Notes to the Financial Statements

Note 1: Significant Accounting Policies

(I) Basis of Accounting

The accompanying financial statements have been brpared in compliance with the requirements under section 133 of the Companies Act, 2013 (to the extent notified), read with Rule 7 of the Companies (Accounts) Rules, 2014, and other generally accepted accounting principles (GAAP) in India, to the extent applicable, under the historical cost convention, on the accrual basis of accounting. GAAP comprises mandatory accounting standards as specified in the Companies (Accounting Standards) Rules, 2006.

(II) U se of Estimates

The brparation of financial statements in conformity with Generally Accepted Accounting Principles (GAAP) in India requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent liabilities on the date of financial statements and the reported amount of revenue and expenses during the reporting period. Actual results could defer from those estimates. Any revision to accounting estimates is recognised prospectively in current and future periods.

(III) Classification of Assets and Liabilities

Schedule III to the Companies Act, 2013 requires assets and liabilities to be classified as either Current or Non-current.

(a) An asset shall be classified as current when it satisfies any of the following criteria:

(i) it is expected to be realised in, or is intended for sale or consumption in, the Company’s normal operating cycle;

(ii) it is held primarily for the purpose of being traded;

(iii) it is expected to be realized within twelve months after the reporting date; or

(iv) 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.

(b) All assets other than current assets shall be classified as non-current.

(c) A liability shall be classified as current when it satisfies any of the following criteria:

(i) it is expected to be settled in the Company’s normal operating cycle;

(ii) it is held primarily for the purpose of being traded;

(iii) it is due to be settled within twelve months after the reporting date; or

(iv) the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

(d) All liabilities other than current liabilities shall be classified as non-current.

(IV) Operating Cycle

An operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. The Company has ascertained the operating cycle as twelve months for the purpose of current or Non-current classification of assets and liabilities.

(V) Fixed Assets

(a) Fixed assets are stated at their original cost of acquisition and installation, less accumulated debrciation, amortisation and impairment losses, if any. Cost comprises of the purchase price and any other directly attributable cost of bringing the asset to its working condition for its intended use.

(b) Borrowing costs that are directly attributable to the acquisition of qualifying assets are capitalised for the period until the asset is ready for its intended use. A qualifying asset is an asset that necessarily takes substantial period of time to get ready for its intended use. Other borrowing costs are recognised as an expense in the period in which they are incurred.

(c) Debrciation is provided on the straight-line method using useful life brscribed in Part C of Schedule II of the Companies Act, 2013. Based on the internal technical evaluation, considering nature and usage of the assets, useful life of the following asset classes are estimated to be higher than that brscribed in the said Act.

(V) Fixed Assets (contd.)

(d) Leasehold lands are amortised over the primary period of lease.

(e) Purchase cost and user licence fees for major software are amortised over a period of three years.

(f) Impairment loss is provided to the extent the carrying amount of assets exceed their recoverable amount. If there is any indication of impairment based on internal / external factors, the recoverable amount is estimated for the individual asset. However, if it is not possible to estimate the recoverable amount of individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined. A cash generating unit is the smallest identifiable group of assets that generates cash flow from continuing use that are largely independent of the cash inflows from other assets or groups of assets. Recoverable amount is the higher of an asset's net selling price and its value in use.

Value in use is the brsent value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Net selling price is the amount obtainable from the sale of an asset in an arm's length transaction between knowledgeable, willing parties less the cost of disposal. If at the Balance Sheet date there is an indication that the brviously assessed impairment loss no longer exist, the recoverable amount is reassessed and the asset is reflected at recoverable amount subject to maximum of debrciable historical cost.  

(g) Capital expenditure on Research and Development is treated in the same way as expenditure on fixed assets. Revenue expenditure on Research and Development is charged to the Statement of Profit and Loss in the year in which it is incurred.

(h) Tangible fixed assets under construction are disclosed as capital work-in-progress.

(i) 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.

(VI) Investments

(a) Long-term investments are stated at cost. A provision for diminution is made to recognise a decline, other than temporary, in the value of long-term investments. The determination for dimunition is done separately for each individual investment.

(b) Current investments, consist of investments in mutual funds, are stated at lower of cost and fair value, where net asset value declared by the respective funds is considered as fair value.

(c) Profit or loss on sale of investments is determined on the basis of weighted average carrying amount of investments disposed off.

(VII) Inventories

(a) Stores and spare parts are valued at cost less amounts written down.

(b) Inventories other than stores and spare parts are valued at the lower of cost and net realisable value after making such provisions as required on account of damaged, unserviceable, inert and obsolete stocks. The comparison of the cost and net realisable value is made on item by item basis.

(c) Cost of inventories compromise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their brsent location and condition.

(d) Cost has been arrived at on the basis of weighted average method. In the case of manufactured inventories and work-in-progress, fixed production overhead are allocated on the basis of normal capacity of production facilities.

