Notes forming part of Financial Statements 1. CORPORATE INFORMATION Gillette India Limited ('the Company') is a public company incorporated under the provisions of the Companies Act, 1956. The Company is engaged in manufacturing and selling of branded packaged fast moving consumer goods in the grooming, portable power and oral care businesses. The Company's products are sold through retail operations including mass merchandisers, grocery stores, membership club stores, drug stores, department stores and high frequency stores. The Company has its manufacturing locations at Bhiwadi in Rajasthan and Baddi in Himachal Pradesh, apart from third party manufacturing locations sbrad across India. 2. SIGNIFICANT ACCOUNTING POLICIES 2.01 Basis of accounting and brparation of financial statements The financial statements of the Company have been brpared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards specified under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014. The financial statements have been brpared on accrual basis under the historical cost convention. The accounting policies adopted in the brparation of the financial statements are consistent with those followed in the brvious year. 2.02 Use of estimates The brparation of the financial statements in conformity with Indian GAAP requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. The Management believes that the estimates used in brparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognised in the periods in which the results are known/materialise. 2.03 Revenue Recognition Sale of products is recognised when risk and rewards of ownership of the products are passed on to the customers, which is generally on the despatch of goods. Sales exclude trade discounts and rebate. Sales include excise duty but exclude sales tax and value added tax. Interest income is accounted on accrual basis. 2.04 Tangible Fixed Assets and Debrciation and Amortisation Fixed assets are stated at cost of acquisition less accumulated debrciation & amortisation and impairment losses, if any. The cost of fixed assets comprises its purchase price net of any trade discounts and rebates, any import duties and other taxes (other than those subsequently recoverable from the tax authorities), any directly attributable expenditure on making the asset ready for its intended use, other incidental expenses and interest on borrowings attributable to acquisition of qualifying fixed assets up to the date the asset is ready for its intended use. Subsequent expenditure relating to fixed assets is capitalised only if such expenditure results in an increase in the future benefits from such assets beyond its brviously assessed standard of performance. Projects under which tangible fixed assets are not yet ready for their intended use are carried at cost, comprising direct cost and related incidental expenses. Debrciation is calculated on straight line method over the estimated useful life of the fixed assets. These lives are in accordance with Schedule II to the Companies Act, 2013. Leasehold land is amortised over the period of the lease. 2.05 Impairment of Assets The carrying values of assets/cash generating units at each Balance Sheet date are reviewed for impairment. If any indication of impairment exists, the recoverable amount of such assets is estimated and impairment is recognised, if the carrying amount of these assets exceeds their recoverable amount. The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived at by discounting the future cash flows to their brsent value based on an appropriate discount factor. When there is indication that an impairment loss recognised for an asset in earlier accounting periods no longer exists or may have decreased, such reversal of impairment loss is recognised in the Statement of Profit and Loss, except in case of revalued assets. 2.06 Inventories Inventories consist of raw and packing materials, stores and spares, work in progress and finished goods. Inventories are valued at lower of cost and net realisable value after providing for obsolescence and other losses where considered necessary. Cost of Inventories is determined on weighted average basis. Cost of manufactured finished goods and work-in-progress includes material cost determined on weighted average basis and also includes an appropriate portion of allocable overheads. 2.07 Foreign Currency Transactions Transactions in foreign currencies are recorded at the exchange rates brvailing on the date of transaction or at rates that closely approximate the rate at the date of the transaction. Monetary items in foreign currencies are stated at the closing exchange rates. In the case of monetary items covered by forward exchange contracts, the brmium or discount arising at the inception of such a forward exchange contract is amortised as expense or income over the life of the contract and the difference between the year end rate and rate on the date of the contract is recognised as exchange difference in the Statement of Profit and Loss. Gains/Losses on conversion/ translation have been recognised in the Statement of Profit and Loss. 2.08 Employee benefits i) Post-employment Benefits a) Defined Contribution Plans: The Company has Defined Contribution Plans for post employment benefits charged to the Statement of Profit and Loss, in the form of — Superannuation Fund as per Company policy administered by the Life Insurance Corporation of India. — State Defined Contribution Plans: Employer's Contribution to Employees' State Insurance. b) Defined Benefit Plans: Funded Plan: The Company has Defined Benefit Plan for post employment benefits in the form of — Gratuity for all employees administered through a trust where two other group companies are also participants. The Company contributes to the trust, which has taken group policies with the Life Insurance Corporation of India to cover its liabilities towards employees' gratuity. — Provident Fund for all permanent employees is administered through a trust. The Provident Fund is administered