NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH 2016 1 Corporate information UPL Limited (the Company) is a public Company domiciled in India. Its shares are listed on two stock exchanges in India. The Company is engaged in the business of agrochemicals, industrial chemicals, chemical intermediates and specialty chemicals. 2 Basis of brparation 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 accrual basis and under the historical cost convention. 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 acquisition of assets for processing and their realisation 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. The accounting policies adopted in the brparation of financial statements are consistent with those of brvious year.. 2.1 Significant accounting policies: a Use of estimates: The brparation of financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. Although these estimates are based on the management's best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods. b Tangible fixed assets: Fixed Assets are stated at cost less accumulated debrciation and provision for impairment, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its brviously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred. Gains or losses arising from derecognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized. The company identifies and determines cost of asset significant to the total cost of the asset having useful life that is materially different from that of the remaining life. c Intangible Assets: Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment, if any. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized. d Debrciation on tangible fixed assets: (i) In respect of all assets at Ankleshwar Unit, Jhagadia Unit, Vapi Unit at A-2/1, GIDC, Vapi, Haldia Unit, Research and Development assets and additions to Plant and Equipment from 1st January, 1983 of Vapi Unit on straight line basis in accordance with Section 123 of the Companies Act, 2013 as under: (ii) At the straight line life specified in Schedule II of the Companies Act, 2013 respect of additions to the aforesaid Fixed Assets. (iii) In respect of the following Plant and Equipment based on techincal estimates at the straight line, as per life specified below: Coal based Power Plant - 25 years Carbon disulfide (CS2) - 25 years Membrane used in Caustic Chlorine Plant - 5 years Hot Section in the Power Plant - 3 years Gas Turbine Engine in Power Plant - 6 years (iv) In respect of all other Fixed Assets, on written down value basis over useful lives specified Schedule II to the Companies Act, 2013 (v) Lease hold improvements on a straight line basis over the period of lease. (vi) Leasehold Land: No debrciation is provided for leasehold land since as per the lease agreements, the leases are renewable at the option of the Company for a further period of 99 years at the end of the lease period of 99 years, without / with marginal payment of further brmium. (vii) In respect of additions to /deletions from the Fixed Assets, on pro-rata basis with reference to the month of addition/deletion of the Assets. e Amortization of Intangible Assets: (i) Expenditure incurred on product acquisitions is amortized on straight line basis over a period of fifteen years from the month of addition, to match their expected future economic benefits. (ii) All other intangible assets are amortized on straight line basis over a period of five years. 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 factors or an annual impairment testing for an asset is required. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset's net selling price and 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. In determining net selling price, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. g Inventories: (i) Stocks of stores and spares, packing materials and raw materials are valued at lower of cost or net realizable value and for this purpose, cost is determined on moving weighted average basis. However, the aforesaid items are not valued below cost if the finished products in which they are to be incorporated are expected to be sold at or above cost. (ii) Semi-finished products, finished products and by-products are valued at lower of cost or net realizable value and for this purpose, cost is determined on standard cost basis which approximates the actual cost. Cost of finished goods includes excise duty, as applicable.Variances, exclusive of abnormally low volume and operating performance, are capitalized into inventory. (iii) Traded goods are valued at lower of cost and net realizable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their brsent location and condition. Cost is determined on a weighted average basis. Net realizable 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. h Research and Development: Research Costs are charged as an expense in the year in which they are incurred and are reflected under the appropriate heads of account. Development expenditure is carried forward when its future recoverability can reasonably be regarded as assured and is amortized over the period of expected future benefit. i Investments: Presentation and disclosure Investments, which are readily realizable and intended to be held for not more than one year from the balance sheet date are classified as current investments. All other investments are classified as non-current investments. Recognition and Measurement Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are recognized as current investments. All other investments are recognized as long-term investments and carried at the cost of acquisition. However, the carrying amount is reduced to recognize a decline, other than temporary, in the value of long-term investments by a charge to the statement of profit and loss. Current investments are stated at lower of cost or fair value determined on individual basis. On disposal of an investment, the difference between its carrying amount and net disposal proceeds is charged or credited to the statement of profit and loss. j Sale of Trade Receivable: Sale of insured trade receivables to banks whereby significant risks and rewards are transferred is treated as "true sale" for both legal and financial reporting