Page 115 - Annual Report 2019-20

Notes forming part of the financial statements Notes forming part of the financial statements 113

2.17.2 Defined Benefit Plans 3.1 Key accounting judgements, assumptions and estimates
For Defined Benefit Plans in the form of Gratuity Fund, the cost of providing benefits is determined The key assumptions concerning the future and other key sources of estimation uncertainty at the
using the Projected unit Credit method, with actuarial valuations being carried out at each balance reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of PIDILITE ANNUAL REPORT 2019-20
sheet date. Remeasurement, comprising actuarial gains and losses and the return on plan assets assets and liabilities within the next financial year, are described below:
(excluding net interest) is reflected immediately in the Balance Sheet with a charge or credit recognised 3.1.1 Impairment of investments in subsidiaries
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 Investment in subsidiaries is measured at cost and tested for impairment annually. For impairment
profit or loss. Past service cost is recognised immediately for both vested and the non-vested portion. testing, management determines recoverable amount, using cash flow projections which take into
The retirement benefit obligation recognised in the Balance Sheet represents the present value of the account past experience and represent management’s best estimate about future developments.
defined benefit obligation, as reduced by the fair value of scheme assets. Any asset resulting from this Key assumptions on which management has based its determination of recoverable amount include
calculation is limited taking into account the present value of available refunds and reductions in future estimated long term growth rates, weighted average cost of capital and estimated operating margins.
contributions to the schemes. Management obtains fair value of investments from independent valuation experts.
2.17.3 Short-Term and Other Long-Term Employee Benefits 3.1.2 Impairment of Goodwill and Other Intangible Assets
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave Goodwill and Other Intangible Assets (i.e. trademarks and copyrights) are tested for impairment on an
and sick leave in the period the related service is rendered at the undiscounted amount of the benefits annual basis. Recoverable amount of cash-generating units is determined based on higher of value-in-
expected to be paid in exchange for that service. 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
Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted and which represents the lowest level at which the intangibles are monitored for internal management
amount of the benefits expected to be paid in exchange for the related service. purposes.
Liabilities recognised in respect of other long-term employee benefits are measured at the present Market related information and estimates are used to determine the recoverable amount. Key
value of the estimated future cash outflows expected to be made by the Company in respect of services assumptions on which management has based its determination of recoverable amount include
provided by employees up to the reporting date. estimated long term growth rates, weighted average cost of capital and estimated operating margins.
2.18 Earnings per share Cash flow projections take into account past experience and represent management’s best estimate
about future developments.
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 3.1.3 Employee related provisions
weighted average number of equity shares outstanding during the period. Diluted EPS is determined The costs of long term and short term employee benefits are estimated using assumptions by the
by adjusting the profit or loss attributable to equity shareholders and the weighted average number of management. These assumptions include rate of increase in compensation levels, discount rates,
equity shares outstanding for the effects of all dilutive potential ordinary shares, which includes all stock expected rate of return on assets and attrition rates. (disclosed in note 45).
options granted to employees. 3.1.4 Income taxes
The number of equity shares and potentially dilutive equity shares are adjusted retrospectively for all Significant judgements are involved in estimating budgeted profits for the calculation of advance tax
periods presented for any share splits and bonus shares issues including for changes effected prior to and deferred tax, and determining provision for income taxes and uncertain tax positions (disclosed in
the approval of the financial statements by the Board of Directors.
note 48).
2.19 Assets held for sale 3.1.5 Property, Plant and Equipment and Other Intangible Assets
Sale of business is classified as held for sale, if their carrying amount is intended to be recovered The useful lives and residual values of Company’s assets are determined by the management at the time
principally through sale rather than through continuing use. The condition for classification as held for the asset is acquired. These estimates are reviewed annually by the management. The lives are based on
sale is met when disposal business is available for immediate sale and the same is highly probable of historical experience with similar assets as well as anticipation of future events, which may impact their
being completed within one year from the date of classification as held for sale. life, such as changes in technical or commercial obsolescence arising from changes or improvements in
2.20 Discontinued operations production or from a change in market demand of the product or service output of the asset.
A discontinued operation is a component of the Company’s business that represents a separate line of 3.1.6 Leases
business that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view The Company evaluates if an arrangement qualifies to be a lease as per the requirements of Ind AS
to resale. Classification as a discontinued operation occurs upon the earlier of disposal or when the 116. Identification of a lease requires significant judgment. The Company uses significant judgement in
operation meets the criteria to be classified as held for sale. assessing the lease term (including anticipated renewals) and the applicable discount rate.
2.21 Non-current assets and disposal groups held for sale Ind AS 116 requires lessees to determine the lease term as the non-cancellable period of a lease adjusted
Assets of disposal groups that is available for immediate sale and where the sale is highly probable of with any option to extend or terminate the lease, if the use of such option is reasonably certain.The
being completed within one year from the date of classification are considered and classified as assets Company makes an assessment on the expected lease term on a lease-by-lease basis and there by
held for sale. non-current assets and disposal groups held for sale are measured at the lower of carrying assesses whether it is reasonably certain that any options to extend or terminate the contract will be
amount and fair value less costs to sell. exercised. In evaluating the lease term, the Company considers factors such as any significant leasehold
PIDILITE ANNUAL REPORT 2019-20 estimates and assumptions that affect the application of accounting policies, reported amounts of the lease term reflects the current economic circumstances.
improvements undertaken over the lease term, costs relating to the termination of the lease and the
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Critical Accounting Judgements and key sources of Estimation Uncertainty
importance of the underlying asset to operations taking into account the location of the underlying asset

The preparation of the Company’s financial statements requires management to make judgements,
and the availability of suitable alternatives. The lease term in future periods is reassessed to ensure that
assets, liabilities, income and expenses, and accompanying disclosures, and the disclosure of contingent
The discount rate is generally based on the incremental borrowing rate specific to the lease being
liabilities. The estimates and associated assumptions are based on historical experience and other
evaluated or for a portfolio of leases with similar characteristics.
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