NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2015 1. BACKGROUND JHS Svendgaard Laboratories Limited is a public Company domiciled in India and incorporated under the provisions of the Companies Act, 1956. The Company is engaged in manufacturing a range of oral and dental products for elite national and international brands. The main portfolio of the Company is to carry out manufacturing and exporting of oral care and hygiene products including toothbrushes, toothpastes, mouthwash, sanitizers and job work of detergent powder.The Company's shares are listed for trading on the National Stock Exchange and the Bombay Stock Exchange in India. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of brparation of Financial Statements The financial statements have been brpared to comply in all material respects with the Accounting Standards specified under section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014, the relevant provision of the Companies Act, 2013 and guidelines issued by Securities and Exchange Board of India, to the extent applicable. The financial statements have been brpared under the historical cost convention on an accrual basis. The accounting policies have been consistently applied by the Company and consistent with those followed in the brvious year. b. Use of estimates The brparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amount of revenue and expenses. Although such estimates and assumptions are made on reasonable and prudent basis taking into account all available information, actual results could differ from these estimates and assumptions and such differences are recognized in the period in which the results are crystallized. Any revision to accounting estimates is recognized in the current and future periods. c. Operating Cycle 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 above criteria, the Company has ascertained its operating cycle as 12 months for the purpose of current/non-current classification of assets and liabilities. d. Tangible assets Tangible assets are stated at the cost of acquisition or construction, less accumulated debrciation and impairment losses, if any. The cost of an item of tangible asset comprises its purchase price, including import duties and other non-refundable taxes or levies and any attributable costs of bringing the asset to its working condition for its intended use. Any trade discount and rebates are deducted in arriving at the purchase price. Advances paid towards acquisition of tangible assets outstanding at each Balance Sheet date, are shown under long-term loans and advances and cost of assets not ready for intended use before the year end are shown as capital work-in-progress. Subsequent expenditures related to an item of tangible asset are added to its book value only if they increases the future benefits from the existing asset beyond its brviously assessed standard of performance. A tangible asset is eliminated from the financial statements on disposal or when no further economic benefit is expected from its use or disposal. Losses arising from retirement and gains or losses arising from disposal of a tangible asset are measured as the difference between the net realisable value and the carrying amount of the asset and are recognised in the Statement of Profit and Loss. e. Intangible assets An intangible asset is recognised when it is probable that the future economic benefits attributable to the asset will flow to the enterprise and where its cost can be reliably measured. Intangible assets are stated at cost less accumulated amortization and impairment losses, if any. The cost of an item of intangible asset comprises its purchase price and any attributable costs of bringing the asset to its working condition for its intended use. Cost of assets not ready for intended use before the year end, are shown as intangible assets under development. An intangible asset is derecognised on disposal or when no future economic benefits are expected from its use or disposal. Losses arising from retirement and gains or losses arising from disposal of an intangible asset are measured as the difference between the net realisable value and the carrying amount of the asset and are recognised in the Statement of Profit and Loss. f. Debrciation / Amortization Debrciation on tangible assets except moulds and dies are provided on a pro-rata basis on Straight Line Method (SLM) based on the useful lives of assets specified in Part C of Schedule II of the Companies Act, 2013. Based on internal assessment and technical evaluation, the management has assessed useful lives of moulds and dies as five years, which is different from the useful lives as brscribed under Part C of Schedule II of the Companies Act, 2013. Intangible assets comprising of computer software are amortized over a period of five years. Debrciation and amortization on addition to fixed assets is provided on pro-rata basis from the date the assets are ready for use. Debrciation and amortization on sale/discard from fixed assets is provided for upto the date of sale, deduction or discard of fixed assets as the case may be. All assets costing Rs. 5,000 or below are debrciated/ amortized by a one-time debrciation/amortization charge in the year of purchase. g. Impairment of 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. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets' net selling price and value in use. In assessing value in use the estimated future cash flows are discounted to their brsent value at the weighted average cost of capital. After impairment, debrciation/amortisation is provided on the revised carrying amount of the asset over its remaining useful life. h. Cash and cash equivalents Cash and cash equivalents comprise cash balances on hand, cash balance with bank, and highly liquid investments with original maturities, at the date of purchase/investment, of three months or less. i. Inventories i. Raw materials, packaging materials and stores and spare parts are valued at the lower of cost and net realizable value. Cost includes purchase price, taxes (excluding levies or taxes subsequently recoverable by the enterprise from the concerned revenue authorities), freight inwards and other expenditure incurred in bringing such inventories to their brsent location and condition. In determining the cost, weighted average cost method is used. ii. Work in progress, manufactured finished goods and traded goods are valued at the lower of cost and net realizable value. Cost of work in progress and manufactured finished goods is determined on the weighted average basis and comprises direct material, cost of conversion and other costs incurred in bringing these inventories to their brsent location and condition. Cost of traded goods is determined on a weighted average basis. iii.Excise duty liability, wherever applicable, is included in the valuation of closing inventory of finished goods. Excise duty payable on finished goods is accounted for upon manufacture and transfer of finished goods to the stores. Payment of excise duty is deferred till the clearance of goods from the factory brmises iv.Provision for obsolescence on inventories is made on the basis of management's estimate based on demand and market of the inventories. v. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. vi. The comparison of cost and net realisable value is made on an item by item basis. j. Revenue recognition Revenue is recognized to the extent it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Sale of goods Revenue from sale of goods is recognized on transfer of significant risks and rewards of ownership to the customer. Revenue is net of excise duty, sales tax, value added tax and other applicable discounts and allowances. Interest income Interest income is recognized on a time proportion basis taking into account the amount outstanding and the applicable interest rate. Dividend income Dividend is recognized when the right to receive the income is established. Export incentives Export incentives principally comprise of Duty Entitlement Pass Book Scheme (DEPB). The benefit under these incentive schemes are available based on the guideline formulated for respective schemes by the government authorities. DEPB is recognized as revenue on accrual basis to the extent it is probable that realization is certain. Sale of scrap Revenue from sale of scrap is recognized when the significant risks and rewards of ownership of goods have passed to the buyer. Service income Service income includes job work andits revenue is recognized on completion of services, based on service contracts. Reimbursement Receipts Reimbursement income is recognized on accrual basis on the basis of contracts k. Borrowing cost 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 that are directly attributable to the acquisition or construction or production of qualifying assets are capitalized as part of the cost of assets. A qualifying asset is one that necessarily takes substantial period of time to get ready for intended use. All other borrowing costs are recognized as an expense in the Statement of Profit and Loss in the period in which they are incurred. l. Foreign currency transactions Transactions in foreign currency are recorded at the exchange rate brvailing at the date of the transaction. Exchange differences arising on foreign currency transactions settled during the year are recognized in the Statement of Profit and Loss. Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date, not covered by forward exchange contracts, are translated at year end rates. The resultant exchange differences are recognized in the Statement of Profit and Loss. Non monetary assets and liabilities are recorded at the rates brvailing on the date of the transaction. Translation of integral and non integral foreign operations. The Company classifies its foreign operations as either "integral foreign operations" or "non integral foreign operations". The financial statements of an integral foreign operation are translated as if the transactions of the foreign operations have been those of the Company itself. The assets and liabilities (except share capital which is taken at historical cost) both monetary and non monetary, of the non integral foreign operation are translated at the closing rate. Income and expense items of the non integral foreign operation are translated at average rates at the date of transaction. All resulting exchange differences are accumulated in a foreign currency translation reserve until the disposal of the net investment, at which time the accumulated amount is recognized as income or as expense. When there is a change in the classification of a foreign operation, the translation procedures applicable to the revised classifications are applied from the date of the change in the classified. m. Investments Investments that are readily realizable and are intended to be held for not more than one year are classified as current investments. All other investments are classified as long-term investments. However that part of long term investments which is expected to be realized within 12 months after the reporting date is brsented under "Current Assets" in consonance with current/non current classification scheme of Schedule III of Companies Act, 2013.The cost of an investment includes acquisition charges such as brokerage, fees and duties. Current investments are carried in the financial statements 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 value is made to recognize a decline other than temporary in the value of the investments. Any reduction in the carrying amount and any reversals of such reduction are charged or credited to the Statement of Profit and Loss. Profit or loss on sale of individual investment is determined on the basis of weighted average carrying amount of investment disposed off. n. Employee Benefits Short term employee benefits: All employee benefits payable wholly within twelve months of receiving employee service are classified as short term employee benefits. These benefit includes salaries, wages, short term compensated absence and bonus etc and are recognized in the Statement of Profit and Loss in the period in which the employee renders the related service. Long term employee benefits: - Defined contribution plans: Provident Fund All employees of the Company are entitled to receive benefits under the Provident Fund, which is a defined contribution plan. Both the employee and the employer make monthly contributions to the plan at a brdetermined rate as per the provisions of The Employees Provident Fund and Miscellaneous Provisions Act, 1952. These contributions are made to the fund administered and managed by the Government of India. Defined contribution plans: Employee State Insurance Employees whose wages/salary is within the brscribed limit in accordance with the Employee State Insurance Act, 1948, are covered under this scheme. These contributions are made to the fund administered and managed by the Government of India. The Company's contributions to these schemes are expensed off in the Statement of Profit and Loss. The Company has no further obligations under these plans beyond its monthly contributions - Defined benefit plans: Gratuity The Company provides for retirement benefits in the form of Gratuity. Benefits payable to eligible employees of the Company with