Notes to Financial Statements for the year ended 31 March 2016 Note 1: Company Background Akzo Nobel India Limited ('the Company') was incorporated in India on 12 March 1954 as Indian Explosives Limited. A fresh certificate of incorporation consequent to the change in name to Akzo Nobel India Limited was issued by the Dy. Registrar of Companies, Kolkata on 15 February 2010 under Section 23(1) of the Companies Act, 1956. The Company was set-up inter alia with the object of manufacturing and selling of paints, chemicals and related products. Note 2: Significant accounting policies Basis of brparation of financial statements The financial statements have been brpared under the historical cost convention on a going concern basis, on the accrual basis of accounting in accordance with the Generally Accepted Accounting Principles (GAAP) in India. Indian GAAP comprises mandatory accounting standards as specified under the section 133 of the Companies Act, 2013 read with Rule 7 of Companies (Accounts) Rules, 2014 and other accounting pronouncements of the Institute of Chartered Accountants of India. Accounting policies set out below 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. Current & non-current classification All assets and liabilities are classified into current and non-current. Assets An asset is classified as current when it satisfies any of the following criteria: • it is held primarily for the purpose of being traded; • it is expected to be realised within 12 months after the reporting date; or • it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date. Current assets include the current portion of non-current financial assets. All other assets are classified as non-current. Liabilities A liability is classified as current when it satisfies any of the following criteria: • it is expected to be settled in the company's normal operating cycle; • it is held primarily for the purpose of being traded; • it is due to be settled within 12 months after the reporting date; or • the company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in it settlement by the issue of equity instruments do not affect its classification. Current liabilities include current portion of non-current financial liabilities. All other liabilities are classified as non-current. Use of estimates The brparation of financial statements in conformity with Generally Accepted Accounting Principles in India (GAAP) require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities on the date of the financial statements and the results of operations during the year. Differences between actual results and estimates are recognised in the year in which the results are known or materialised and, if material, their effects are disclosed in notes to financial statements. Examples of such estimates are estimated useful life of assets, provision for doubtful debts, income taxes, future obligations under employee retirement benefit plans, classification of assets/liabilities as current or non-current, etc. Actual results could differ from those estimates. Any revision to accounting estimates is recognised prospectively in current and future periods. Fixed assets / Debrciation Tangible fixed assets are carried at the cost of acquisition or construction, less accumulated debrciation and impairment loss, if any. 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. Profit or Loss on disposal of tangible assets is recognised in the statement of Profit and Loss. Capital work-in-progress and capital advances Capital Work-in-progress excluding capital advances includes fixed assets under construction and not ready for intended use as on Balance Sheet date. Debrciation on fixed assets other than leasehold improvements has been provided pro-rata to the period of use, on the straight line method, using rates determined based on management's assessment of useful economic lives of the asset. Debrciation is provided at the rates equal to or higher than those brscribed in Part C of Schedule II to the Companies Act, 2013. Asset Category Estimated useful life(in years) Buildings :10 to 60* Plant and Machinery :15 Plant and Machinery under operatinglease :6 Laboratory equipment :10 Office equipment: 5 Furniture and Fixture (at stores) :3 Furniture and Fixture (others :10 Computers :3 to 6* Vehicles: 5 Trucks :7 * For different locations/type of assets During the current year, pursuant to the Companies Act, 2013, the Company has revised debrciation rates of fixed assets as per the useful life specified in Part 'C' of Schedule II of the Act, read with notification dated 29 August 2014 of the Ministry of Corporate Affairs, on the original cost/ acquisition of assets or other amounts substituted for cost, except for the following classes of fixed assets which are debrciated as under: a. Plant and Machinery under operating lease: 6 years b. Furniture and fixtures (at stores): 3 years The above useful lives have been arrived at, based on the technical assessment of the management, and are currently reflective of the estimated useful lives of the fixed assets (also refer note 3.8 of the financial statements). Leasehold improvements are amortised over the lower of useful life or the period of lease including the optional period, if any, available to the Company, where it is reasonably certain at the inception of lease that such option would be exercised by the Company. Revenue recognition Revenue from sale of goods is recognised when significant risks and rewards of ownership are transferred to customers. Sales are stated inclusive of excise duty and net of rebates, returns, trade discounts and sales tax/VAT. Service income is recognised on accrual basis as per the contractual terms with the customers, net of service tax. Interest income is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable. Dividend or other income from mutual fund investments is recognised on declaration of dividend or on redemption, as the case may be. Profit on sale of investments is recorded on transfer of title from the Company and is determined as the difference between the redemption price and carrying value of the investment. Investments 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 expected to be realized within twelve months from Balance Sheet date is also brsented under "Current Assets" under "Current portion of long term investments" in consonance with the current / non-current classification of revised Schedule III to the Companies Act, 2013. 