Page 114 - Annual Report 2019-20

Notes forming part of the financial statements Notes forming part of the financial statements
2.17.2 Defined Benefit Plans
For Defined Benefit Plans in the form of Gratuity Fund, the cost of providing benefits is determined
using the Projected unit Credit method, with actuarial valuations being carried out at each balance
sheet date. Remeasurement, comprising actuarial gains and losses and the return on plan assets
(excluding net interest) is reflected immediately in the Balance Sheet with a charge or credit recognised
in Other Comprehensive Income in the period in which they occur. Remeasurement recognised in
Other Comprehensive Income is reflected immediately in retained earnings and is not reclassified to
profit or loss. Past service cost is recognised immediately for both vested and the non-vested portion.
The retirement benefit obligation recognised in the Balance Sheet represents the present value of the
defined benefit obligation, as reduced by the fair value of scheme assets. Any asset resulting from this
calculation is limited taking into account the present value of available refunds and reductions in future
contributions to the schemes.
2.17.3 Short-Term and Other Long-Term Employee Benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave
and sick leave in the period the related service is rendered at the undiscounted amount of the benefits
expected to be paid in exchange for that service.
Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted
amount of the benefits expected to be paid in exchange for the related service.
Liabilities recognised in respect of other long-term employee benefits are measured at the present
value of the estimated future cash outflows expected to be made by the Company in respect of services
provided by employees up to the reporting date.
2.18 Earnings per share
The Company presents basic and diluted earnings per share (“EPS”) data for its equity shares. Basic EPS
is calculated by dividing the profit or loss attributable to equity shareholders of the Company by the
weighted average number of equity shares outstanding during the period. Diluted EPS is determined
by adjusting the profit or loss attributable to equity shareholders and the weighted average number of
equity shares outstanding for the effects of all dilutive potential ordinary shares, which includes all stock
options granted to employees.
The number of equity shares and potentially dilutive equity shares are adjusted retrospectively for all
periods presented for any share splits and bonus shares issues including for changes effected prior to
the approval of the financial statements by the Board of Directors.
2.19 Assets held for sale
Sale of business is classified as held for sale, if their carrying amount is intended to be recovered
principally through sale rather than through continuing use. The condition for classification as held for
sale is met when disposal business is available for immediate sale and the same is highly probable of
being completed within one year from the date of classification as held for sale.
2.20 Discontinued operations
A discontinued operation is a component of the Company’s business that represents a separate line of
business that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view
to resale. Classification as a discontinued operation occurs upon the earlier of disposal or when the
operation meets the criteria to be classified as held for sale.
2.21 Non-current assets and disposal groups held for sale
Assets of disposal groups that is available for immediate sale and where the sale is highly probable of
being completed within one year from the date of classification are considered and classified as assets
held for sale. non-current assets and disposal groups held for sale are measured at the lower of carrying
amount and fair value less costs to sell.
PIDILITE ANNUAL REPORT 2019-20 estimates and assumptions that affect the application of accounting policies, reported amounts of
3
Critical Accounting Judgements and key sources of Estimation Uncertainty
The preparation of the Company’s financial statements requires management to make judgements,
assets, liabilities, income and expenses, and accompanying disclosures, and the disclosure of contingent
liabilities. The estimates and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
period or in the period of the revision and future periods if the revision affects both current and
future periods.
112 estimates are recognised in the period in which the estimate is revised if the revision affects only that
113
3.1 Key accounting judgements, assumptions and estimates
The key assumptions concerning the future and other key sources of estimation uncertainty at the
reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of PIDILITE ANNUAL REPORT 2019-20
assets and liabilities within the next financial year, are described below:
3.1.1 Impairment of investments in subsidiaries
Investment in subsidiaries is measured at cost and tested for impairment annually. For impairment
testing, management determines recoverable amount, using cash flow projections which take into
account past experience and represent management’s best estimate about future developments.
Key assumptions on which management has based its determination of recoverable amount include
estimated long term growth rates, weighted average cost of capital and estimated operating margins.
Management obtains fair value of investments from independent valuation experts.
3.1.2 Impairment of Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets (i.e. trademarks and copyrights) are tested for impairment on an
annual basis. Recoverable amount of cash-generating units is determined based on higher of value-in-
use and fair value less cost to sell. The impairment test is performed at the level of the cash-generating
unit or groups of cash-generating units which are benefitting from the synergies of the acquisition
and which represents the lowest level at which the intangibles are monitored for internal management
purposes.
Market related information and estimates are used to determine the recoverable amount. Key
assumptions on which management has based its determination of recoverable amount include
estimated long term growth rates, weighted average cost of capital and estimated operating margins.
Cash flow projections take into account past experience and represent management’s best estimate
about future developments.
3.1.3 Employee related provisions
The costs of long term and short term employee benefits are estimated using assumptions by the
management. These assumptions include rate of increase in compensation levels, discount rates,
expected rate of return on assets and attrition rates. (disclosed in note 45).
3.1.4 Income taxes
Significant judgements are involved in estimating budgeted profits for the calculation of advance tax
and deferred tax, and determining provision for income taxes and uncertain tax positions (disclosed in
note 48).
3.1.5 Property, Plant and Equipment and Other Intangible Assets
The useful lives and residual values of Company’s assets are determined by the management at the time
the asset is acquired. These estimates are reviewed annually by the management. The lives are based on
historical experience with similar assets as well as anticipation of future events, which may impact their
life, such as changes in technical or commercial obsolescence arising from changes or improvements in
production or from a change in market demand of the product or service output of the asset.
3.1.6 Leases
The Company evaluates if an arrangement qualifies to be a lease as per the requirements of Ind AS
116. Identification of a lease requires significant judgment. The Company uses significant judgement in
assessing the lease term (including anticipated renewals) and the applicable discount rate.
Ind AS 116 requires lessees to determine the lease term as the non-cancellable period of a lease adjusted
with any option to extend or terminate the lease, if the use of such option is reasonably certain.The
Company makes an assessment on the expected lease term on a lease-by-lease basis and there by
assesses whether it is reasonably certain that any options to extend or terminate the contract will be
exercised. In evaluating the lease term, the Company considers factors such as any significant leasehold
the lease term reflects the current economic circumstances.
improvements undertaken over the lease term, costs relating to the termination of the lease and the
importance of the underlying asset to operations taking into account the location of the underlying asset
and the availability of suitable alternatives. The lease term in future periods is reassessed to ensure that
The discount rate is generally based on the incremental borrowing rate specific to the lease being
evaluated or for a portfolio of leases with similar characteristics.