2 Significant accounting policies

2.1 Basis of brparation

The financial statements have been brpared and brsented under the historical cost convention, on the accrual basis of accounting in accordance with the accounting principles generally accepted in India (‘Indian GAAP’) and comply with the Accounting standards brscribed in the Companies (Accounting Standards) Rules, 2006 which continues to apply under Section 133 of the Companies Act, 2013 read with rule 7 of the Companies (Accounts) Rules 2014 and other relevant provisions of the Companies Act, 2013 (‘the Act’), to the extent notified and applicable. The financial statements are brsented in Indian rupees rounded off to the nearest million, except earnings per share data and where mentioned otherwise.

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 Schedule III to the Act. Based on the nature of the business and realisation in cash and cash equivalents, the Company has ascertained its operating cycle as twelve months for the purpose of current or non-current classification of assets and liabilities.

2.2  Use of estimates

The brparation of financial statements in conformity with Generally Accepted Accounting Principles in India requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amount of assets, liabilities, and disclosure of contingent liabilities on the date of the financial statements, and the reported amounts of income and expenses during the reported period. Management believes that the estimates made in the brparation of financial statements are prudent and reasonable. Actual results could differ from those estimates. Any revision to accounting estimates is recognised prospectively in current and future periods.

2.3  Classification of assets and liabilities

Schedule III to the Companies Act, 2013 requires assets and liabilities to be classified as either Current or Non-current.

(a)    An asset shall be classified as current when it satisfies any of the following criteria:

i)   It is expected to be realised in, or is intended for sale or consumption in, the company’s normal operating cycle;

ii)  It is held primarily for the purpose of being traded;

iii) It is expected to be realised within twelve months after the reporting date; or  

iv) It is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.                        

Current assets include the current portion of non-current financial assets.

All other assets shall be classified as non-current.

(b)    A liability shall be classified as current when it satisfies any of the following criteria:

i.  It is expected to be settled in the company’s normal operating cycle;

ii. It is held primarily for the purpose of being traded;

iii. It is due to be settled within twelve months after the reporting date; or

iv.  The company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

All liabilities other than current liabilities shall be classified as non-current.

Operating Cycle

Operating cycle is the time between the processing and realisation of assets in cash or cash equivalents which is considered to be a period of twelve months by the management, based on the above definition and the nature of services provided.

2.4  Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.

Sale of Goods

Revenue from sale of goods in the course of ordinary activities is recognised when property in the goods or all significant risks and rewards of their ownership are transferred to the customer and no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods and regarding its collection. The amount recognised as revenue is exclusive of sales tax, value added taxes (VAT) and service tax, and is net of returns, trade discounts and quantity discounts.

Interest

Interest income is recognised on a time proportion basis at the rate implicit in the transaction.

Commission and service income

Commission income and service income are recognised on the basis of completion of services as per contractual terms.

Export Incentive

Benefit on account of entitlement to import duty free materials under the ‘Duty Draw Back Scheme’ is recognised in the year of export.

2.5  Fixed assets and debrciation/amortisation/impairment

Tangible assets

Tangible fixed assets are stated at cost less accumulated debrciation and any provision for impairment. Cost comprises the purchase price and includes freight, duties, taxes (other than those recoverable from tax authorities) and other expenses related directly / indirectly to the acquisition / construction and installation of the fixed assets for bringing the asset to its working condition for its intended use.

When parts of an items of fixed assets have different useful lives they are accounted for as separate items (major components of fixed assets).

Subsequent expenditures related to an item of tangible fixed assets are added to its book value only if they increase the future benefits from the existing asset beyond its brviously assessed standard of performance.

Debrciation on fixed assets is provided on the straight-line method (SLM) using the rates arrived at based on the useful lives estimated by the management, or those brscribed under the schedule II to the Companies Act, 2013 whichever is higher. Debrciation on additions/ deletions of fixed assets made during the year is provided on pro rata basis from/to the date of such additions/ deletions.    

