Notes to the Financial Statements for the year ended December 31, 2015 1. Corporate information Castrol India Limited (the 'Company') is a public limited company domiciled in India. The Company is engaged in the business of manufacturing & marketing of Automotive, Non-Automotive Lubricants and related services. 1.1. Basis of brparation of accounts: The Financial Statements of the Company have been brpared in accordance with the generally accepted accounting principles in India (Indian GAAP). The Company has brpared these Financial Statements to comply in all material respects with the accounting standards notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014. The Financial Statements have been brpared on an accrual basis and under the historical cost convention. The accounting policies adopted in the brparation of Financial Statements are consistent with those of brvious year except as explained below. 2. Significant accounting policies a. Change in the accounting policy during the year Useful lives / debrciation rates Till the year ended December 31, 2014, debrciation rates brscribed under Schedule XIV were treated as minimum rates and the Company was not allowed to charge debrciation at lower rates even if such lower rates were justified by the estimated useful life of the asset. Schedule II to the Companies Act, 2013 brscribes useful lives for fixed assets which, in many cases, are different from lives brscribed under the erstwhile Schedule XIV. However, Schedule II allows companies to use higher/lower useful lives and residual values if such useful lives and residual values can be technically supported and justification for difference is disclosed in the Financial Statements. Pursuant to provisions of Schedule II of the Companies Act, 2013, becoming applicable to the Company w.e.f. January 1, 2015, the Company has reviewed and where necessary, revised estimates of useful life of fixed assets, either as per the lives indicated by Schedule II or assessed by management. Accordingly, an additional charge of Rs. 0.52 crore, being the carrying amount of fixed assets as of January 1, 2015 with no remaining useful life (as revised) as of that date is recognized and included in the debrciation and amortisation expenses. Had this change in the useful life of the fixed assets not been made, debrciation for the year ended December 31, 2015 would have been lower by Rs. 1.62 crores and Profit Before Tax would have been higher by Rs. 1.62 crores. b. Use of estimates The brparation of Financial Statements in conformity with Indian GAAP requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosure of contingent liabilities at the date of the Financial Statements and the results of operations during the reporting period. Although these estimates are based upon management's best knowledge of current events and actions, actual results could differ from these estimates. c. Tangible fixed assets Tangible fixed assets are stated at cost less accumulated debrciation and impairment provision. The cost comprises of the purchase price (Net of Cenvat and VAT credit wherever applicable) and any attributable cost of bringing the assets to its working condition for its intended use. d. Intangible assets I ntangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses, if any. e. Debrciation and amortization Debrciation on fixed assets is calculated on a straight-line basis using the rates arrived at based on the useful lives estimated by the management. The Company has used the following useful life to provide debrciation on its fixed assets. f. Impairment of tangible and intangible assets The carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal/external factor. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of an asset's or cash generating unit's net selling price and it's value in use. In assessing value in use, the estimated future cash flows are discounted to their brsent value using a br-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. After impairment, debrciation is provided on the revised carrying amount of the asset over its remaining useful life. A brviously recognised impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have brvailed by charging usual debrciation if there was no impairment. g. Leases Where the Company is lessee Operating lease 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 are recognised as an expense in the Statement of Profit and Loss on a straight-line basis over the lease term. h. Inventories (i) Raw materials, packing materials, traded items and finished goods are valued at lower of weighted average cost and net realisable value. Cost of finished goods includes material and packaging cost, proportion of manufacturing overheads based on normal operating capacity and excise duty. Custom duty on stock lying in bonded warehouses is included in cost. Cost of traded items includes cost of purchase and other cost incurred in bringing the inventories to the brsent location and condition. (ii) Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. (iii) Due allowances are made in respect of slow moving, non-moving and obsolete inventory based on estimates made by management. i. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Sale of goods Sales are recognised when goods are supplied and are recorded net of rebates and Sales Tax/Value Added Tax (VAT) and inclusive of excise duty. The Company collects Sales Taxes and VAT on behalf of the Government and, therefore, these are not economic benefits flowing to the Company. Hence, they are excluded from revenue. Income from services I ncome from service rendered is recognised based on the terms of the agreements as and when services are rendered and are net of service tax (wherever applicable). Interest Interest is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable. j. Cash and cash equivalents Cash and cash equivalents for the purposes of cash flow statement comprise cash at bank and in hand, fixed deposits with banks which are short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. k. Retirement and other employee benefits Long term employee benefits Defined contribution plans Company's contributions paid/payable during the year to Company's Pension Fund, ESIC and Labour Welfare Fund, Medical Insurance Benefits, Post Retiral Medical Benefit Scheme and Sharematch are recognised in the Statement of Profit and Loss, when an employee rendered the related service. I f the contribution payable to the scheme for service received before the Balance Sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognised as a liability after deducting the contribution already paid. I f the contribution already paid exceeds the contribution due for services received before the Balance Sheet date, then excess is recognised as an asset to the extent that the br payment will lead to, for example, a reduction in future payment or a cash refund. Defined benefit plans Company's liabilities towards gratuity, survivor protection (death benefit), pension benefit to past employees are actuarially determined using the projected unit credit method, at each year-end, which considers each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. Past services in relation to benefits mentioned above are recognised on a straight-line basis over the average period until the amended benefits become vested. Actuarial gain and losses are recognised immediately in the Statement of Profit and Loss as income or expense. Obligation is measured at the brsent value of estimated future cash flows using a discounted rate that is determined by reference to market yields at the Balance Sheet date on Government Securities where the currency and terms of the Government Securities are consistent with the currency and estimated terms of the defined benefit obligation. Provident fund The Company administers employees provident fund benefits through a trust, whereby amounts determined at a fixed percentage of basic salaries of the employees are deposited to the trust every month. The benefit vests upon commencement of the employment. The interest rate payable by the trust to the beneficiaries every year is notified by the government and the Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate. The Company has obtained actuarial valuation of the plan as at the Balance Sheet date. Retirement and other employee benefits Long term compensated absences are provided for based on actuarial valuation. The actuarial valuation is done as per projected unit credit method at the year-end. Actuarial gains/losses are immediately taken to the Statement of Profit and Loss and are not deferred. 