(e) The net realisable value of finished goods and stock-in-trade is determined with reference to the selling prices of related finished goods. Raw materials and other supplies held for use in production of inventories are not written down below cost except in cases where material prices have declined and it is estimated that the cost of finished products will exceed their net realisable value. In such cases, the materials are valued at replacement cost.

(VIII) Provisions and Contingent Liabilities

(a) A provision is recognised when an enterprise has a brsent obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to their brsent values and are determined based on management estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current management estimates.

(VIII) Provisions and Contingent Liabilities (contd.)

(b) Contingent liabilities are disclosed in respect of possible obligations that have arisen from past events and the existence of which will be confirmed only by the occurance or non-occurance of future events not wholly within the control of the Company.

(c) When there is an obligation in respect of which the likelyhood of outflow of resources is remote, no provision or disclosure is made.

(IX) Revenue Recognition

(a) Sales are recognised in accordance with Accounting Standard (AS) 9 - Revenue viz. when the seller has transferred to the buyer, the property in the goods, for a price, or significant risk and rewards of ownership have been transferred to the buyer and no significant uncertainty exists regarding its collection.

(b) Sales are inclusive of excise duty and are net of sales returns, trade discount and product rebate.

(c) Dividend income is accounted when the right to receive payment is established and known.

(d) Interest income is recognised on the time proportion basis.

(e) Revenue from services is recognized on rendering of services to the customers based on contractual arrangements. Revenue is recorded exclusive of Service Tax.

(X) Employee Benefits

(a) Short-term Employee Benefits:

Short-term employee benefits are recognised as an expense at the undiscounted amount in the Statement of Profit and Loss of the year in which the related service is rendered.

(b) Post-Employment Benefits:

(i) Provident and Family Pension Fund

The eligible employees of the Company are entitled to receive post employment benefits in respect of provident and family pension fund, in which both the employees and the Company make monthly contributions at a specified percentage of the employees’ eligible salary (currently 12% of employees’ eligible salary). The contributions are made to the provident fund managed by the trust set up by the Company, or to the Regional Provident Fund Commissioner (RPFC) which are charged to the Statement of Profit and Loss as incurred. In respect of contribution to RPFC, the Company has no further obligations beyond making the contribution, and hence, such employee benefit plan is classified as Defined Contribution Plan. The Company's contribution is recognised as an expense in the Statement of Profit and Loss.

In respect of contribution to the trust set up by the Company, since the Company is obligated to meet interest shortfall, if any, with respect to covered employees, such employee benefit plan is classified as Defined Benefit Plan in accordance with the Guidance on implementing Accounting Standard (AS) 15 (Revised) on Employee Benefits.

Any obligation in this respect is measured on the basis of independent actuarial valuation. Actuarial gains and losses are recognised in the Statement of Profit and Loss in the period in which they arise.

(ii) Superannuation

The eligible employees of the Company are entitled to receive post employment benefits in respect of superannuation fund in which the Company makes annual contribution at a specified percentage of the employees’ eligible salary (currently 15% of employees’ eligible salary). The contributions are made to the Life Insurance Corporation of India (LIC). Superannuation is classified as Defined Contribution Plan as the Company has no further obligations beyond making the contribution. The Company’s contribution is recognised as an expense in the Statement of Profit and Loss.

(iii) Gratuity

The Company has an obligation towards gratuity, a defined benefit retirement plan covering eligible employees. The plan provides a lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 days salary payable for each completed year of service or part thereof in excess of six months. Vesting occurs upon completion of five years of service. The Company has obtained insurance policies with the Life Insurance Corporation of India (LIC) and makes an annual contribution to LIC for amounts notified by LIC. The Company accounts for gratuity benefits payable in future based on an independent external actuarial valuation carried out at the end of the year using the projected unit credit method.

Actuarial gains and losses are recognised in the Statement of Profit and Loss in the period in which they arise.

X) Employee Benefits (contd.)

(c) Other Long-term Employee Benefits - Compensated Absences:

The Company provides for encashment of leave or leave with pay subject to certain rules. The employees are entitled to accumulate leave subject to certain limits for future encashment / availment. The Company makes provision for compensated absences based on an independent actuarial valuation carried out at the end of the year. Actuarial gains and losses are recognised in the Statement of Profit and Loss in the period in which they arise.

(XI) Foreign Currency Transactions

(a) Transactions in foreign currencies are recorded at the exchange rate that approximates the actual rate at the date of the transaction. In respect of monetary assets and liabilities denominated in foreign currencies, exchange differences arising out of settlement are recognised in the Statement of Profit and Loss. Monetary assets and liabilities denominated in foreign currencies as at the Balance Sheet date are translated at the exchange rates on that date, the resultant exchange differences are recognised in the Statement of Profit and Loss.

