Page 192 - Annual Report 2019-20

Notes forming part of the consolidated financial statements Notes forming part of the consolidated financial statements
2.7.2 Group as Lessee
The Group’s lease asset classes primarily consist of leases for land and buildings. The Group 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 Group assesses whether: (i) the contract involves the use of an identified asset (ii) the Group has
substantially all of the economic benefits from use of the asset through the period of the lease and
(iii) the Group has the right to direct the use of the asset.
At the date of commencement of the lease, the Group recognizes a right-of-use asset (“ROU”) and a
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 leases, the Group recognizes the lease payments as an operating expense on a straight-line basis
over 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.
The right-of-use assets are initially recognised at cost, which comprises the initial amount of the lease
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.
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
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 Group
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.
Transition
Effective 1 April 2019, the Group 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
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adjustment to retained earnings, on the date of initial application. Consequently, the Group 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 Group’s incremental borrowing rate at the date of initial
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application. Comparatives as at and for the year ended 31 March 2019 have not been retrospectively
adjusted and therefore will continue to be reported under the accounting policies included as part of our
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Annual Report for year ended 31 March 2019.
The Group 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.
PIDILITE ANNUAL REPORT 2019-20 iv) Applied the practical expedient to grandfather the assessment of which transactions are leases.
iii) Excluded initial direct costs for the measurement of the right-of-use asset at the date of initial
application, and
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 consolidated financial statements forming part of 2019 Annual Report and the value of the
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.
The Group has applied the incremental borrowing rate to derive lease liabilities as at 1 April 2019.
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2.8 Foreign Currencies
PIDILITE ANNUAL REPORT 2019-20
The functional currency of the Parent and its Indian Subsidiaries is the Indian Rupee, whereas the
functional currency of Foreign Subsidiaries is the currency of their countries of domicile. In preparing
the financial statements of each individual Group entity, transactions in currencies other than the
entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the
dates of the transactions. At the end of each reporting period, monetary items (including financial assets
and liabilities) denominated in foreign currencies are retranslated at the rates prevailing at that date.
non-monetary items carried at fair value that are denominated in foreign currencies are retranslated
at the rates prevailing at the date when the fair value was determined. 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 Consolidated Statement of Profit and Loss. For the purposes
of presenting these consolidated financial statements, the assets and liabilities of the Group’s foreign
operations are translated into Indian Rupees using exchange rates prevailing at the end of each reporting
period. Income and expense items are translated at the average exchange rates for the period.
2.9 share-based payment transactions of the Group
Equity-settled share-based payments to employees providing similar services are measured at the fair
value of the equity instruments at the grant date.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will
eventually vest, with a corresponding increase in equity.
2.10 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax. .
2.10.1 Current Tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit before
tax’ as reported in the Consolidated Statement of Profit and Loss because of items of income or expense
that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s
current tax is calculated using applicable tax rates that have been enacted or substantively enacted by
the end of the reporting period and the provisions of the Income Tax Act, 1961 and other tax laws, as
applicable.
2.10.2 Deferred Tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and
liabilities in the consolidated financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary
differences. Deferred tax assets are generally recognised for all deductible temporary differences to the
extent that it is probable that taxable profits will be available against which those deductible temporary
differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced
to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part
of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in
which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted
or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow
from the manner in which the Group expects, at the end of the reporting period, to recover or settle the
2.10.3 Current and Deferred Tax for the year
carrying amount of its assets and liabilities.
2.11 Current and deferred tax are recognised in the Consolidated Statement of Profit and Loss, except when
they relate to items that are recognised in Other Comprehensive Income or directly in equity, in which
case, the current and deferred tax are also recognised in Other Comprehensive Income or directly in
equity respectively.
property, plant and Equipment
Property, Plant and Equipment acquired separately
2.11.1
Buildings, plant and machinery, vehicles, furniture and office equipments are stated at cost less
Freehold Land is stated at cost and not depreciated.
accumulated depreciation and accumulated impairment losses.