Page 108 - Annual Report 2019-20

Notes forming part of the financial statements notes forming part of the financial statements
2.4 Revenue Recognition
The Company recognises revenue from sale of goods, based on the terms of contract and as per the
business practise; the Company determines transaction price considering the amount it expects to
be entitled in exchange of transferring promised goods to the customer. Revenue is recognised when
it is realized or is realizable and has been earned after the deduction of variable components such as
discounts, rebates, incentives, promotional couponing and schemes. The company estimates the
amount of variable components based on historical, current and forecast information available and
either expected value method or most likely method, as appropriate and records a corresponding
liability in other payables; the actual amounts may be different from such estimates. These differences,
which have historically not been significant, are recognised as a change in management estimate in a
subsequent period.
2.4.1 Sale of Goods
Revenue is recognised when control of the products being sold has been transferred to a customer and
when there are no longer any unfulfilled obligations to the customer. This is generally on delivery to
the customer but depending on individual customer terms, this can be at the time of dispatch, delivery
or upon formal customer acceptance. This is considered the appropriate point where the performance
obligations in our contracts are satisfied and the Company no longer has control over the inventory.
Sales are net of GST.
Advance received from customer before transfer of control of goods to the customer is recognised as
contract liability.
2.4.2 Dividend, Interest income and Royalty
Dividend income from investments is recognised when the Company’s right to receive dividend is
established. Interest income from a financial asset is recognised on a time basis, by reference to the
principal outstanding using the effective interest method provided it is probable that the economic
benefits associated with the interest will flow to the Company and the amount of interest can be
measured reliably. The effective interest rate is the rate that exactly discounts estimated future
cash receipts through the expected life of the financial asset to the gross carrying amount of that
financial asset.
Royalty revenue is recognised on an accrual basis in accordance with the substance of the relevant
agreement or underlying arrangement in case of sales provided that it is probable that the economic
benefits associated with the royalty shall flow to the Company and the amount of royalty can be
measured reliably.
Claims/ Insurance Claim etc. are accounted for when no significant uncertainties are attached to their
eventual receipt.
The Company’s policy for recognition of revenue (rental income) from leases is described in note 2.5.2.
2.5 Leasing
The Company, at the inception of a contract, assesses whether the contract is a lease or not lease.
A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset
for a time in exchange for a consideration. This policy has been applied to contracts existing and entered
into on or after 1 April 2019.
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2.5.1 Company as Lessee
The Company’s lease asset classes primarily consist of leases for land and buildings. The Company
assesses whether a contract contains a lease, at inception of a contract. A contract is, or contains, a lease
if the contract conveys the right to control the use of an identified asset for a period of time in exchange
for consideration. To assess whether a contract conveys the right to control the use of an identified asset,
the Company assesses whether: (i) the contract involves the use of an identified asset (ii) the Company
has substantially all of the economic benefits from use of the asset through the period of the lease and
(iii) the Company has the right to direct the use of the asset.
At the date of commencement of the lease, the Company recognizes a right-of-use asset (“ROu”) and a
PIDILITE ANNUAL REPORT 2019-20 leases, the Company recognizes the lease payments as an operating expense on a straight-line basis over
corresponding lease liability for all lease arrangements in which it is a lessee, except for leases with a term
of twelve months or less (short-term leases) and low value leases. For these short-term and low value
the term of the lease.
Certain lease arrangements includes the options to extend or terminate the lease before the end of the
lease term. ROu assets and lease liabilities includes these options when it is reasonably certain that they
will be exercised.
liability adjusted for any lease payments made at or prior to the commencement date of the lease plus
any initial direct costs less any lease incentives. They are subsequently measured at cost less accumulated
depreciation and impairment losses.
106 The right-of-use assets are initially recognised at cost, which comprises the initial amount of the lease
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Right-of-use assets are depreciated from the commencement date on a straight-line basis over the
shorter of the lease term and useful life of the underlying asset. Right of use assets are evaluated for
recoverability whenever events or changes in circumstances indicate that their carrying amounts may
not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e. the higher of the PIDILITE ANNUAL REPORT 2019-20
fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset
does not generate cashflows that are largely independent of those from other assets. In such cases, the
recoverable amount is determined for the Cash Generating unit (CGu) to which the asset belongs.
The lease liability is initially measured at amortized cost at the present value of the future lease
payments. The lease payments are discounted using the interest rate implicit in the lease or, if not readily
determinable, using the incremental borrowing rates in the country of domicile of these leases. Lease
liabilities are remeasured with a corresponding adjustment to the related right of use asset if the Company
changes its assessment if whether it will exercise an extension or a termination option.
Lease liability and ROu asset have been separately presented in the Balance Sheet and lease payments
have been classified as financing cash flows.
2.5.2 Company as Lessor
Rental income from leases is recognised on a straight- line basis over the term of the relevant lease. Where
the rentals are structured solely to increase in line with expected general inflation to compensate for the
Company’s expected inflationary cost increase, such increases are recognised in the year in which such
benefits accrue.
Amounts due from lessees under finance leases are recognised as receivables at the amount of the
Company’s net investment in the leases. Finance lease income is allocated to accounting periods so as to
reflect constant periodic rate of return of the Company’s net investment outstanding in respect of
the leases.
Transition
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Effective 1 April 2019, the Company adopted Ind AS 116 “Leases” and applied the standard to all lease
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contracts existing on 1 April 2019 using the modified retrospective method and has taken the cumulative
adjustment to retained earnings, on the date of initial application. Consequently, the Company recorded
the lease liability at the present value of the lease payments discounted at the incremental borrowing
rate and the right of use asset at its carrying amount as if the standard had been applied since the
commencement date of the lease, but discounted at the Company’s incremental borrowing rate at the
date of initial application. Comparatives as at and for the year ended 31 March 2019 have not been
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retrospectively adjusted and therefore will continue to be reported under the accounting policies included
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as part of our Annual Report for year ended 31 March 2019.
The Company has used the following practical expedients when applying the modified retrospective
approach to leases previously classified as operating leases applying Ind AS 17:
i. Applied single discount rate to a portfolio of leases with reasonably similar characteristics.
ii. Applied the exemption not to recognize right-of-use assets and liabilities for leases with less than 12
months of lease term on the date of initial application.
iii. Excluded initial direct costs for the measurement of the right-of-use asset at the date of initial
application, and
iv. Applied the practical expedient to grandfather the assessment of which transactions are leases.
Accordingly, Ind AS 116 is applied only to contracts that were previously identified as leases
under Ind AS 17.
v. using hindsight in determining the lease term where the contract contains options to extend or
terminate the lease.
The difference between the lease obligation recorded as of 31 March 2019 under Ind AS 17 disclosed
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under annual standalone financial statements forming part of 2019 Annual Report and the value of the
2.6 The incremental borrowing rate applied to lease liabilities as at 1 April 2019 is in range of 8.9% to 10%
lease liability as of 1 April 2019 is primarily on account of inclusion of extension and termination options
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reasonably certain to be exercised, in measuring the lease liability in accordance with Ind AS 116 and
discounting the lease liabilities to the present value under Ind AS 116.
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depending on the tenure of lease.
Foreign Currencies
The functional currency of the Company is the Indian Rupee.
denominated in foreign currencies are retranslated at the rates prevailing at that date. non-monetary
items that are measured in terms of historical cost in a foreign currency are not retranslated. Gains or
losses arising from these translations are recognised in the Statement of Profit and Loss.
At the end of each reporting period, monetary items (including financial assets and liabilities)