purposes and accordingly, these receivables are not reflected on the balance sheet of the Company. k Export Benefits: Duty free imports of raw materials under Advance Licence for imports as per the Import and Export Policy are matched with the exports made against the said licences and the net benefit / obligation is accounted by making suitable adjustments in raw material consumption. The benefit accrued under the Duty Drawback, Merchantile Export Incentive Scheme and other schemes as per the Import and Export Policy in respect of exports made under the said schemes is included as 'Export Incentives' under the head 'Other operating revenue'. l Retirement Benefits: (i) Provident Fund is a defined contribution scheme established under a State Plan. The contributions to the scheme are charged to the statement of profit and loss in the year when the contributions to the funds are due. (ii) Superannuation Fund is a defined contribution scheme and contributions to the scheme are charged to the statement of profit and loss in the year when the contributions are due. The scheme is funded with an insurance Company in the form of a qualifying insurance policy. (iii) The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on post employment at 15 days salary (last drawn salary) for each completed year of service as per the rules of the Company. The aforesaid liability is provided for on the basis of an actuarial valuation on projected unit credit method made at the end of the financial year. The scheme is funded with an insurance Company in the form of a qualifying insurance policy. (iv) The Company has other long-term employee benefits in the nature of leave encashment. The liability in respect of leave encashment is provided for on the basis of an actuarial valuation on projected unit credit method made at the end of the financial year. The aforesaid leave encashment is funded with an insurance Company in the form of a qualifying insurance policy. (v) Actuarial gains/ losses are recognized immediately in the statement of profit and loss. m Revenue recognition: (i) Revenue from sale of goods is recognized when all the significant risks and rewards of ownership of the goods have passed to the buyer. The Company collects sales taxes and value added taxes (VAT) on behalf of the government and, therefore, these are not economic benefits flowing to the Company. Hence, they are excluded from revenue. Excise duty deducted from revenue (gross) is the amount that is included in the revenue (gross) and not the entire amount of liability arising during the year. (ii) Income from services are recognized as and when the services are rendered. The Company collects service tax on behalf of the government and, therefore, it is not an economic benefit flowing to the Company. Hence, it is excluded from revenue. (iii) Interest is recognized on a time proportion basis taking into account the amount outstanding and the rate applicable. (iv) Dividend is recognized when the shareholder's right to receive payment is established by the reporting date. n Foreign Currency Transactions: (i) Transactions in foreign currency are recorded by applying the exchange rate at the date of the transaction. Monetary items denominated in foreign currency remaining unsettled at the end of the year, are translated at the closing rates brvailing on the Balance Sheet date. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction. Exchange differences arising as a result of the above are recognized as income or expense in the statement of profit and loss except for exchange differences arising on a monetary item which, in substance, form a part of the Company's net investment in a non-integral foreign operation which is accumulated in a Foreign Currency Translation Reserve until the disposal of the net investment. Exchange difference arising on the settlement of monetary items at rates different from those at which they were initially recorded during the year, or reported in brvious financial statements, are recognized as income or as expenses in the year in which they arise. (ii) In the case of forward contracts not intended for trading or speculation purposes, the brmium or discount arising at the inception of the contract is amortized as an expense or income with reference to the spot rate as at the end of the period over the life of the contract. Exchange difference on such contracts are recognized in the statements of profit and loss in the year in which the exchange rate changes. Any profit and loss arising on cancellation or renewal of forward exchange contract is recognized as income or as expenses for the year. (iii) Applicable net gain/loss on foreign currency loans given/taken, settlement gain/loss and mark to market losses on derivative contracts relating to borrowings are accounted under 'finance cost'. o Derivative Instruments: As per the ICAI announcement, accounting for derivative contracts, other than those covered under AS 11, are marked to market on a portfolio basis, and the net loss is charged to the statement of profit and loss. Net gains are ignored. p Borrowing Costs: Interest and other costs incurred for acquisition and construction of qualifying assets, up to the date of commissioning / installation, are capitalized as part of the cost of the said assets. All other borrowing costs are expensed in the period they occur. q Assets taken on Lease: (i) Operating Leases: Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Rentals and all other expenses in respect of assets taken on lease are debited to statement of Profit and Loss on straight line basis over the lease term. (ii) Finance Leases: Assets acquired under finance leases which effectively transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized and a corresponding loan liability is recognized. The lease rentals paid are bifurcated into principal and interest component by applying an implicit rate of return. The interest is charged as a period cost and the principal amount is adjusted against the liability recognized in respect of assets taken on financial lease. r Earnings Per Share: Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares. s Segment Reporting Policies: The Company's operative businesses are organized