STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
I. Salona Ootspin Limited is a Public Limited Company and incorporated under the provision of the Companies Act, 1956. The address of its registered office and principal place of business are disclosed in the introduction to the Annual report. Its shares are listed in National Stock Exchange of India. The Company is engaged in the manufacturing and selling of Cotton Yarn, Knitted Fabrics and Garments. The company caters to both domestic and international markets.
II. Significant Accounting Policies followed by the Company
(a) Basis of preparation
(i) Compliance with Ind AS
These financial statements have been prepared in accordance with the Indian Accounting Standards (hereinafter referred to as the ‘Ind AS’) as notified by Ministry of Corporate Affairs pursuant to Section 133 of the Companies Act, 2013 (‘Act’) read with of the Companies (Indian Accounting Standards) Rules,2015 as amended and other relevant provisions of the Act.
The accounting policies are applied consistently to all the periods presented in the financial statements.
(ii) Historical cost convention
The financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities that are measured at fair value in terms of Ind AS.
(iii) Going Concern
The accounts are prepared on the basis of going concern concept
(iv) Current and non-current classification
All assets and liabilities have been classified as current or non-current as per the Company’s normal operating cycle and other criteria set out in Schedule III to the Act.
(v) Rounding of amounts
All amounts disclosed in the financial statements and notes have been rounded off to the nearest Rupees in Lakh as per the requirement of Schedule III, unless otherwise stated.
(b) Use of estimates and judgments
The estimates and judgments used in the preparation of the financial statements are continuously evaluated by the Company and are based on historical experience and various other assumptions and factors (including expectations of future events) that the Company believes to be reasonable under the existing circumstances. Differences between actual results and estimates are recognized in the period in which the results are known/materialized.
The said estimates are based on the facts and events that existed as at the reporting date, or that occurred after that date but provide additional evidence about conditions existing as at the reporting date.
(c) Property, Plant and Equipment
The Property, Plant and Equipment are stated at cost less depreciation and Impairment, If any. Historical cost includes expenditure that is directly attributable to the acquisition of the items, All other repairs and maintenance are charged to the Statement of Profit and Loss during the reporting period in which they are incurred,
Depreciation methods estimated useful lives and residual value
Depreciation on Property, Plant and Equipment and other fixed assets is provided on a Straight-Line Method, over the estimated useful lives of assets,
The Company depreciates its property, plant and equipment over the useful life in the manner prescribed in Schedule II to the Act, and management believes that useful life of assets are same as those prescribed in Schedule II to the Act,
Useful life considered for calculation of depreciation for various assets class are as follows-
Asset Class_Useful Life
Plant and Machinery 15 years
Furniture and Fixtures 10 years
Office Equipment 5 years
Vehicles 8 years
The residual values are not more than 5% of the original cost of the asset, The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period,
Gains and losses on disposals are determined by comparing proceeds with carrying amount, These are included in the Statement of Profit and Loss,
(d) Cash and Cash Equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand and bank, current account balances,
(e) Inventories
Inventories of Finished Goods, Stock-in-trade and Packing Materials are stated at cost or net realizable value, whichever is lower, Cost comprises all cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition, Cost formulae used are “First in First out” as applicable, Due allowance is estimated and made for defective and obsolete items, wherever necessary,
(f) Financial assets
(i) Classification
The Company classifies its financial assets in the following measurement categories:
(1) those to be measured subsequently at fair value (either through other comprehensive income, or through the Statement of Profit and Loss), and
(2) those measured at amortized cost.
The classification depends on the Company’s business model for managing the financial assets and the contractual terms of the cash flows,
(ii) Measurement
At initial recognition, the Company measures a financial asset at its fair value, Transaction costs of financial assets carried at fair value through the Profit and Loss are expensed in the Statement of Profit and Loss,
(iii) Impairment of financial assets
The Company measures the expected credit loss associated with its assets based on historical trend, industry practices and the business environment in which the entity operates or any other appropriate basis, The impairment methodology applied depends on whether there has been a significant increase in credit risk,
(g) Impairment of non-financial assets
that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired, Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount, The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use, For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or group of assets (cash-generating units), Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period,
(h) Segment Reporting
The company has only one segment - “Textile Business”
(i) Provisions and contingent liabilities
Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated, Provisions are not recognized for future operating losses,
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period, The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability, The increase in the provision due to the passage of time is recognised as interest expense,
Contingent Liabilities are disclosed in respect of possible obligations that arise from past events but their existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or where any present obligation cannot be measured in terms of future outflow of resources or where a reliable estimate of the obligation cannot be made,
(j) Revenue recognition
Revenue is measured at the value of the consideration received or receivable. Amounts disclosed as revenue are exclusive of GST and net of returns, trade allowances, rebates, discounts and value added taxes.
The Company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Company and specific criteria have been met for each of the Company’s activities as described below.
The Company recognized the above standard retrospectively with cumulative effect.
(k) Sale of goods
The Company earns revenue primarily from Sale of Yarn, Fabrics & Garments. It has applied the principles laid down in Ind AS 115 and determined that there is no change require in the existing revenue recognition methodology. In case of sale to domestic customers, sale is made on ex-factory basis and revenue is recognized when the goods are dispatched from the factory gate, in case of sale at Franchisee Outlet, revenue is recognized on goods sold to end customers. In case of export sales, revenue is recognized on shipment date, when performance obligation is met.