 

Nature of Assets	Useful life
Marketing rights	7 years
Patents	7 years
Goodwill	7 years
Non-compete fees	5 years
Trade marks	5 years
Copy rights	5 years
Technical know-how	5 years
License  registration	5 years
Distribution network	5 years

Impairment

In accordance with AS 28 - ‘Impairment of Assets’, where there is an indication of impairment of the Company’s assets, the carrying amounts of the Company’s assets are reviewed at each balance sheet date to determine whether there is an impairment.  The recoverable amount of the asset (or where applicable, that of the cash generating unit to which the asset belongs) is estimated as the higher of its net selling price and its value in use.

An impairment loss is recognised whenever the carrying amount of the asset (or where applicable, that of the cash generating unit to which the asset belongs) exceeds its recoverable amount. An impairment loss is recognised in the statement of profit and loss.

After impairment, debrciation is provided on the revised carrying amount of the asset over its remaining useful life.

Reversal of impairment loss is recognised in statement of profit and loss whenever recoverable amount of the asset (or where that of the cash generating unit to which the asset belongs) exceeds its carrying amount. Such reversal is recognised in the statement of profit and loss.

2.6 Investment

Long-term investments are carried at cost. A provision for diminution is made to recognise a decline, other than temporary, in the value of long-term investments and is determined separately for each individual investment.

2.7 Inventories

Raw materials and packing materials, components, stores and spares are valued at cost. However, raw materials and packing materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. Cost is determined on a weighted average basis.

Work-in-progress and finished goods are valued at lower of cost and net realisable value. Cost includes direct materials and labor and a proportion of manufacturing overheads based on normal operating capacity. Cost of finished goods includes excise duty. Cost is determined on a weighted average basis.

Valuation of traded products includes cost of purchase and directly attributable overheads. Net realisable value is the estimated selling price in the ordinary course of business less estimated cost of completion and estimated cost necessary to make the sale. Accrual for excise duty liability is made in respect of manufactured finished goods lying in the factory and for customs duty liability in respect of inventories in bond.

2.8 Operating leases

Where the Company is the Lessee

Leases – where the lessor effectively retains substantially all the risks and benefits of ownership of the leased term, are classified as operating leases. Operating lease payments are recognised as an expense in the statement of profit and loss on straight line basis over the lease term.

2.9 Employee benefits

1)      Short –term employee benefits

Defined contribution plans

The Company makes contribution towards provident fund, pension fund and employee’s state insurance contribution to a defined contribution retirement benefit plan for qualifying employees.  Both the employee and the Company make monthly contribution equal to a specified percentage of the covered employee’s salary or a fixed monthly contribution.  The monthly contributions payable by the Company are charged to the statement of profit and loss as incurred.

Defined benefit plans

The Company provides for gratuity using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date, based on legislations as enacted as at the balance sheet date.  Actuarial gains and losses are recognised in full in the statement of profit and loss in the period in which they occur.  Past service cost is recognised immediately to the extent that the benefits are already vested.

The retirement benefit obligation recognised in the balance sheet rebrsents the brsent value of the defined benefit obligation and as reduced by the fair value of scheme assets.  Any asset resulting from the calculation is limited to the brsent value of available refunds and reductions in future contributions to the scheme.  The gratuity plan is managed by an approved gratuity fund to which contributions are made by the Company.

The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by the employees is recognised during the period when the employee renders the service.

Other long-term benefits

Compensated absences which are not expected to occur within twelve months after the end of the period in which the employees renders the related services are recognised as a liability at the brsent value of the defined benefit obligation at the balance sheet date. Provision in respect of leave encashment benefits has been made based on actuarial valuation carried out by an independent actuary at the balance sheet date using Projected unit cost method.

2.10 Foreign currency transactions

Income and expense in foreign currencies are translated at the exchange rates brvailing on the date of the transaction.  Monetary assets and liabilities at year end are translated at the exchange rates brvailing on the balance sheet date and the resulting net gain or loss is recognised in the statement of profit and loss. Net exchange gain or loss resulting in respect of foreign exchange transactions settled during the year is recognised in the statement of profit and loss.