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. On disposal of an investment, the difference between its carrying amount and net disposal proceeds is recognized in the statement of Profit and Loss. Current investments are carried at the lower of cost and fair value. Long term investments (including their current maturities) are stated at cost less amount written off, where there is a diminution in value, other than temporary. Current assets (a) Inventories Stores and spare parts are valued at the lower of cost and net realisable value, computed on a weighted average basis. Raw materials, packing materials and work-in-process are carried at cost, computed on a weighted average basis, after providing for obsolescence. In case there is a decline in replacement cost of such materials and the net realisable value of finished products in which they will be used is expected to be below cost, the value of such materials and work-in-process is appropriately written down. Finished products are valued at the lower of cost (computed on weighted average basis) and net realisable value. Cost includes an appropriate portion of manufacturing and other overheads, where applicable. Excise duty on finished products is included in the value of finished products inventory. (b) All other items of current assets are stated at cost after adequate provisions for any diminution in the carrying value. Cash flow statement Cash flows are reported using the indirect method, whereby, profit before tax is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and items of income or expense associated with the investing or financing cash flows. The cash flows from operating, investing and financing activities of the company are segregated. Foreign currency transactions Foreign currency transactions are accounted for at the exchange rate brvailing on the date of the transaction. All monetary foreign currency assets and liabilities are converted at the exchange rates brvailing at the date of the balance sheet. All exchange differences other than in relation to acquisition of fixed assets and other long term foreign currency monetary liabilities are dealt with in the statement of Profit and Loss. In case of foreign exchange forward contracts taken for underlying transactions, and covered by Accounting Standard 11, "Accounting for the effects of changes in foreign exchange rates", the brmium or discount is amortised as income or expense over the life of the contract. The exchange difference is calculated as the difference between the foreign currency amount of the contract translated at the exchange rate at the reporting date, or the settlement date where the transaction is settled during the reporting period, and the corresponding foreign currency amount translated at the later of the date of inception of the forward exchange contract and the last reporting date. Such exchange differences is recognised in the statement of Profit and Loss in the reporting period in which the exchange rates change. Any profit or loss arising on the cancellation or renewal of such contracts is recognised as income or expense for the year. Operating Lease The assets given under operating lease are shown in the Balance Sheet under fixed assets and debrciated on a basis consistent with the debrciation policy of the Company. Lease rentals are accounted on accrual basis in accordance with the respective lease agreements. Lease payments under operating leases are recognised as an expense in the statement of Profit and Loss on a straight line basis over the lease term and disclosed as lease rent equalization reserve in the Balance Sheet. Employee benefits a) Short term employee benefits All employee benefits payable /available within twelve months of rendering the service are classsified as shortterm employee benefits. Benefits such as salaries, wages and bonus, etc., are recognised in the statement of Profit and Loss in the period in which the employee renders the related service. b) Post -employment benefits Defined contribution plans Defined contribution plans are provident fund scheme, superannuation scheme and part of the pension fund 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. The Company makes specified monthly contributions towards employees provident fund to trusts administered by the Company/Regional Provident Fund Commissioner; towards superannuation fund to trusts managed by Life Insurance Corporation of India; and towards pension fund to respective trusts administered by the Company, where established. Where such pension trusts have not been established, the Company makes provision for the liability as on the date of the Balance Sheet. The minimum interest payable by the provident fund trusts to the beneficiaries every year is notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return on investments of the trusts and the notified interest rate basis actual valuation as at the date of the Balance Sheet. Defined benefit plans Liability for funded post retirement gratuity, pension and unfunded post retirement medical benefit is accrued on the basis of actuarial valuation as at the date of the Balance Sheet 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 obligation is measured as the brsent value of the estimated future cash flows. The discount rates used for determining the brsent value of the obligation under defined benefit plans, is based on the market yields of Government securities as at the Balance Sheet date, having