(l) Other operating revenue - Export incentives
Export Incentives under various schemes are accounted in the year of export.
(m) Employee benefits
(i) Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled.
(ii) Employment retirement benefits
a) Contribution to Provident Fund has been made to the respective authorities.
b) Gratuity liability as per the Actuarial Valuation has been provided in the accounts as at the year end.
c) Gratuity to working Directors, the liability is ascertained on accounting principles as laid down by the formula prescribed by Payment of Gratuity Act, 1972 and they are not funded but only provided for.
(n) Foreign currency translation
(i) Functional and presentation currency
The financial statements are presented in Indian rupee (INR), which is Company’s functional and presentation currency.
(ii) Transactions and balances
Transactions in foreign currencies are recognized at the prevailing exchange rates on the transaction dates. Realized gains and losses on settlement of foreign currency transactions are recognized in the Statement of Profit and Loss.
Monetary foreign currency assets and liabilities at the year-end are translated at the year-end exchange rates and the resultant exchange differences are recognized in the Statement of Profit and Loss.
(o) Income tax
The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.
Deferred income tax is provided in full, using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amount in the financial statement. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax assets is realized or the deferred income tax liability is settled.
Deferred tax assets are recognized for all deductible temporary differences and unused tax losses, only if, it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are off set where the Company has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Current and deferred tax is recognised in the Statement of Profit and Loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively Minimum Alternate Tax credit is recognised as deferred tax asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. Such asset is reviewed at each Balance Sheet date and the carrying amount of the MAT credit asset is written down to the extent there is no longer a convincing evidence to the effect that the Company will pay normal income tax during the specified period.
(p) Earnings Per Share Basic earnings per share:
Basic earnings per share is calculated by dividing:
- Earnings per share is arrived by dividing the Net Profit after tax attributable to the equity shareholders by the number of equity shares.
Diluted earnings per share:
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to taken into account:
-the after-income tax effect of interest and other financing costs associated with dilutive potential equity shares, and
-the weighted average number of additional equity shares that would have been outstanding assuming the conversion of all dilutive potential equity shares.
(q) Critical estimates and judgements -
The preparation of financial statements requires the use of accounting estimates which by definition will seldom equal the actual results.
Management also need to exercise judgement in applying the Group’s accounting policies.
This note provides an overview of the areas that involved a higher degree of judgement or complexity, and items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgements is included in relevant notes together with information about the basis of calculation for each affected line item in the financial statements.
Fair value measurement
Financial Instrument by category and hierarchy The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale The following methods and assumptions were used to estimate the fair values:
1. Fair value of cash and short-term deposits, trade and other short-term receivables, trade payables, other current liabilities, short term loans from banks and other financial institutions approximate their carrying amounts largely due to short term maturities of these instruments.
2. Financial instruments with fixed and variable interest rates are evaluated by the company based on parameters such as interest rates and individual credit worthiness of the counterparty. Based on this evaluation, allowances are taken to account for expected losses of these receivables. Accordingly, fair value of such instruments is not materially different from their carrying amounts.
The fair values for loans and security deposits were calculated based on cash flows discounted using a current lending rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counter party credit risk.
The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified as level 3 fair values in the fair value hierarchy due to the used of unobservable inputs, including own credit risk.
For financial assets and liabilities that are measured at fair value, the carrying amounts are equal to the fair values.
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: techniques which use inputs that have significant effect on the recorded fair value that are not based on observable market data.
Financial risk management
Credit risk
Credit risk is the risk that a counterparty will not meet its obligation under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operation activities (primarily trade receivables) and from its financing activities, foreign exchange transactions and other financial instruments.
The Company considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis through each reporting period. To assess whether there is a significant increase in credit risk the Company compares the risk of default occurring on asset as at the reporting date with the risk of default as at the date of initial recognition. It considers reasonable and supportive forwarding-looking information such as:
i) Actual or expected significant adverse changes in business,
ii) Actual or expected significant changes in the operating results of the counterparty,
iii) Financial or economic conditions that are expected to cause a significant change to the counterparty’s ability to meet its obligations,
iv) Significant increase in credit risk on other financial instruments of the same counterparty,
Financial assets are written off when there is no reasonable expectations of recovery, such as a debtor failing to engage in a repayment plan with the Company.
Trade Receivables
Customer credit risk is managed subject to the Company’s established policy, procedures and control relating to customer credit risk management. Trade receivables are non-interest bearing and generally on 7 days to 180 days’ credit term. Credit limits are established for all customers based on internal rating criteria. Outstanding customer receivables are regularly monitored. The Company has no concentration of credit risk as the customer base is widely distributed both economically and geographically
An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is based on actual incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Company does not hold collateral security. The Company evaluated the concentration of risk with respect to trade receivables as low, as its customers are located in several jurisdictions and industries and operate in largely independent markets.
Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. Due to the dynamic nature of the underlying businesses, Company treasury maintains flexibility in funding by maintaining availability under committed credit lines. Management monitors rolling forecasts of the Company’s liquidity position (comprising the undrawn borrowing facilities below) and cash and cash equivalents on the basis of expected cash flows.
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