Non-monetary items which are carried at historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction.

Forward contracts are entered to hedge the foreign currency risk of the underlying transaction. The brmium or discount on all such contracts arising at the inception of each contract is amortised as income or expense over the life of the contract. Exchange differences on forward contracts are recognised as income or expense in the statement of profit and loss of the year. Any profit or loss arising on the cancellation and renewal of forward contract is recognised as income or expense for the year.

2.11 Income taxes

Tax expense for the year comprises of current tax and deferred tax charge or credit.

Current taxes

Current taxes are measured at the amount expected to be paid to / recovered from the taxation authorities using the applicable tax rates and tax laws.

Minimum alternate Tax (MAT)

Minimum Alternative Tax (‘MAT’) under the provisions of the Income-tax Act, 1961 is recognised as current tax in the statement of profit and loss. The credit available under the Act in respect of MAT paid is recognised as an asset only when and to the extent there is convincing evidence that the company will pay normal income tax during the period for which the MAT credit can be carried forward for set-off against the normal tax liability. MAT credit recognised as an asset is reviewed at each balance sheet date and written down to the extent the aforesaid convincing evidence no longer exists.

Deferred taxes

Deferred tax is recognised for all the timing differences that result between the profits offered for income taxes and the profits as per the financial statements.  Deferred tax assets and liabilities are measured using the tax rates and the tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that sufficient future taxable income will be available to realise the assets.  However, where there is unabsorbed debrciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is virtual certainty that sufficient future taxable income will be available to realise these assets. Deferred tax assets are reassessed for the appropriateness of their respective carrying values at each balance sheet date. 

2.12 Earnings per share

The basic earnings per equity share (‘EPS’) is computed by dividing the net profit or loss for the period attributable to the equity shareholders by the weighted average number of equity shares outstanding during the reporting period. Diluted EPS is computed by dividing the net profit attributable to the equity shareholders for the year by the weighted average number of equity and dilutive equity equivalent shares outstanding during the year, except where the results would be anti-dilutive.

2.13 Provisions and contingencies

The Company creates a provision when there is brsent obligation as a result of a past event that probably requires an outflow of resources embodying economic benefits and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a brsent obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a brsent obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

2.14 Research and development

Research costs are expensed as incurred. Development expenditure incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured. Any expenditure carried forward is amortised over the period expected future sales from the related project, not exceeding ten years.  

2.15 Cash and cash equivalents

In Cash flow statement, cash and cash equivalents includes cash in hand, bank balances , term deposits with banks and other short term highly liquid investments  with original maturities within three months or less.

2.16 Segmental Reporting

The Company has disclosed Business Segment as the primary segment.

The business of the Company is divided into three segments – Industrial Chemicals, Agro Chemicals and Public Health Chemicals based on the customers to which the goods are sold. These Segments have been identified taking into account the nature of the business, the differing risks and returns, the organisation structure and internal reporting system.

Industrial Chemicals is primarily engaged in manufacturing and trading of various insecticides and the products are sold to industrial customers. Agro Chemical business is primarily engaged in trading and manufacturing various pesticides and the products are sold to retail customers.  Public Health Chemicals is primarily engaged in manufacturing and trading of larvicides and largely caters to Government tenders.

Segment revenue, segment results, segment assets and segment liabilities include the respective amounts identifiable to each segment as also the amounts allocable on a reasonable basis. Income and expenses which are not directly attributable to any business segment are shown as unallocated corporate income / expenses. Assets and liabilities that cannot be allocated between the segments are shown as a part of unallocated corporate assets and liabilities respectively.

Sumitomo Chemical India Private Limited (‘SCIPL’ or ‘the Company’) was incorporated on February 15, 2000 and is a subsidiary of Sumitomo Chemical Company Limited, Japan (‘SCCL’). The Company is primarily engaged in manufacturing and sales of Household Insecticides, Agricultural Pesticides, Public Health Insecticides and Animal Nutrition Products.

a) Defined benefit plans
The following table sets out the status of defined benefit plans as required under AS-15.

