Grasim Industries Limited (the "Company") is engaged primarily in two businesses, Viscose Staple Fibre (VSF) and in Cement, through its subsidiary UltraTech Cement Limited. It also produces Rayon Grade Pulp, Caustic Soda and allied Chemicals which are used in the manufacture of VSF. The manufacturing plants of the Company, its Subsidiaries and Joint Ventures are located in India, Canada, Sweden, China, Middle East, Sri Lanka and Bangladesh. The Company is a public limited company and its shares are listed on the Bombay Stock Exchange (BSE), India, and the National Stock Exchange (NSE), India, and the Company's Global Depository Receipts are listed on the Luxembourg Stock Exchange.
1. SIGNIFICANT ACCOUNTING POLICIES
1.1 Basis of Preparation:
The financial statements have been brpared and brsented in accordance with the Generally Accepted Accounting Principles (GAAP) in India under historical cost convention on accrual basis and comply in all material aspects with the Accounting Standards (AS) and the relevant provisions of the Companies Act, 1956 and Companies Act, 2013 as applicable, besides the pronouncements/guidelines of the Institute of Chartered Accountants of India (ICAI) and of the Securities and Exchange Board of India (SEBI).
1.2 Classification of Assets and Liabilities as Current and Non-Current:
All assets and liabilities are classified as current or non-current as per the Company's normal operating cycle, and other criteria set out in Schedule III to the Companies Act, 2013. Based on the nature of products and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, 12 months period has been considered by the Company as its normal operating cycle for the purpose of classification of assets and liabilities as current and non-current.
1.3 Use of Estimates:
The brparation of financial statements requires estimates and assumptions to be made that affect the reported amounts of assets and liabilities on the date of the financial statements and reported amount of revenues and expenses during the reporting period and the disclosures relating to contingent liabilities as of the date of the financial statements. Although these estimates are based on the management's best knowledge of current events and actions, the actual outcome may be different from the estimates. Difference between actual results and estimates are recognised in the period in which the results are known or materialise.
1.4 Government Grants:
Any government grant is recognised when there is reasonable assurance of its receipt. A capital grant relating to specific assets is reduced from the gross value of the fixed assets, and capital grant for Project Capital Subsidy is credited to Capital Reserve. Revenue grant is recognised in the Statement of Profit and Loss.
1.5 General Reserve:
General Reserve, a free reserve, is created by appropriation from profits of the current year and/or undistributed profits of brvious years, before declaration of dividend duly complying with any regulations in this regard.
1.6 Fixed Assets:
Fixed assets (Tangible and Intangible) are stated at cost, less accumulated debrciation/amortisation. Cost comprises the purchase price and any attributable cost of bringing the asset to its location and working condition for its intended use. Fixed assets, retired from active use and held for sale, are stated at lower of their net book value and net realisable value, and are disclosed separately in the financial statements under Current Assets.
Spares which can be used only in connection with a particular Plant and Equipment of the Company and use is expected to be irregular, are capitalized at cost.
Gains/losses arising from retirement or disposal of fixed assets which are carried at cost are recognised in the Statement of Profit and Loss.
1.7 Treatment of Expenditure during Construction Period:
Expenditure net of income earned during construction period is included under capital work-in-progress and the same is allocated to the respective fixed assets on the completion of construction.
1.8 Impairment of Assets:
Carrying amount of assets is reviewed at the Balance Sheet date to ascertain if there is any indication of impairment based on the internal and external factors. The assets are treated as impaired when the carrying amount of the asset exceeds its recoverable amount.
An impairment loss, if any, is charged to the Statement of Profit and Loss as and when it arises. Impairment loss recognised in prior years is reversed when there is an indication that impairment loss recognised for the asset no longer exists or may have decreased.
Long-term investments are stated at cost. However, provision for diminution is made to recognise a decline, other than temporary, in the value of the investments. Such reduction is determined and made for each investment individually.
Current investments, except current maturities of Long-term investments, are stated at lower of cost and fair value determined for each category of investments.
Inventories are valued at the lower of cost and net realisable value. The cost is computed on weighted-average basis. In case of sale of raw material/stores, the proceeds are credited to their respective heads.
Cost of finished goods and process stock include cost of conversion, and other costs incurred in bringing the inventories to their brsent location and condition. 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. In the absence of cost, waste/scrap is valued at estimated net realisable value. Obsolete, defective, slow moving and unserviceable inventories, if any, are duly provided for.
1.11 Financial Derivatives:
Derivative instrument are used to hedge risk associated with foreign currency fluctuations, interest rates and commodity prices. The derivative contracts are closely linked with underlying transactions and are intended to be held till maturity. The Company does not enter into any derivative contracts for speculations or trading purposes.
