Page 190 - Annual Report 2019-20

Notes forming part of the consolidated financial statements Notes forming part of the consolidated financial statements
2.4 Goodwill
Goodwill is measured as the excess of the consideration transferred over the net of acquisition-date
amounts of the identifiable assets acquired and the liabilities assumed.
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition
of the business less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units
(or groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired. If the recoverable amount of the
cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the
carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata
based on the carrying amount of each assets in the unit. Any impairment loss for goodwill is recognised
directly in Consolidated Statement of Profit and Loss. An impairment loss recognised for goodwill is not
reversed in subsequent periods.
The Group’s policy for goodwill arising on business combination or acquisition of an associate and a Joint
Venture is described at note 2.5.
2.5 Investments in Associates and Joint Ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power
to participate in the financial and operating policy decisions of the investee but is not control or joint
control over those policies.
A Joint Venture is a joint arrangement whereby the parties that have joint control of the arrangement
have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing
of control of an arrangement, which exists only when decisions about the relevant activities require
unanimous consent of the parties sharing control.
An investment in an associate or a Joint Venture is accounted for using the equity method from the date
on which the investee becomes an associate or a Joint Venture.
under the equity method, an investment in an associate or a Joint Venture is initially recognised in the
Consolidated Balance Sheet at cost and adjusted thereafter to recognise the Group’s share of the profit
or loss and Other Comprehensive Income of the associate or Joint Venture. Distributions received from
an associate or a Joint Venture reduce the carrying amount of the investment. When the Group’s share of
losses of an associate or a Joint Venture exceeds the Group’s interest in that associate or Joint Venture
(which includes any long-term interests that, in substance, form part of the Group’s net investment in
the associate or Joint Venture); the Group discontinues recognising its share of further losses. Additional
losses are recognised only to the extent that the Group has incurred legal or constructive obligations or
made payments on behalf of the associate or Joint Venture.
On acquisition of the investment in an associate or a Joint Venture, any excess of the cost of the
investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the
investee is recognised as goodwill, which is included within the carrying amount of the investment. Any
excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of
the investment, after reassessment, is recognised directly in equity as capital reserve.
After application of the equity method of accounting, the Group determines whether there is any
objective evidence of the impairment as a result of one or more events that occurred after the initial
recognition of the net investment in an associate or Joint Venture and that event (or events) has an
impact on the estimated future cash flows from the net investment that can be reliably estimated. If there
exists such an objective evidence of impairment, then it is necessary to recognise impairment loss with
respect to the Group’s investment in an associate or Joint Venture.
When necessary, the entire carrying amount of the investment (including goodwill) is tested for
PIDILITE ANNUAL REPORT 2019-20 recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount.
impairment in accordance with Ind AS 36 Impairment of Assets as a single asset by comparing its
Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that
impairment loss is recognised in accordance with Ind AS 36 to the extent that the recoverable amount of
the investment subsequently increases.
When a group entity transacts with an associate or a Joint Venture of the Group, profits and losses
resulting from the transactions with the associate or Joint Venture are recognised in the Group’s
not related to the Group.
188 consolidated financial statements only to the extent of interests in the associate or Joint Venture that are
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2.6 Revenue Recognition
The Group recognises revenue from sale of goods and services, based on the terms of contract and as
per the business practise; the Group determines transaction price considering the amount it expects
to be entitled in exchange of transferring promised goods or services to the customer. Revenue is
recognised when it is realized or is realizable and has been earned after the deduction of variable PIDILITE ANNUAL REPORT 2019-20
components such as discounts, rebates, incentives, promotional couponing and schemes. The Group
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.
2.6.1.a 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 Group 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.
2.6.1.b Sale of Services
Revenue from sale of services includes fixed price contracts and time and material contracts and is
recognised as sale, as and when the related services are performed and certified by the client. Services
performed and not certified by the client, are recognised as sales and are recorded as uncertified revenue
and unbilled revenue. Incomplete services are recorded at cost as work-in-progress.
The Group accounts for provision of warranty in accordance with Ind AS 37 “Provisions, Contingent
Liabilities and Contingent Assets”.
2.6.2 Dividend, Interest income and Royalty
Dividend income from investments is recognised when the Group’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 Group 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 Group 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 Group’s policy for recognition of revenue (rental income) from leases is described in note 2.7.1.
2.7 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
2.7.1 into on or after 1 April 2019.
st
Group as Lessor
Where the rentals are structured solely to increase in line with expected general inflation to compensate
Rental income from leases is recognised on a straight-line basis over the term of the relevant lease.
for the Group’s expected inflationary cost increase, such increases are recognised in the year in which
such benefits accrue.
Amounts due under finance leases are recognised as receivables at the amount of the Group’s net
investment in the leases.
Finance lease income is allocated over accounting periods so as to reflect constant periodic rate of return
of the Group’s net investment outstanding in respect of the leases.