	31.03.2017 (in Million)	31.03.2016 (in Million)
Changes in the brsent value of the defined benefit obligation are as follows
Gratuity
Opening defined benefit obligation	39.30	32.67
Current service cost	3.29	3.93
Interest cost	1.98	2.61
Benefits paid	(29.04)	(2)
Actuarial losses / (gains) on obligations	17.64	2.09
Closing defined benefit obligation	33.17	39.30
Leave encashment
Opening brsent value of obligation	15.29	12.39
Interest cost	0.95	0.99
Current service cost	3.74	3.51
Benefits paid	(6.93)	(2.09)
Actuarial (gains)/ losses	10.73	0.49
Closing brsent value of obligation	23.78	15.29
Changes in the brsent value of the plan assets are as follows:
Gratuity
Opening fair value of plan assets	29.10	26
Expected return on plan asset	2.45	2.16
Contributions by employer	30.90	2.92
Benefits paid	(29.04)	(2)
Increase/ (decrease) in Bank Balance	-	0.02
Closing fair value of plan assets	33.41	29.1
Amounts recognised in the balance sheet:
Gratuity
Present value of obligation as at 31 March 2017	33.17	39.3
Present value of plan asset as at 31 March 2017	(33.41)	(29.1)
Net (asset)/ liability recognised as on 31 March 2017	(0.24)	10.2
Leave encashment
Present value of obligation as at 31 March 2017	23.78	15.29
Classification into current/ non-current
The liability comprises of the following current and non-current  portions
Gratuity
Current	-	1.02
Non-current	(0.24)	9.18
Total	(0.24)	10.2
Changes in the brsent value of the defined benefit obligation are as follows
Leave encashment
Current	5.44	3.82
Non-current	18.34	11.47
Total	23.78	15.29
Expenses recognised in the statement of profit and loss
Gratuity
Current service cost	3.29	3.93
Interest on defined benefit obligation	1.98	2.61
Expected return on plan assets	(2.45)	(2.16)
Net actuarial losses/ (gains) recognised in the current year	17.64	2.08
Expenses recognised in the statement of profit and loss *	20.46	6.46
Leave encashment
Current service cost	3.74	3.51
Interest on defined benefit obligation	0.95	0.99
Net actuarial losses / (gains) recognised in the current year	10.73	0.49
Gross Amount	15.42	4.99
Leave Encashment paid for left employees	0.15	0
Expenses recognised in statement of profit and loss	15.57	4.99

*The difference of Rs 0 (2016: Rs 0.17 ) as compare to amount Shown in note no 21 is due to brmium amount paid by the company to LIC and reduced by income and expenses of gratuity trust)

The principal assumptions used in determining benefit obligations are shown below:

	31.03.2017	31.03.2016
Discount rate	6.80%	8.00%
Expected rate of return on plan assets	6.80%	8.47%
Expected rate of salary increase	8.00%	5.00%
Mortality br-retirement	Indian Assured Lives Mortality	Indian Assured Lives Mortality
	(2006-08)	(2006-08)
	Ultimate	Ultimate
Withdrawal rates	Age 0-30:35%, Age31-35:25% Age 36-40: 20% Age 41-45:15% Age 46-55:10% Age 56-60: 5%	10% to 2% p.a. age related on graduated scale

The estimates of future salary increases considered in the actuarial valuation take into account inflation, seniority, promotion and other conditions in the employment market.

