PER SHARE The Company reports basic and diluted Earnings Per Share (EPS) in accordance with Accounting Standard 20 on Earnings Per Share. Basic EPS is computed by dividing the net profit or loss for the year by the weighted average number of Equity shares outstanding during the year. Diluted EPS is computed by dividing the net profit or loss for the year by the weighted average number of equity shares outstanding during the year as adjusted for the effects of all dilutive potential equity shares, except where the results are anti-dilutive. (Q) PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS Provisions involving a substantial degree of estimation in measurement are recognized when there is a brsent obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent liabilities are not recognized but are disclosed in the accounts by way of a note. Contingent assets are neither recognized nor disclosed in the financial statements. (R) CAPITAL ISSUE EXPENSES Expenses on issue of Shares, Debentures and GDRs are being adjusted against Securities Premium Account as permitted by section 52 of the Companies Act, 2013. 3 Impairment of Fixed Assets In accordance with the Accounting Standard (AS -28) on 'Impairment of Assets' , the Company has reassessed its fixed assets and is of the view that no further impairment/reversal is considered to be necessary in view of its expected realisable value. 4 Early adoption of AS 30, Financial Instruments :Recognition and Measurement (a) Consequent to the Announcement of the Institute of Chartered Accountants of India (ICAI), the Company had chosen to early adopt 'Accounting Standard - 30, Financial Instruments: Recognition and Measurement' in its entirety, read with the clarification issued on application of AS -30. Accordingly, the Company has changed the designation and measurement of all its significant financial assets and liabilities. All the financial assets and financial liabilities and derivatives have been remeasured at their respective fair values or at amortized cost as against cost except for those items whose accounting treatment is covered by the existing accounting standards. (b) As a result, as on Balance Sheet date, Long Term Borrowings are lower by Rs. 6.51 Crores, (Previous year Rs. 6.98 Crores) and Hedge Reserve account is credited by Rs. 13.46 Crores (Previous year debited by Rs. 8.24 Crores) on account of fair valuation of outstanding derivatives. 5 Foreign Exchange Differences As per the notification issued by the Ministry of Corporate Affairs dated 31st March, 2009 as amended from time to time, the Company had already exercised the option for accounting of exchange rate differences with effect from April 1, 2007. Consequent to the adoption of that option: (a) Exchange rate differences of long-term foreign currency loans which are related to acquisition of debrciable fixed assets have been added to or deducted from the cost of the assets and debrciated over the balance life of the assets and; (b) Exchange rate differences on other long-term foreign currency loans have been transferred to 'Foreign Currency Monetary Item Translation Difference Account' to be amortized over the balance period of loans. As a result: (a) An amount of Rs. 3.76 Crores being the exchange rate loss for the year (Previous year Rs.2.84 Crores) has been adjusted against the fixed assets. (b) An amount of Rs.Nil being the exchange rate loss for the year (Previous year Rs. 3.88 Crores) remains to be amortized as at the balance sheet date. 6 Effective from April 1, 2014, the Company has revised useful lives of tangible fixed assets based on an independent evaluation. Accordingly, the carrying value of fixed assets as on that date, net of residual value, has been debrciated over the revised remaining useful lives. Further, an amount of Rs. 60.93 Crores (Net of deferred tax of Rs. 32.25 Crores) rebrsenting the carrying value of assets, whose remaining useful life is Nil as at April 1, 2014, has been charged to general reserve pursuant to the provisions of the Companies Act, 2013 on April 1, 2014. 7 Scheme of Arrangement i A Composite Scheme of Arrangement ("the Scheme") in the nature of Demerger and transfer of Real Estate Undertaking of Arvind Limited ("the Company") to Arvind Infrastructure Limited ("AIL") and Restructuring of Share Capital, under sections 391 to 394 read with sections 78, 100 and 103 of the Companies Act, 1956 has been sanctioned by the High Court of Gujarat at Ahmedabad on April 22, 2015. The Scheme has become effective from the appointed date 1st April 2015. ii Pursuant to the Scheme, the Real Estate Undertaking stood demerged from the Comapny and transferred to and vested in AIL as a going concern with effect from the appointed date 1st April 2015. Upon the Scheme becoming effective: a. From the appointed date, the assets and liabiities of the Real Estate Undertaking of the Company (Demerged Undertaking) have been transferred to AIL at their respective Book values. b. AIL has credited its Share Capital Account with the aggregate face value of the equity shares issued 1 (One) fully paid Equity Shares of Rs. 10/- each of AIL for every 10 (Ten) fully paid up Equity Shares of Rs. Rs. 10/- each held by the shareholders of the Company. c. The existing shares of AIL held by the Company and its nominees shall stand cancelled and the amount of such investment in the books of the Company shall be written off against the Securities Premium Account. d. The amount of difference in the net value of assets transferred pursuant to the Scheme and the amount of consideration as issued, netted by existing share capital cancelled shall be adjusted against the Securities Premium Account. iii Pursuant to the Scheme, Demerged Undertaking has been demerged from the Company with effect from 1st April 2015, (the appointed date): a. As on appointed date, all the assets and the liabilities have been transferred to AIL at their respective book values. b. As consideration, AIL has subsequently issued and allotted Equity Shares of Rs. 10/- each fully paid up in the ratio of 1 (One) EquityShare of Rs. 10/- each for every 10 (Ten) Equity Shares of Rs. 10/- each of the Company, to the shareholders of the Company. c. The amount of investment in AIL in the books of the Company of Rs. 100.05 Crores has been adjusted against the Securities Premium Account. d. The difference between the value of assets and liabilities transferred of Rs. 0.08 Crores has been adjusted against the Securities Premium Account. 8 Business Purchase The Company has purchased all rights, interest and title in the Business known as "Creayte & MBO Division" of Arvind Internet Limited, a subsidiary of the Company as going concern basis for the lump sum consideration of Rs. 11.52 Crores.. 9 Figures less than Rs. 50,000/- which are required to be shown seperately, have been shown as actual in brackets. 10 In the opinion of the Board, all assets other than fixed assets have a value on realization in the ordinary course of business at least equal to the amount at which they are stated except for reconciliation adjustments in respect of some of the payables and receivables. 11 Previous year figures have been regrouped or recast wherever necessary to make them comparable with those of the current year. As per our report of even date attached For Sorab S. Engineer & Co. Firm Registration No. 110417W Chartered Accountants CA. N. D. Anklesaria Partner Membership No.10250 SANJAY S. LALBHAI Chairman & Managing Director JAYESH K. SHAH Director & Chief Financial Officer R. V. BHIMANI Company Secretary Ahmedabad May 12, 2016 |