(b) Premiums or discounts arising at the inception of the forward foreign exchange contracts, other than contracts to hedge a firm commitment or a highly probable forecast transaction, are amortised and recognised in the Statement of Profit and Loss over the period of the contract. Such forward foreign exchange contract outstanding as at the Balance Sheet date are converted at the exchange rates brvailing on that date. Exchange differences are recognised in the Statement of Profit and Loss.

(XII) Accounting for Derivatives

Apart from forward exchange contracts taken to hedge existing assets or liabilities, the company also uses derivatives to hedge its foreign currency risk exposure relating to firm commitments and highly probably forecast transactions. In accordance with the relevant pronouncement of the Institute of Chartered Accountants of India, the Company provides for net losses in respect of such derivative contracts at the balance sheet date by marking them to market. Net gain, if any, is not recognised. The contracts are aggregated category-wise to determine the net gain / loss.

(XIII) Taxation

Tax expense comprises current and deferred tax. Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income-tax Act, 1961. Deferred tax reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rate and tax laws enacted or substantially enacted as at the Balance Sheet date.

Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised in future; however, where there is unabsorbed debrciation or carry forward of losses, deffered tax assets are recognised only if there is virtual certainty of realisation of such assets. Deferred tax assets are reviewed as at each Balance Sheet date and written down or written up to reflect the amount that is reasonably / virtually certain (as the case may be) to be realised.

Minimum Alternative Tax (‘MAT’) credit is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal income-tax during the specified period. In the year in which the MAT credit becomes eligible to be recognised as an asset in accordance with the recommendations contained in the guidance note issued by Institute of Chartered Accountants of India (‘ICAI’), the said asset is created by way of a credit to the statement of profit and loss. The Company reviews the same at each balance sheet date and writes down the carrying amount of MAT credit entitlement to the extent there is no longer convincing evidence to the effect that Company will pay normal income-tax during the specified period.

(XIV) Leases

Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased assets are classified as operating leases. Operating lease payments / receipts are recognised as an expense / income in the Statement of Profit and Loss on a straight-line basis over the lease term.

(XV) C ash and Cash Equivalents

Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Note 32: Segment Reporting

As the company's business activity falls within a single business segment viz. 'Paints' and the sales substantially being in the domestic market, the financial statement are reflective of the information required by Accounting Standard 17 "Segment Reporting", notified under Companies (Accounting Standard) Rules, 2006.

Note 33: Corporate Social Responsibilities

During the year, the Company has spent Rs. 5.29 Crores (2014-2015 Rs. 4.51 Crores) towards 'Corporate Social Responsibility Activities' (CSR Activities). Rs. 4.51 Crores spent during the brvious year towards CSR Activities was recorded as an appropriation of profit in Statement of Assets and Liabilities in accordance with the 'FAQ on Provisions of Corporate Social Responsibilities under Section 135 of the Companies Act, 2013 and Rules thereon', issued by the 'Institute of Chartered Accountants of India (ICAI). However, consequent to the issuance of 'Guidance Note on accounting for expenditure on Corporate Social Responsibility Activities', issued by ICAI on 15th May, 2015, Rs. 5.29 Crores spent during the year ended 31st March, 2016 on CSR Activities has been charged to Statement of Profit and Loss.

Note 34:

During the year, management has detected some cases of fraudulent transfer of shares and wrongful payment of dividend by the Company's Registrar and Transfer Agent M/s. Sharepro Services (India) Pvt. Ltd. Based on the current status of investigation conducted by the management, through Company's internal auditors, the estimated amount involved in the fraud as at balance sheet date is Rs. 1.28 Crores and provision for the same is made in the Statement of Profit and Loss. Further adjustments, if any required, would be considered by the Company on completion of the investigation.

Note 35:

On 30th March, 2016, the Company has sold its Perungudi Fixed Assets for a consideration of Rs. 537.86 Crores. The Profit of Rs. 535.34 Crores is disclosed as an exceptional item in the Statement of Profit and Loss. The Company has executed the Deed of Indemnity with the purchaser to indemnify the purchaser against any future claims based on the terms and conditions set forth in the Deed of Indemnity. The Company does not expect Future Claims to have material impact on Financial Statements. These fixed assets were classified as ‘Assets held for Sale’ in the brvious year.

For B S R & Co. LL  

Chartered Accountants

Firm’s Registration No. 101248W/W-100022

SADASHIV SHETTY

Partner  

Membership No. 048648

G.T. GOVINDARAJAN  Company Secretary

P.D. PAI  CFO

As per our attached report of even date

For and on behalf of the Board of Directors

P P.P. SHAH : Chairman DIN 00066242

D.M. KOTHARI Vice Chairman DIN 00516431

H.M. BHARUKA Managing Director DIN 00306084

N.N. TATA Director DIN 00024713

P.D. CHAUDHARI Wholetime Director DIN 02171823

BRINDA SOMAYA : Director DIN 00358908

Place: Mumbai,

date :  27th April, 2016