Experience adjustments

	31.03.2017	31.03.2016	31.03.2015	31.03.2014	31.03.2013
Defined benefit obligation	33.16	39.3	32.66	27.65	23.39
Plan assets	33.41	29.1	26	23.28	21.54
Surplus / (deficit)	0.24	(10.2)	(6.66)	(4.37)	(1.85)
Experience adjustments on plan liabilities	107.64	2.08	1.71	0.75	(0.76)
Experience adjustments on plan assets	0.04	0.12	0.21	0.13	0.26
Assumption (Gain)/Loss	6.87

b) Defined contribution plan
i)   Contribution to Provident Fund.
ii)   Contribution to Employees State Insurance Corporation (ESIC)

The Company has recognised the following amounts in the statement of profit and loss for the year

	31.03.2017	31.03.2016
- Employer’s contribution to Provident Fund	19.49	15.1
- Employer’s contribution to ESIC	0.28	0.15
- Contribution to Other Funds	0.01	0.01
Total	19.78	15.26

							(Amount in Millions)
	Industrial Chemicals	Industrial Chemicals	Agro Chemicals	Agro Chemicals	Public Health Chemicals	Public Health Chemicals	Total	Total
	2017	2016	2017	2016	2017	2016	2017	2016
Revenue
Operating revenue	2,128.67	2,544.40	6,002.96	4,860.48	201.29	236.76	8,332.92	7,641.65
Other income	22.11	8.27	66.70	221.77	2.09	1.41	90.90	231.45
Total segment revenue	2,150.78	2,552.67	6,069.66	5,082.26	203.38	238.17	8,423.82	7,873.10
Unallocated revenue							43.72	37.51
Total revenue	2,150.78	2,552.67	6,069.66	5,082.26	203.38	238.17	8,467.54	7,910.61
Segment results	248.00	249.34	1019.677	929.37	66.70	94.6	1,334.38	1273.31
Unallocated corporate expenses							293.33	198.7
Profit / (loss) before interest and finance charges and tax	248.00	249.34	1019.68	929.37	66.70	94.6	1,041.06	1074.61
Finance costs							9.62	4.12
Profit / (loss) after interest and finance charges and before tax	248.00	249.34	1019.68	929.37	66.70	94.6	1,031.44	1070.49
Tax expenses
- Current tax							399.30	400
- Deferred tax (credit)							(11.59)	24.24
-Previous Year Adjustments							27.65	-
Profit / (loss) for the year	248.00	249.34	1,019.68	929.37	66.70	94.60	616.08	646.25
	Industrial Chemicals	Industrial Chemicals	Agro Chemicals	Agro Chemicals	Public Health Chemicals	Public Health Chemicals	Total	Total
	2017	2016	2017	2016	2017	2016	2017	2016
Segment assets	813.91	1,062.96	5,033.29	3,791.21	76.61	143.51	5,923.81	4,997.68
Unallocated corporate assets							3,300.64	765.84
Total assets	813.91	1,062.96	5,033.29	3,791.21	76.61	143.51	9,224.45	5,763.52
Segment liabilities	75.75	726.94	1,715.71	1,926.11	957.44	71.23	2,748.90	2,724.29
Unallocated corporate liabilities							132.31	78.72
Total liabilities	75.75	726.94	1,715.71	1926.11	957.44	71.23	2,881.21	2,803.01
Capital expenditure	30.51	36.1	50.60	50.84	0.31	0.74	81.42	87.68
Unallocated corporate capital expenditure							3.75	3.50
Total capital expenditure	30.51	36.1	50.60	50.84	0.31	0.74	85.17	91.18
Debrciation and  amortization	23.89	21.22	33.45	29.75	0.46	0.27	57.80	51.23
Unallocated debrciation and amortization							11.67	23.21
Total debrciation and amortization	23.89	21.22	33.45	29.75	0.46	0.27	69.47	74.44

Further, the Company has considered the export operations as a separately identifiable geographic segment due to operations in the Japan and other countries. The Company has identified secondary segments based on geographic locations and has reported India, Japan, and other countries as geographic segments as below

						(Amount in Millions)
	India	India	Japan	Japan	Others	Others	Total	Total
	2017	2016	2017	2016	2017	2016	2017	2016
Segment revenue	7417.64	7026.88	1005.40	846.22	0.78	0	8423.82	7873.10
Segment assets	5876.67	4954.60	47.14	43.08	0	0	5923.81	4997.68
Capital expenditure	85.17	91.18	0	0	0	0	85.17	91.18