With effect from current year, the Company has adopted AS 30 - "Financial Instrument - Recognition and Measurement", to the extent that adoption did not conflict with existing accounting standards and other regulatory requirements. Accordingly the Company test each contract which are entered on the basis of highly probable forecast transaction and decide whether to designate the same as an underlying for the effective hedge relationship.
To designate a forward or options contract as an effective hedging instrument, the management objectively evaluates and evidences with appropriate supporting documents at the inception of each contract whether the contract is effective in achieving offsetting cash f I ows attributable to the hedged risk. AT
The gain or losses on designated hedging contract that qualify as an effective hedge is recorded in the hedging reserve account until the transactions are completed. Upon completion or cessation of hedging relationship as an effective, net cumulative gain / losses are transferred to Statement of Profit & Loss. The gain or losses o on designated hedging contracts which are considered as ineffective hedge transactions are charged to the Statement of Profit and Loss.
Forward exchange contracts which are not designated for hedge accounting are marked to market and losses, if any, are charged to Profit and Loss while gains are ignored in accordance with the announcement by the Institute of Chartered Accountants of India on 'Accounting for Derivatives'.
The brmium or discount on forward exchange contracts entered into to hedge an existing asset/liability is amortised as expense or income over the life of the contract. Any gain or loss arising on cancellation or renewal of such forward exchange contract is recognised as income or expense, as the case may be on such occurrence.
1.12 Revenue Recognition:
Sales revenue is recognised on transfer of the significant risks and rewards of ownership of the goods to the buyer, and stated net of sales tax, VAT, trade discounts and rebates but includes excise duty. Income from services is recognised as they are rendered (based on agreement/arrangement with the concerned customers).
Dividend income on investments is accounted for as and when the right to receive the payment is established. Interest income is recognised on time-proportion basis.
Export incentives and other government incentives, insurance claims and other claims, where quantum of accruals cannot be ascertained with reasonable certainty, are accounted on acceptance basis. Proft/(Loss) on sale of investments is recorded on transfer of title from the Company, and is determined as the difference between the sale price and carrying value of investment and other incidental expenses.
1.13 Employee Benefits:
Short-Term Employee Benefits
Short-term employee benefits are recognised as an expense on accrual basis.
Defined Contribution Plan
Contribution payable to recognised provident fund and approved superannuation scheme, which are substantially defined contribution plans, are recognised as expense in the Statement of Profit and Loss, as they are incurred.
The Provident Fund contribution as specified under the law is paid to the Provident Fund set-up as an irrevocable trust by the Company or to the Regional Provident Fund Commissioner. The Company is liable for any shortfall in the fund assets based on the Government specified minimum rates of return. Such shortfall, if any, is recognised in the Statement of Profit and Loss as an expense in the year incurred.
Defined Benefit Plan
The obligation in respect of defined benefit plans, which covers Gratuity and Pension, are provided for on the basis of an actuarial valuation at the end of each financial year. Gratuity is funded with an approved fund. Actuarial gains/losses, if any, are recognised immediately in the Statement of Profit and Loss.
Other Long-Term Benefits
Long-term compensated absences are provided for on the basis of an actuarial valuation at the end of each financial year. Actuarial gains/losses, if any, are recognised immediately in the Statement of Profit and Loss.
Share-Based Payments to Employees
The stock options granted under Employee Stock Option Scheme-2006 and Employee Stock Option Scheme-2013 to employees of the Company are accounted for as per the accounting treatment brscribed by the Securities and Exchange Board of India, whereby the intrinsic value of options is recognised as deferred employee compensation. The deferred employee compensation is charged to the Statement of Profit and Loss on the straight-line basis over the vesting period of the option. The employee stock option outstanding account is shown net of any unamortized deferred employee compensation.
1.14 Foreign Currency Transactions and Translation:
Foreign currency transactions are recorded at the exchange rate brvailing on the date of transaction. Monetary assets and liabilities in foreign currency, existing at the Balance Sheet date, are translated at the year-end exchange rates. Exchange differences, including brmium or discount on forward exchange contracts, arising till the commissioning of fixed assets, relating to borrowed funds and liabilities in foreign currency for acquisition of the fixed assets, are adjusted to the cost of fixed assets. All other exchange differences are recognised in the Statement of Profit and Loss. Investment in Share Capital of companies registered outside India is carried in the Balance Sheet at the rates at which transactions have been executed.
Exchange difference, arising on restatement of long-term monetary items that in substance forms part of Company's net investment in non-integral foreign operations, is accumulated in Foreign Currency Translation Reserve until the disposal of the investment, at which time such exchange difference is recognised in the Statement of Profit and Loss.