by trustees of an independently constituted common trust recognised by the Income Tax authorities where two other group Companies are also participants. Periodic contributions to the Fund are charged to revenue and when services are rendered by the employees. The Company has an obligation to make good the shortfall, if any, between the return from the investment of the trust and notified interest rate by the Government. Unfunded Plan: The Company has unfunded Defined Benefit Plans in the form of Post Retirement Medical Benefits (PRMB) and Compensated Absences (plant technicians) as per its policy. Liability for the above defined benefit plans is provided on the basis of valuation, as at the Balance Sheet date, carried out by independent actuary. The actuarial method used for measuring the liability is the Projected Unit Credit method. ii) Liability for Compensated Absences and Leave Travel Allowance which are in the nature of short term benefits is provided for as per company rules based on the undiscounted amount of benefits expected to be paid in exchange of services rendered. iii) Termination benefits and long service awards in terms of Company policy are recognised as an expense as and when incurred. iv) The Actuarial gains and losses arising during the year are recognised in the Statement of Profit and Loss for the year. v) The Procter & Gamble Company, USA has an "International Stock Ownership Plan (ISOP)" (employee share purchase plan) whereby specified employees of its subsidiaries have been given a right to purchase shares of the Ultimate Holding Company i.e. The Procter and Gamble Company, USA. Every employee who opts for the scheme contributes by way of payroll deduction up to a specified percentage (upto 15%) of base salary towards purchase of shares on a monthly basis. The Company contributes 50% of employee's contribution (restricted to 2.5% of his base salary) and charged to Employee Benefit Expenses. vi) The Procter & Gamble Company, USA has an "Employee Stock Option Plan (ESOP)" whereby the specified employees covered by the plan are granted an option to purchase shares of the Ultimate Holding Company i.e. - The Procter & Gamble Company, USA at a fixed price (grant price) for a fixed period of time. The difference between the market price and grant price on the exercise of the stock options issued by the Ultimate Holding Company to the employees of the Company is charged in the year of exercise by the employees. 2.09 Taxes on income Income-tax expense comprises current tax (i.e. amount of tax for the year determined in accordance with the Income-tax laws) and deferred tax charge or credit (reflecting the tax effect of timing differences between accounting income and taxable income for the year). Provision for taxation for the Company's financial year ended on June 30 is based on the results of the period July 1 to March 31 (later part of the fiscal year ended March 31) and for the balance for the period April 1 to June 30 (beginning of the next fiscal year) as per the provisions of Income Tax Act, 1961 and other applicable tax laws. The deferred tax charge or credit and the corresponding deferred tax liabilities and/or assets are recognised using the applicable tax rates that have been enacted and other applicable tax laws as substantively enacted by the Balance Sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realised in future. Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognised as an asset in the Balance Sheet when it is probable that future economic benefit associated with it will flow to the Company. Deferred tax is recognised on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets are recognised for timing differences of items other than unabsorbed debrciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. However, if there are unabsorbed debrciation and carry forward of losses and items relating to capital losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realise the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their readability. 2.10 Borrowing cost Borrowing costs directly attributable to acquisition or construction of qualifying assets (i.e. those fixed assets which necessarily take a substantial period of time to get ready for their intended use) are capitalised. Other borrowing costs are recognised as an expense in the year in which they are incurred. 2.11 Segment reporting The Company identifies primary segments based on the dominant source, nature of risks and returns and the internal organisation and management structure. The operating segments are the segments for which separate financial information is available and for which operating profit/loss amounts are evaluated regularly by the executive Management in deciding how to allocate resources and in assessing performance. The accounting policies adopted for segment reporting are in line with the accounting policies of the Company. Segment revenue, segment expenses, segment assets and segment liabilities have been identified to segments on the basis of their relationship to the operating activities of the segment. Revenue, expenses, assets and liabilities which relate to the Company as a whole and are not allocable to segments on reasonable basis have been included under "unallocated income/expenses/ assets/liabilities". 2.12 Leases Assets taken on lease under which all risks and rewards of ownership are effectively retained by the lessor are classified as operating lease. Lease payments under operating leases are recognised in the Statement of Profit and Loss on a straight-line basis over the lease term. 2.13 Earnings per share Basic earnings per share is computed by dividing the profit/(loss) after tax (including the post tax effect of extraordinary items, if any) by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit/(loss) after tax (including the post tax effect of extraordinary items, if any) as adjusted for dividend, interest and other charges to expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net profit per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). Dilutive potential equity shares are determined independently for each period brsented. The number of equity shares and potentially dilutive equity shares are adjusted for share splits/reverse share splits and bonus shares, as appropriate. 