Notes to the financial statements for the year ended March 31, 2015 1. Corporate information PVR Limited (the Company) is a public limited company with domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on leading stock exchanges in India. The Company is in the business of exhibition and production of films. The Company also earns revenue from in-cinema advertisements/product displays and sale of food and beverages at cinema location. 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 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 for the change in accounting policy explained below. The accounting policies adopted in the brparation of financial statements are consistent with those of brvious year. 2.1 Statement of significant accounting policies (a) Change in accounting policy (i) Debrciation on Fixed Assets Till the year ended 31 March 2014, Schedule XIV to the Companies Act, 1956, brscribed requirements concerning debrciation of fixed assets. From the current financial year, Schedule XIV has been replaced by Schedule II to the Companies Act, 2013. The applicability of Schedule II has resulted in the following changes relating to debrciation of fixed assets. Unless stated otherwise, the impact mentioned for the current year financial is likely to hold good for future years also. (ii) Useful lives/ debrciation rates Till the year ended 31 March 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. Considering the applicability of Schedule II, the management has re-estimated useful lives and residual value of all its fixed assets. The management believes that debrciation rates being used fairly reflect its estimate of the useful lives and residual value of the fixed assets, though these rates in certain cases are different from lives brscribed under Schedule II. Due to change in this accounting policy, debrciation on fixed assets is higher by Rs 1,632 lakhs. Out of this, an amount of Rs 936 lakhs has been charged to Reserves and Surplus equivalent to the amount of WDV of assets whose life had expired as on March 31, 2014 and Rs 696 lakhs has been charged to statement of Profit and loss. (iii) Change in method of valuation of food and beverages During the year effective from April 01, 2014, the Company has changed the method of valuation of food & beverage items from First In First Out (FIFO) to Weighted Average method. The impact of such change is immaterial. (iv) Employee stock compensation cost Till 27 October 2014, the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, dealt with the grant of share-based payments to employees. Among other matter, these guidelines brscribed accounting for grant of share-based payments to employees. Hence, the company being a listed entity was required to comply with these Guidelines as well as the Guidance Note on Accounting for Employee Share-based Payments with regard to accounting for employee share-based payments. Particularly, in case of conflict between the two requirements, the SEBI guidelines were brvailing over the ICAI Guidance Note. For example, in case of equity settled option expiring unexercised after vesting, the SEBI guidelines required expense to be reversed through the statement of Profit and Loss whereas the reversal of expense through the statement of profit and loss is prohibited under the ICAI Guidance Note. In these cases, the company was brviously complying with the requirement of SEBI guidelines. From 28 October 2014, the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 have been replaced by the SEBI (Share Based Employee Benefits) Regulations, 20l4.The new regulations don't contain any specific accounting treatment; rather, they require ICAI Guidance Note to be followed. Consequent to the application of the new regulations, the company has changed its accounting for equity settled option expiring unexercised after vesting in line with accounting brscribed in the Guidance Note, i.e., expense is not reversed through the statement of profit and loss. The management has decided to apply the revised accounting policy prospectively from the date of notification of new regulation, i.e., 28 October 20l4. Since there are no equity settled options expiring unexercised after 28 October 20l4, the change in accounting policy did not have any material impact on financial statements of the company for the current year. However due to application of the regulation, the manner of brsentation of "Employee Stock Option Outstanding Account" under the head "Reserves and Surplus" has changed. The company has changed this brsentation for the current as well as brvious year. (b) 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. (c) Tangible fixed assets Fixed Assets are stated at cost less accumulated debrciation and impairment losses, if any. Cost comprises the purchase price (net of CENVAT) and any directly attributable cost of bringing the asset to its working condition for its intended use. Borrowing costs relating to acquisition of fixed assets which take substantial period of time to get ready for its intended use are also included to the extent they relate to the period till such assets are ready to be put to use. Leasehold improvements rebrsent expenses incurred towards civil works, interior furnishings, etc. on the leased brmises at the various locations. (d) Debrciation on tangible fixed assets Leasehold Improvements are amortized over the estimated useful life varying in between 20-25 years or unexpired period of lease (whichever is lower) on a straight line basis. Cost of structural improvements at brmises where the Company has entered into an