respect to gratuity, a defined benefit plan, are accounted for on the basis of an actuarial valuation as at the Balance Sheet date. In accordance with the Payment of Gratuity Act, 1972, the plan provides for lump sum payments to vested employees on retirement, death while in service or on termination of employment in an amount equivalent to 15 days basic salary for each completed year of service. Vesting occurs upon completion of five years of service. The brsent value of such obligation is determined by the Projected Unit Credit method and adjusted for past service cost. The resultant actuarial gain or loss on change in brsent value of the defined benefit obligation is recognised as an income or expense in the Statement of Profit and Loss. - Other long-term benefits: Leave benefits Benefits under the Company's leave benefits scheme constitute other employee benefits. The liability in respect of leave benefits is provided on the basis of an actuarial valuation done by an independent actuary at the end of the year. Actuarial gains and losses are recognized immediately in the Statement of Profit and Loss. o. Segment reporting Identification of segments The Company's operating businesses are organized and managed separately according to the nature of product sold and service provided, with each segment rebrsenting a strategic business unit that offers different product/service. The analysis of geographical segments is based on geographical location of the customers. Allocation of common cost Common allocable costs are allocated to each segment according to relative contribution of each segment to the total common costs. Unallocated 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. p. Accounting for taxes on income Income tax expenses comprises of current tax 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. Deferred income tax 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 substantially enacted as at the Balance Sheet date. Deferred tax assets are recognized for timing differences only to the extent there is reasonable certainty that sufficient future taxable income will be available against which these assets can be realized in future whereas, in cases of existence of carry forward of losses or unabsorbed debrciation, deferred tax assets are recognized only if, there is virtual certainty of realization supported by convincing evidence. The carrying amount of deferred tax assets are reviewed at each Balance Sheet date. 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 available 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. q. Government grant Government grants available to the enterprise are recognized when both the following conditions are satisfied: (a) where there is reasonable assurance that the enterprise will comply with the conditions attached to them; and (b) where such benefits have been earned by the enterprise and it is reasonably certain that the ultimate collection will be made. Grants related to debrciable assets are treated as deferred income which is recognized in the Statement of Profit and Loss on a systematic and rational basis over the useful life of the assets which is estimated as 10 years. Grants related to non-debrciable assets are credited to capital reserve. r. Provisions, contingent liabilities and contingent assets Provision The Company creates a provision when there is brsent obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of obligation. Provisions are measured at the best estimate of the expenditure required to settle the brsent obligation at the Balance Sheet date and are not discounted to its brsent value. These are reviewed at each year end date and adjusted to reflect the best current estimate. Contingent liabilities A disclosure for a contingent liability is made when there is a possible obligation or a brsent obligation that probably will not require an outflow of resources or where a reliable estimate of the obligation cannot be made. Contingent assets Contingent assets are neither recorded nor disclosed in the financial statements. s. Earnings per share Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders after tax (and excluding post tax effect of any extra-ordinary item) by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year, are adjusted for events of bonus issue to existing shareholders. For the purpose of calculating diluted earnings per share, the net profit or loss attributable to equity shareholders and the weighted average number of shares outstanding are adjusted for the effects of all dilutive potential equity shares, if any, except when the results would be anti-dilutive. The dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. t. Leases Operating lease Lease arrangements, where the risks and rewards incidental to ownership of an asset substantially vest with the lessor, are recognized as an operating lease. Lease payments under operating lease are recognized as an expense in the Statement of Profit and Loss on a straight-line basis over the lease term Finance lease Assets taken on finance lease are capitalized at an amount equal to the fair value of the leased assets or the brsent value of minimum lease payments at the inception of the lease, whichever is lower. Such leased assets are debrciated over the lease tenure or the useful life, whichever is shorter. The lease payment is apportioned between the finance charges and reduction to principal, i.e., outstanding liability. The finance charge is allocated to the periods over the lease tenure to produce a constant periodic rate of interest on the remaining liability. u. Material events Material events occurring after the Balance Sheet date are taken into cognizance. 2. The Company is not meeting the eligibility criteria as brscribed in section 135 of Companies Act 2013 for spending on corporate social responsibility and hence no such expenditure has been incurred during the year. 3. Balances shown under trade receivables, group companies, loans & advances, trade payables and other liabilities are subject to reconciliation/ confirmation and respective consequential adjustments. 4. Previous year figures have been regrouped/ reclassified wherever considered necessary to confirm to the brsentation of current year's financial statements. As per our report of even date attached. For S.N. Dhawan & Co. Chartered Accountants FRN: 000050N For and on behalf of the Board of Directors of JHS Svendgaard Laboratories Limited S.K.Khattar Partner Membership no.: 084993 Nikhil Nanda Managing Director DIN : 00051501 Dhiraj Kumar Jha Company Secretary Vishal Sarad Shah Whole Time Director DIN : 07113784 Neeraj Kumar Chief Financial Officer Place : New Delhi Date : 14.07.2015 |