2.14 Provisions, Contingent Liabilities and Contingent Assets A provision is recognised when the Company has a brsent obligation as a result of past events 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 determined based on the best 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. Contingent liabilities are disclosed in the Notes. Contingent liabilities are disclosed for (1) possible obligations which will be confirmed only by future events not wholly within the control of the Company or (2) brsent obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. Contingent assets are not recognised in the financial statements as this may result in the recognition of income that may never be there. 2.15 Insurance claims Insurance claims are accounted for on the basis of claims admitted/expected to be admitted and to the extent that the amount recoverable can be measured reliably and it is reasonable to expect ultimate collection. 2.16 Claims The claims against the Company not acknowledged as debt are disclosed after careful evaluation of the facts and legal aspects of the matter involved. 3. (a) Contingent Liabilities: (i) In respect of Income Tax demands for which the company has brferred appeals with appropriate authorities - Rs. 15 162 lakhs (Previous year: Rs. 10 009 lakhs). The contingent liability is in respect of matters related to: Income tax dispute on inventory write-off, allowability of losses carried forward from merged entities and others. (ii) In respect of Sales Tax matters for which the company has brferred appeals with appropriate authorities -Rs. 3 182 lakhs (Previous year: Rs. 1 397 lakhs). The contingent liability is in respect of matters related to: non submission of "C" Forms/"F" Forms Rs. 2 471 lakhs (Previous year: Rs. 796 lakhs) and others Rs.711 lakhs (Previous year: Rs. 601 lakhs). (iii) In respect of Excise, Service Tax and Customs matters for which the company has brferred appeals with appropriate authorities - Rs. 24 474 lakhs (Previous year: Rs. 20 816 lakhs). The contingent liabilities are in respect of denial of excise duty benefits at excise exempt location Rs. 20 476 lakhs (Previous year: Rs. 17 337 lakhs) out of which the Company has a right to claim Cenvat credit of Rs. 12 822 lakhs (Previous year: Rs. 8 943 lakhs); denial of Cenvat credit Rs. 55 lakhs (Previous year: Rs. 55 lakhs); Service tax matters Rs. 2 115 lakhs (Previous year: Rs. 1 591 lakhs); Customs valuation disputes Rs. 1 528 lakhs (Previous year: Rs. 1 528 lakhs) and others Rs. 300 lakhs (Previous year: Rs. 305 lakhs). (iv) In respect of counter guarantees given to banks against guarantees given by banks Rs. 5 496 lakhs (Previous year: Rs. 4 112 lakhs). At the request of the Company, its bankers have issued guarantees to government bodies and third parties for performance obligation under various commercial agreements. The Company has issued counter guarantees to the banks in respect of these guarantees. (v) in respect of other claims Rs. 714 lakhs (Previous year: Rs. 5 456 lakhs). The Company is a party to various legal proceedings in the normal course of business. (vi) In respect of Demand raised by Delhi Development Authority towards interest on belated payment of Unearned Increase in respect of leasehold land charges Rs. 3 424 lakhs (Previous year: Rs. 3 424 lakhs). Future Cash Flow in respect of the above, if any, is determinable only on receipt of judgements/decisions pending with the relevant authorities. The Company does not expect the outcome of matters stated in (i) to (vi) above to have a material adverse effect on the Company's financial condition, results of operations or cash flows. (b) Commitments: (i) Estimated amount of contracts remaining to be executed on capital account (net of advances) Rs. 71 lakhs (Previous year: Rs. 409 lakhs). 4. The Company had in earlier years filed a writ petition in the High Court of Himachal Pradesh at Shimla challenging the brmature withdrawal of Excise duty exemption for packing/repacking activities at its Baddi Manufacturing Facility. The High Court has since passed an order on April 24, 2008 in favour of the Company and has struck down the notification withdrawing the excise exemption. The Excise department has brferred an appeal on October 31, 2009 with the Hon'ble Subrme Court of India against the said order of the High Court. The Company has, as a matter of prudence, created a Contingency Reserve of Rs. 8 850 lakhs (Previous year: Rs. 6 750 lakhs) by way of appropriation of profits to the extent of excise duty payable (net of Cenvat credit) on dispatches made from the Baddi plant. Accordingly, during the current year, profit of Rs. 2 100 lakhs (Previous year: Rs. 1 350 lakhs) have been appropriated. These Reserves will be reviewed as and when this litigation is finally decided. 5. (a) Reimbursement/(Recovery) of expenses cross charged to related parties include payment/recoveries on account of finance, personnel, secretarial, administration and planning services rendered under common servicesagreement of the Company with Procter & Gamble Hygiene and Healthcare Limited and Procter & Gamble Home Products Private Limited. (Refer Note 36) (b) Certain expenses in the nature of employee costs, relocation costs and other expenses are cross charged by the Company to its fellow subsidiaries at actual. Similar expenses incurred by fellow subsidiaries are cross charged to the Company at actual 6. Previous year's figures have been regrouped/reclassified wherever necessary to correspond with the current year's classification / disclosure. For and on behalf of Board of Directors B. S. Mehta Al Rajwani Chairman Managing Director K. Natarajan J. Rastogi Chief Financial Officer Dy. Company Secretary & Compliance Officer Place: Mumbai Date: August 29, 2015 |