agreement with the parties to operate and manage Multiscreen/Single Screen Cinemas on revenue sharing basis are amortized over the estimated useful life or the period of agreement (varying in between 18-25 years)(whichever is lower) on a straight line basis. Assets costing Rs. 5,000 and below are fully debrciated in the year of acquisition. Debrciation on all other assets is provided on Straight-Line Method at the rates computed based on estimated useful life of the assets, which are equal to thecorresponding rates brscribed in Schedule II to the Companies Act, 20l3 except in the following cases, where the management based on technical and internal assessment considers life to be different than brscribed under Schedule II: (e) Intangible assets Software and Website Development Cost relating to purchased software and software licenses are capitalized and amortized on a straight-line basis over their estimated useful lives of 6 years. Goodwill Goodwill arising out of amalgamation is amortized on straight line basis over the estimated useful life estimated by the management not exceeding a period of l0 years. Film Right's The intellectual property rights acquired/ created in relation to films are capitalized as film rights. The amortization policy is as below: i In respect of films which have been co-produced /co owned/acquired and in which the Company holds rights for a period of 5 years and above as below: - 60% to 80% of the cost of film rights on first domestic theatrical release of the film based on the management estimates. The said amortization relates to domestic theatrical rights, international theatrical rights, television rights, music rights and video rights etc. In case these rights are not exploited along with or prior to their first domestic theatrical release, proportionate cost of such right is carried forward to be written off as and when such right is commercially exploited or at the end of 1 year from the date of first domestic theatrical release, whichever occurs earlier. - Balance 40% to 20% is amortized over the remaining license period based on anestimate of future revenue potential subject to a maximum period of l0 years. ii. In respect of films, where the Company holds rights for a limited period of Ito 5 years, entire cost of movies rights acquired or produced by the Company is amortized on first theatrical release of the movie. The said amortization relates to domestic theatrical rights, international theatrical rights, television rights, music rights and video rights and others. In case these rights are not exploited along with or prior to the first domestic theatrical release, proportionate cost of such right is carried forward to be written off as and when such right is commercially exploited or at the end of I year from the date of first theatrical release, whichever occurs earlier. 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. (f) Expenditure on new projects (Pre-operative expenses) Expenditure directly relating to construction activity is capitalized. Indirect expenditure incurred during construction period is capitalized as part of the indirect construction cost to the extent expenditure is directly related to construction or is incidental thereto. Other indirect expenditure (including borrowing costs) incurred during the construction period, which is not related to the construction activity nor is incidental thereto is charged to the statement of profit and loss. Income earned during construction period is adjusted against the total of the indirect expenditure. All direct capital expenditure on expansion is capitalized. As regards indirect expenditure on expansion, only that portion is capitalized which rebrsents the marginal increase in such expenditure involved as a result of capital expansion. Both direct and indirect expenditure are capitalized only if they increase the value of the asset beyond its originally assessed standard of performance. (g) Borrowing Costs Borrowing cost includes interest, amortization of ancillary costs incurred in connection with the arrangement of borrowings and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they (h) Impairment of tangible and intangible assets The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's net selling price and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. 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 the 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. (i) Investments Investments that are readily realizable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long term investments. Current investments are carried at lower of cost and fair value determined on an individual investment basis. Long term investments are carried at cost. However, provision for diminution in the value is made to recognize a decline other than temporary in the value of the investments. Investments which are due for maturity within next twelve months are reclassified as Current investments. 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) Inventories Inventories are valued as follows: a) Food and beverages Lower of cost and net realizable value. Cost is determined on Weighted average basis. b) Stores and spares Lower of cost and net realizable value. Cost is determined on First In First Out (FIFO) basis. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. (k) Leases Where the Company is the lessee Finance leases, which effectively transfer to the company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease term at the lower of the fair value of the leased property and brsent value of minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized as finance costs in the statement of profit and loss. A leased asset is debrciated on a straight-line basis over the useful life of the asset. Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased items are classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on an ongoing basis Where the Company is the lessor Leases in which the Company does not transfer substantially all risks and benefits of ownership of the assets are classified as operating lease. Assets subject to operating leases are included in fixed assets. Lease income is recognized in the statement of profit and loss on ongoing basis. Costs, including debrciation are recognized as an expense in the statement of profit and loss. Initial direct costs such as legal costs, brokerage costs, etc. are recognized immediately in the Statement of profit and loss (l) Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The Company collects entertainment tax, sales tax and service tax on behalf of government and, therefore, these are not economic benefits flowing to the Company. Hence, they are excluded from respective revenues. The following specific recognition criteria must also be met before revenue is recognized. i. Sale of Tickets of Films Revenue from sale of tickets of films is recognized as and when the film is exhibited. ii. Revenue Sharing Income from revenue sharing is recognized in accordance with the terms of agreement with parties to operate and manage Multiscreen/ Single screen cinemas. iii. Sale of Food and Beverages Revenue from sale of food and beverages is recognized upon passage of title to customers, which coincides with their delivery. iv. Income from Film Production Revenues from film produced, co -produced/co -owned are accounted for based on the terms of the agreement. (a) Income from Theatrical Distribution The revenue from theatrical distribution is recognized once the movie is released based on "Daily Collection Report" submitted by the exhibitor. (b) Income from sale of other rights other than theatrical distribution Revenue from other rights such as satellite rights, overseas rights, music rights, video rights, etc. is recognized on the date when the rights are made available to the assignee for exploitation. v. Advertisement Revenue Advertisement revenue is recognized as and when advertisement is displayed at the cinema halls. vi. Management Fee Revenue is recognized on an accrual basis in accordance with the terms of the relevant agreements. vii. Convenience Fee Convenience fee is recognized as and when the ticket is sold on electronic portals. Further, in case of fixed contracts, revenue is recognized on accrual basis in accordance with the terms of the relevant agreements. viii. Rental and Food court Income Rental Income is recognized on accrual basis for the period the space of cinema and food court is let out under the operating lease arrangement. ix. Gaming Income Revenue from gaming is recognized as and when the games are played by patrons. x. Interest Income Interest income is recognized on a time proportion basis, taking into account the amount outstanding and the applicable interest rate. xi. Dividend Income Revenue is recognized when the Company's right to receive dividend is established by the reporting date. xii. Virtual Print Fees Income Revenue is recognized on an accrual basis in accordance with the terms of the relevant agreements. (m) Foreign currency Translations i. Initial Recognition Foreign currency transactions are recorded in Indian Rupees by applying to the foreign currency amount, the exchange rate between the Indian Rupee and the foreign currency brvailing at the date of the transaction. ii. Conversion Foreign currency monetary items are reported using the closing rate. 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 and non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when the values were determined. iii. Exchange Differences Exchange differences 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 expense in the year in which they arise. (n) Retirement and other employee benefits i. Provident Fund Retirement benefit in the form of provident fund is a defined contribution scheme. The company has no obligation, other than the contribution payable to the provident fund. The company recognizes contribution payable to the provident fund scheme as expenditure, when an employee renders the related service. If 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 recognized as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the balance sheet date, then excess is recognized as an asset to the extent that the br-payment will lead to, for example, a reduction in future payment or a cash refund. ii. Gratuity Gratuity is a defined benefit obligation. The Company has created an approved gratuity fund for the future payment of gratuity to the employees. The Company accounts for the gratuity liability, based upon the actuarial valuation performed in accordance with the Projected Unit Credit method carried out at the year end, by an independent actuary. Gratuity liability of an employee, who leaves the Company before the close of the year and which is remaining unpaid, is provided on actual computation basis. iii. Compensated absence Short term compensated absences are provided for based on estimates. Long term compensated balances are provided for based on actuarial valuation. The actuarial valuation is done as per projected unit credit method. Leave encashment liability of an employee, who leaves the Company before the close of the year and which is remaining unpaid, is provided for on actual computation basis. iv. Actuarial gains/losses are immediately taken to statement of profit and loss and are not deferred. (o) Income taxes Tax expense comprises 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, l96l enacted in India and tax laws brvailing in the respective tax jurisdictions where the Company operates. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and reversal of timing differences for the earlier years. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted at the reporting date. Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit and loss. Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences 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. At each reporting date, the Company re-assesses unrecognized deferred tax assets. It recognizes unrecognized 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 realized. The carrying amount of deferred tax assets are reviewed at each reporting date. The Company writes-down the carrying amount of 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 writedown 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 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 taxes relate to the same taxable entity and the same taxation authority. Minimum alternate tax (MAT) paid in a year is charged to the statement of profit and loss as current tax. The Company recognizes MAT credit entitlement as an asset only to the extent that there is convincing evidence that the Company will pay normal income tax during the specified period, i.e., the period for which MAT credit is allowed to be carried forward. In the year in which the Company recognizes MAT credit as an asset in accordance with the Guidance Note on Accounting for Credit Available in respect of Minimum Alternative Tax under the Income-tax Act, 1961, the said asset is created by way of credit to the statement of profit and loss and shown as "MAT Credit Entitlement." The Company reviews the "MAT credit entitlement" asset at each reporting date and writes down the asset to the extent the Company does not have convincing evidence that it will pay normal tax during the specified period. (p) Earnings Per share Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting dividend on brference shares and attributable taxes) by the weighted average number of equity shares outstanding during the year. For the purpose of calculating Diluted earnings 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. (q) 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 their brsent value and are determined based on best management estimate required to settle the obligation at each Balance Sheet date. These are reviewed at each Balance Sheet date and are adjusted to reflect the current best management estimates. (r) Cash and Cash equivalents Cash and cash equivalents in the financial statement comprise cash at bank and in hand and short term investments with an original maturity of three months or less. (s) Employee Stock Compensation Cost In accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 20l4 and the Guidance Note on Accounting for Employee Share-based Payments, the cost of equity-settled transactions is measured using the intrinsic value method. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the company's best estimate of the number of equity instruments that will ultimately vest. The expense or credit recognized in the statement of profit and loss for a period rebrsents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in employee benefits expense, together with a corresponding increase in the "Employee Stock options outstanding account" in reserves. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the company's best estimate of the number of equity instruments that will ultimately vest. (t) Government grants and subsidies Grants and subsidies from the government are recognized when there is reasonable assurance that the grant/subsidy will be received and all attaching conditions will be complied with. When the grant or subsidy relates to an expense item, it is recognized as income over the periods necessary to match them on a systematic basis to the costs, which it is intended to compensate. Where the grant or subsidy relates to an asset, its value is deducted in arriving at the carrying amount of the related asset. Government grants of the nature of promoters' contribution are credited to capital reserve and treated as a part of shareholders' funds. (u) 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. (v) Measurement of EBIDTA The Company has elected to brsent earnings before interest, tax, debrciation and amortization (EBITDA) as a separate line item on the face of the statement of profit and loss. The Company measures EBITDA on the basis of profit/ (loss) from continuing operations. In its measurement, the Company does not include debrciation and amortization expense, finance costs and tax expense. 1. (a) Previous year's figures have been re-grouped/ re-arranged where necessary to confirm to current year's classification. (b) The figures in the financial statements and notes thereto have been rounded off to nearest rupees in lakhs. As per our report of even date For S. R. Batliboi & Co. LLP ICAI Firm's Registration No. : 30I003E Chartered Accountants per Vikas Mehra Partner Membership No. 94421 For and on behalf of the Board of Directors of PVR Limited Ajay Bijli Chairman cum Managing Director DIN:00531142 N.C. Gupta Company Secretary ICSI – M. No. A3530 Sanjeev Kumar Joint Managing Director DIN:00208173 Nitin Sood Chief Financial Officer Place: Gurgaon Date: May 29, 2015 |