and managed separately according to the nature of products, with each segment rebrsenting a strategic business unit that offers different products and serves different markets. The analysis of geographical segments is based on the areas in which major operating divisions of the Company operate. Inter-segment sales and transfers are reflected at market prices. Unallocable items includes general corporate income and expense items which are not allocated to any business segment. Segment Policies: 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. Common allocable costs are allocated to each segment on an appropriate basis. t Cash and cash equivalents: Cash and cash equivalents for the purpose of cash flow statement comprise cash at bank and in hand and short-term investments with an original maturity of three months or less. u Taxation: 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 Income-tax Act, 1961 enacted in India. Deferred income taxes 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 rates and the tax laws enacted or substantively enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the taxes on income levied by the same governing taxation laws. Deferred tax assets are recognized 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 realized. In situations where the Company has unabsorbed debrciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits. The carrying amount of deferred tax assets are reviewed at each balance sheet date. The Company writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available. In the situations where the company is entitled to a tax holiday under the Income-tax Act, 1961 enacted in India or tax laws brvailing in the respective tax jurisdictions where it operates, no deferred tax (asset or liability) is recognized in respect of timing differences which reverse during the tax holiday period, to the extent the company's gross total income is subject to the deduction during the tax holiday period. Deferred tax in respect of timing differences which reverse after the tax holiday period is recognized in the year in which the timing differences originate. However, the company restricts recognition of deferred tax assets 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 realized. For recognition of deferred taxes, the timing differences which originate first are considered to reverse first. Minimum Alternate Tax (MAT) credit is recognized 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. 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. v Provisions: A provision is recognized when the Company has a brsent obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are not discounted to its brsent value and 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. w Contingent Liability 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 recognized 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 recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the financial statements 1. Dividend Distribution Tax During the financial year 2014-15, the Company had made provision for Dividend Distribution Tax (DDT) amounting to Rs.4,387 lacs (Financial Year 2013-14 Rs.2,914 lacs).The Company has received dividend from its foreign subsidiary company which is eligible to be set off while calculating dividend distribution tax on payment of dividend by the Company. After this set off, no DDT is payable by the Company and accordingly the aforesaid provision of DDT of Rs.4,387 lacs (Previous Year Rs.2,914 lacs) has been written back to surplus in the statement of profit & loss. 2. Foreign Exchange Management Act In January 2013, the Company has received a show cause notice from the Directorate of Enforcement, alleging that the Company has contravened certain provisions of Foreign Exchange Management Act, 1999 with regard to foreign direct investment made and utilisation of proceeds of FCCB / ECB. The management has replied to the show cause notice and has had personal hearings to rebrsent their matter and has filed written submissions. The matter is pending before the authority and based on internal assessment, the management believes that no liability would arise in respect of the aforesaid matter. 2. Amalgamation of Advanta Limited The Company's (UPL) Board of Director's and Advanta Limited (Advanta) Board of Director's in their meeting held on 23rd November, 2015 unanimously approved the proposal for the amalgamation of Advanta with UPL, subject to all the necessary statutory / regulatory approvals and order of Honourable High court of Gujarat. The appointed date for the amalgamation is April 1st, 2015 and in accordance with the scheme of amalgamation, Advanta shareholders holding 1 equity share will be issued: - 1 UPL Equity share - (a) 3 Optionally Redeemable Convertible Preference Shares (of par value Rs 10 each) in UPL for 1 Share of resident shareholders of Advanta or - (b) 3 Compulsorily Convertible Preference Shares (of par value Rs 10 each) in UPL for 1 share of non-resident shareholders of Advanta. The shareholders of the Company duly approved the scheme at the court convened meeting held on March 30, 2016 and scheme has been filed with the Honourable High court of Gujarat. Pending approval of Honourable High court of Gujarat, no effect of the scheme has been given in the financial statements. 3. Buyback of Shares by Biowin Corporation Limited During the year, the Board of Directors of Biowin Corporation Limited (Biowin), a wholly owned subsidiary of the company, has approved buyback of 7,00,000 equity shares at USD 103 per share.Pursuant to the said buyback, the Company has recognised a gain amounting to Rs. 18,860 lacs which has been disclosed under other income. 4. Previous year figures Previous year's figures have been regrouped/rearranged wherever necessary. As per our attached report of even date For S R B C & CO LLP Chartered Accountants ICAI Firm registration Number:324982E/E300003 per Sudhir Soni Partner Membership no.: 41870 Place: Mumbai Date: 29th April, 2016 For and on behalf of the Board of Directors UPL Limited R.D.Shroff Chairman & Managing Director Anand Vora Chief Financial Officer A.C.Ashar Whole-time Director M.B.Trivedi Company Secretary Place: Mumbai Date: 29th April, 2016 |