1.15 Research and Development Expenditure:
Revenue expenditure pertaining to research is charged to the Statement of Profit and Loss. Development expenditure is capitalised if such expenditure leads to creation of any intangible asset, otherwise, such expenditure is charged to the Statement of Profit and Loss. Fixed assets procured for research and development activities are capitalised.
1.16 Operating Leases:
Leases, where risk and reward of ownership are significantly retained by the lessor, are classified as operating leases, and lease rentals thereon are charged to the Statement of Profit and Loss on straight-line basis over the period of the lease.
1.17 Borrowing Costs:
Borrowing costs include interest and ancillary costs incurred in connection with the borrowings. Borrowing costs in connection with the borrowing of funds, to the extent attributable to the acquisition or construction of a qualifying asset, are capitalised as part of the cost of such asset till such time the asset is ready for its intended use. All other borrowing costs are recognised in the Statement of Profit and Loss in the period in which they are incurred.
Debrciation is the systematic allocation of the debrciable amount of an asset over its useful life and is provided on a straight-line basis or WDV basis over the useful lives as brscribed in Schedule II to the Companies Act, 2013.
Debrciable amount for assets is the cost of an asset less its estimated residual value.
Debrciation/Amortisation charge is provided on fixed assets on written-down-value method in respect of fixed assets of Viscose Staple Fibre Division (excluding Power Plants), Nagda, Engineering Division, Nagda and Corporate Finance Division, Mumbai, and on Straight-line Method in respect of other assets.
The useful life of an asset is the period over which an asset is expected to be available for use by an entity, or the number of production or similar units expected to be obtained from the asset by the entity.
Useful life of part of the assets which is significant to total cost of assets has been determined separately and debrciation has been provided accordingly.
In case of certain class of assets, the Company uses different useful life than those brscribed in Schedule II to the Companies Act, 2013. The useful life has been assessed based on technical advice, taking into account the nature of the asset, the estimated usage of the asset on the basis of management's best estimation of getting economic benefits from those class of assets. The Company uses its technical expertise along with historical and industry trends for arriving the economic life of an asset. Such class of assets and their estimated useful lives are as under:
Continuous process plant, as defined in Schedule II of the Companies Act, 2013, have been classified on the basis of technical assessment and debrciation is provided accordingly.
Individual assets costing less than Rs. 10,000 are debrciated in full in the year of acquisition.
Cost of Leasehold Land is amortised over the period of lease.
In respect of fixed assets added/disposed of during the year, debrciation is provided on pro-rata basis with reference to the month of addition/deduction, however, in case of a new project the debrciation from the date of commissioning of such project is charged to Statement of Profit and Loss.
1.19 Provision for Current and Deferred Tax:
Provision for Current Tax is made on the basis of estimated taxable income for the current accounting period in accordance with the provisions of the Income-tax Act, 1961.
Deferred Tax, resulting from timing difference between book and taxable profit for the year, is accounted for using the Tax rates and laws enacted or substantively enacted as on the Balance Sheet date. The Deferred Tax asset is recognised and carried forward only to the extent there is a reasonable certainty of its realization in future.
In the event of Unabsorbed Losses, deferred tax assets are recognised to the extent of virtual certainty that sufficient future taxable income will be available to realise such assets.
1.20 Minimum Alternate Tax (MAT):
MAT is recognised as an asset only when and to the extent there is convincing evidence based on projections that the Company will pay normal Income-tax during the specified period. In the year, in which the MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in the Guidance Note issued by the ICAI, the said asset is created by way of a credit to the Statement of Profit and Loss and is shown as MAT Credit Entitlement. 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.
A provision is recognised when there is 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 determined (as provided/charged to the Statement of Profit and Loss) based on estimate of the amount required to settle the obligation at the Balance Sheet date and are not discounted to brsent value. Contingent liabilities are not recognised but are disclosed in the financial statements. Claims against the Company where the possibility of materialization is remote are not considered as contingent liabilities. Contingent assets are neither recognised nor disclosed, in the financial statements.
1. Previous year (Year ended 31st March, 2014) figures have been regrouped/reclassified, wherever necessary, to correspond with the current year (31st March 2015) classification/disclosure.
2 Figures less than Rs. 50,000 have been shown at actual, wherever statutorily required to be disclosed, as the figures have been rounded off to the nearest lakh
For GRASIM INDUSTRIES LIMITED
K. K. Maheshwari
Whole-time Director & CFO
B. V. Bhargava
M. L. Apte
Place : Mumbai
Dated: 2nd May, 2015