maturity periods approximating to the terms of related obligations. Actuarial gains and losses are recognised immediately in the statement of Profit and Loss. In case of funded schemes, differential between fair value of plan assets of the trusts and the brsent value of obligations, as per the actual valuation, is recognised as an asset or liability based on the assessment of related cash flows. c) Other long term employee benefits Entitlements to annual leave and sick leave and long term service awards are recognised when they accrue to employees. All leave entitlements can be encashed only at the time of retirement/ termination of employment or may be availed during the term of employment, subject to a restriction on the maximum number of accumulation of leave entitlement days. The Company determines the liability for long term employee benefits on the basis of actuarial valuation as at the year end. Research and development Revenue expenditure on research and development, including contribution to research associations, is charged to the statement of Profit and Loss. Capital expenditure on tangible assets for research and development is shown as additions to fixed assets. Earnings per share The basic and dilutive earnings per share is computed by dividing the net profit attributable to equity shareholders for the year by the weighted average number of equity shares outstanding during the year. Dilutive earnings per share is computed and disclosed after adjusting the effects of all dilutive potential equity shares, if any, except when the results will be anti-dilutive. Borrowing costs Borrowing costs that are attributable to the acquisition or construction of qualifying assets are capitalised as a part of the cost of such assets. A qualifying asset is one that necessarily takes substantial period of time to get ready for intended use. All other borrowing costs are charged to revenue. Taxation Income-tax expense comprises current tax (i.e. the amount of tax for the year determined in accordance with the Income-tax Act, 1961) and deferred tax charge or credit (reflecting the tax effects of timing differences between the accounting income and taxable income for the year). A provision is made for income tax, based on the tax liability computed, after considering tax allowances and exemptions. Provisions are recorded when it is estimated that our liability due to disallowances or other matters is probable. 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 substantially enacted as of the Balance Sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty of realisation. However, where there is unabsorbed debrciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is virtual certainty of realisation of such assets. Deferred tax assets are reviewed 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') under the provisions of the Income-tax Act, 1961 is recognised as current tax in the statement of Profit and Loss. The credit available under the Income-tax Act, 1961 in respect of MAT paid 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 period for which the MAT credit can be carried forward for set-off against the normal tax liability. MAT credit recognised as an asset is reviewed at each Balance Sheet date and written down to the extent the aforesaid convincing evidence no longer exists. Provisions and contingent liabilities The Company recognises a provision when there is a brsent obligation as a result of a past event and it is more likely than not that there will be an outflow of resources embodying economic benefits to settle such obligation and the amount of such obligation can be reliably estimated. Where no reliable estimate can be made, disclosure is made as contingent liability. Provisions are not discounted to their brsent values and are determined based on the management's estimation of the outflow required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect current management estimates. Contingent liabilites are disclosed in respect of possible obligations that have arisen from past events and the existence of which will be confirmed only by the occurence or non-occurrence of future events, not wholly within the control of the Company. When there is an obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Cash and cash equivalents Cash and cash equivalents comprise cash and deposit with banks with an original maturity of 3 months or less. The Company considers all highly liquid investments with a remaining maturity at the date of purchase of three months or less and that are readily convertible to known amounts of cash to be cash equivalents. Note 5.16 The Company has established a combrhensive system of maintenance of information and documents as required by the transfer pricing legislation under section 92-92F of The Income Tax Act, 1961. Since the law requires such infirmation and documentation comtemporaneous in nature, the company is in process of updating the documentation of international transactions with the associated enterprise during the financial year and expects such records to be in existence latest by the due date of filing the return of income. The management is of the opinion that its international transactions are at arms length so that aforesaid legislation will not have any material impact on the financial statements, particulars on the amount of tax expense and that of provision for taxation. The accompanying notes (1-5) form an integral part of the financial statements. As per our report of even date attached. For B S R & Associates LLP Chartered Accountants ICAI Firm Registration No. 116231W / W-100024 Rakesh Dewan Partner Membership No. 092212 For and on behalf of the Board of Directors of Akzo Nobel India Limited Nihal Kaviratne CBE Chairman DIN 00032473 R Gopalakrishnan Director DIN 00027858 Jayakumar Krishnaswamy Managing Director DIN 02099219 Pradip Menon Wholetime Director and CFO DIN 07417530 R Guha Company Secretary Gurgaon 13 May 2016 13 |