Page 112 - Annual Report 2019-20

Notes forming part of the financial statements Notes forming part of the financial statements
amount of an individual asset, the Company estimates the recoverable amount of the cash-generating
unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified,
corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated
to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can
be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested
for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Intangible assets with indefinite useful lives are tested for impairment annually at the cash-generating
unit level. The assessment of indefinite useful life is reviewed annually to determine whether the
indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made
on a prospective basis.
Recoverable amount is the higher of fair value less costs of disposal and value in use. If the recoverable
amount of the asset (or cash-generating unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An
impairment loss is recognised in Statement of Profit and Loss.
2.12 Inventories
Inventories are valued at lower of cost and net realisable value. Cost of inventories is determined on
weighted average. Cost for this purpose includes cost of direct materials, direct labour and appropriate
share of overheads. net realisable value represents the estimated selling price in the ordinary course
of business less all estimated costs of completion and estimated costs necessary to make the sale.
Obsolete, defective, unserviceable and slow/ non-moving stocks are duly provided for and valued at net
realisable value.
2.13 Provisions (other than Employee Benefits)
A provision is recognised when as a result of past event, the Company has a present legal or constructive
obligation which can be reliably estimated and it is probable that an outflow of economic benefit will be
required to settle the obligation.
Provisions (excluding retirement benefits) are determined based on the best estimate required to settle
the obligation at the balance sheet date, taking into account the risks and uncertainties surrounding
the obligation. These are reviewed at each balance sheet date and adjusted to reflect the current best
estimates.
Contingent Liabilities are not recognised but disclosed in the notes to the financial statements.
2.14 Financial Instruments
2.14.1 Initial Recognition and Measurement
Financial assets and financial liabilities are recognised when the Company becomes a party to the
contractual provisions of the instruments. At initial recognition, financial assets and financial liabilities
are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or
issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair
value through profit or loss) are added to or deducted from the value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition
of financial assets or financial liabilities at Fair Value Through Profit or Loss are recognised in the
Statement of Profit and Loss.
2.14.2 Subsequent measurement of Financial Assets
All recognised financial assets are subsequently measured in their entirety at either amortised cost or
fair value, depending on the classification of the financial assets. Debt instruments that meet conditions
based on purpose of holding assets and contractual terms of instrument are subsequently measured at
amortised cost using effective interest method.
All other financial assets are measured at a fair value.
Income is recognised on an effective interest basis for debt instruments other than those financial assets
PIDILITE ANNUAL REPORT 2019-20 2.14.3 Impairment of Financial Assets
classified as Fair Value Through Profit or Loss. Interest income is recognised in profit or loss and is
included in the “Other income” line item.
The Company recognises loss allowance using expected credit loss model for financial assets which are
not measured at Fair Value Through Profit or Loss. Expected credit losses are weighted average of credit
losses with the respective risks of default occurring as the weights. Credit loss is the difference between
all contractual cash flows that are due to the Company in accordance with the contract and all the cash
flows that the Company expects to receive, discounted at original effective rate of interest.
credit losses. The Company computes expected credit loss allowance based on a provision matrix which
takes into account historical credit loss experience and adjusted for forward-looking information.
110 For Trade receivables, the Company measures loss allowance at an amount equal to lifetime expected
111
2.14.4 Financial Liabilities and equity instruments
2.14.4.1 Classification of debt or equity
Debt or equity instruments issued by the Company are classified as either financial liabilities or as equity
in accordance with the substance of the contractual arrangements and the definitions of financial liability PIDILITE ANNUAL REPORT 2019-20
and equity instrument.
2.14.4.2 Equity Instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds
received, net of direct issue costs.
2.14.4.3 Financial Liabilities
All financial liabilities (other than derivative financial instruments) are measured at amortised cost using
effective interest method at the end of reporting periods.
2.14.5 Derecognition of Financial Assets and Liabilities
The Company derecognises a financial asset when the contractual rights to the cash flows from the
financial asset expire, or when the Company transfers the contractual rights to receive the cash flows of
the financial asset in which substantially all the risks and rewards of ownership of the financial asset are
transferred, or in which the Company neither transfers nor retains substantially all the risks and rewards
of ownership of the financial asset and does not retain control of the financial asset.
The Company derecognises a financial liability (or a part of financial liability) when the contractual
obligation is discharged, cancelled or expired.
2.14.6 Derivative Financial Instruments
The Company holds derivative financial instruments such as foreign exchange forward contracts to
manage its exposure to foreign currency exchange rate risks. Also, the Company has an option to
purchase and the seller has an option to sell balance stake in equity share capital of certain partly owned
subsidiary(ies).
Derivatives are initially recognised at fair value at the date the contracts are entered into. Subsequent
to initial recognition, these contracts are measured at fair value at the end of each reporting period and
changes are recognised in Statement of Profit and Loss.
2.15 Cash Flow Statement
Cash flows are reported using the indirect method, whereby profit/ loss before extraordinary items
and tax for the period is adjusted for the effects of transactions of non-cash nature, any deferrals or
accruals of past or future operating cash receipts or payments. Cash Flows from operating, investing and
financing activities of the Company are segregated.
Cash and Cash Equivalents for the purpose of Cash Flow Statement comprise of cash at bank, cash in
hand and short- term deposits with an original maturity of three months or less, as reduced by bank
overdrafts.
2.16 Segment Reporting
The Company identifies primary segments based on the dominant source, nature of risks and returns
and the internal organisation and management structure. The operating segments are the segments
for which separate financial information is available and for which operating profit/ loss amounts are
evaluated regularly by the Chief Operating Decision Maker (CODM) in deciding how to allocate resources
and in assessing performance.
The accounting policies adopted for segment reporting are in line with the accounting policies of the
Company. Segment revenue, segment expenses, segment assets and segment liabilities have been
identified to segments on the basis of their relationship to the operating activities of the segment.
Inter-segment revenue is accounted on the basis of cost plus margins. Revenue, expenses, assets and
2.17 liabilities which relate to the Company as a whole and are not allocable to segments on reasonable basis
2.17.1 Employee benefits include Provident Fund, Superannuation Fund, Employee State Insurance Scheme,
have been included under “unallocated revenue/expenses/assets/liabilities” respectively.
Employee Benefits
Gratuity Fund, Compensated Absences, Anniversary Awards, Premature Death Pension Scheme and
Total Disability Pension Scheme.
Defined Contribution Plans
The Company’s contribution to Provident Fund, Superannuation Fund, national Pension Scheme and
expense based on the amount of contribution required to be made and when services are rendered by
the employees.
Employee State Insurance Scheme are considered as defined contribution plans and are charged as an