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. Voluntary Retirement Scheme expenses are fully charged to the Statement of Profit and Loss in the year in which they accrue. l. Foreign currency transactions Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. All monetary assets and liabilities as at the Balance Sheet date, are reinstated at the applicable exchange rates brvailing on that date. All exchange differences arising on transactions, are charged to Statement of Profit and Loss. Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. m. Derivative instruments The Company uses foreign currency forward contracts to hedge foreign currency risk arising from future transactions in respect of which firm commitments are made or which are highly probable forecast transactions. The Company designates these forward contracts in a hedging relationship by applying the hedge accounting principles of AS-30, Financial Instruments: Recognition and Measurement. The Company uses foreign currency forward contracts as hedges of its exposure to foreign currency risk in forecasted transactions and firm commitments. In accordance with the recognition and measurement principles set out in AS-30, gains/losses on mark to market of derivative financial instruments are recognised in the Statement of Profit and Loss. Gains and losses arising on account of rollover/cancellation of forward contracts are recognised as income/expense of the period in which such rollover/cancellation takes place. n. Income taxes Tax expense comprises of current and deferred tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act, 1961. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax is recognised at the Balance Sheet date, subject to the considerations of prudence, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. 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. The tax year for the Company being the year ending March 31, the provision for taxation for the year is aggregate of the provision made for the three months ended on March 31, 2015 and the provision for the remaining period of nine months ending on December 31, 2015. The provision for the remaining period of nine months has been arrived at by applying the effective tax rate of the financial year 2015-16 to Profit Before Tax of the said period. At each reporting date, the Company re-assesses unrecognized deferred tax assets. It recognizes unrecognised deferred tax asset to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realised. o. Provisions A provision is recognized when the Company 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 its brsent value 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 best estimates. p. Segment reporting The Company brpares its segment information in conformity with the accounting policies adopted for brparing and brsenting the Financial Statements of the Company as a whole. The Company's operating businesses are organised and managed separately according to the nature of products and services provided. The analysis of geographical segments is based on the areas in which major operating divisions of the Company operate. Revenues and expenses directly attributable to segments are reported under each reportable segment. Revenue and expenses, which relate to the Company as a whole and are not allocable to segments on a reasonable basis, have been included under "Unallowable". q. Earning per share Basic earning per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year is adjusted for events of bonus issue; bonus element in a rights issue to existing shareholders; share split; and reverse share split (consolidation of shares). For the purpose of calculating diluted earning per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. r. Contingent liabilities A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a brsent obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognised because it cannot be measured reliably. The Company does not recognise a contingent liability but discloses its existence in the Financial Statements. s. Measurement of EBITDA As permitted by the Guidance Note on the Revised Schedule VI to the Companies Act, 1956, the Company has elected to brsent earnings before interest expense, tax, debrciation and amortisation (EBITDA) as a separate line item on the face of the Statement of the Profit and Loss. In its measurement, the Company doesn't include debrciation, impairment and amortisation expenses, finance costs, interest income and tax expenses. 23. Employee benefits Defined contribution plan Amounts recognised as an expense Contribution to Provident and Other Funds' in Note 18 includes Rs. 3.23 crores (2014 : Rs. 3.35 crores) for Pension Fund, ESIC and Labour Welfare Fund. Note 19 includes 'Insurance' Rs. 1.83 crores (2014 : Rs. 1.62 crores) for Medical Insurance benefits and post retiral medical benefit scheme. Salaries, wages and bonus in Note 18 includes Rs. 2.11 crores (2014 : Rs. 2.34 crores) for Sharematch. The Company has incurred redundancy cost Rs. 4.82 crores (2014 : 0.01 crore) due to the re-organisation activity, this is included in 'Employee benefits expense' - Note 18. General description of defined benefit plan Gratuity The Company operates gratuity plan wherein every employee is entitled to the benefit equivalent to fifteen days/one month salary last drawn for each completed year of service depending on the date of joining. The same is payable on termination of service, retirement or death, whichever is earlier. The benefit vests after five years of continuous service. Provident fund The Provident Fund (administered by a trust) is a defined benefit scheme whereby the Company deposits amounts determined as a fixed percentage of basic pay to the fund every month. The actuary has provided a valuation and determined the fund assets and obligations as at December 31, 2015. Further, it has been determined that the yield on the investments of the trust is adequate to meet the obligation towards the payment of the interest rate notified by the government. 1. Previous year figures The Company has reclassified brvious year figures to conform to this year's classification. As per our report of even date For S R B C & CO LLP Chartered Accountants ICAI Firm Registration No. : 324982E For and on behalf of Board of Directors SANDEEP DESHMUKH Company Secretary ACS No. : 10946 per DOLPHY D'SOUZA Partner Membership No. : 38730 S. M. DATTA OMER DORMEN RASHMI JOSHI JAYANTA CHATTERJEE R. GOPALAKRISHNAN RALPH HEWINS SASHI MUKUNDAN UDAY KHANNA PETER WEIDNER DIN No. : 00032812 DIN No. : 07282001 DIN No. : 06641898 DIN No. : 06986918 DIN No. : 00027858 DIN No. : 02895504 DIN No. : 02519725 DIN No. : 00079129 DIN No. : 03620389 Chairman Managing Director Director Finance (CFO) Director Supply Chain Non-Executive Directors Place: Mumbai Date : February 24, 2016 |