1 Background and Operations
Zodiac Clothing Company Limited (‘the Company’)
incorporated in India having registered office at
Mumbai and manufacturing facilities at Bengaluru,
Umbergaon and Mumbai. The Company deals
in clothing and clothing accessories.
2 Basis of preparation and material accounting policies
(a) Material accounting policies of Standalone
Financial Statements
(i) Compliance with Ind AS
The standalone financial statements have
been prepared in accordance with the Indian
Accounting Standards (hereinafter referred to as
the ‘Ind AS’) notified under section 133 of the
Companies Act, 2013 (the ‘Act’) [Companies
(Indian Accounting Standards) Rules, 2015 (as
amended)], and other relevant provisions of the
Act.
(ii) Going Concern assessment
The Directors of the Company have assessed
its liquidity position. the Board of Directors
are confident of the Company’s ability to meet
its obligation atleast for the next twelve months
from the balance sheet date. Accordingly, these
standalone financial statements have been
prepared on going concern basis.
(iii) Historical cost convention
The standalone financial statements have
been prepared on a historical cost basis,
except for the following:
1) certain financial assets and liabilities
(including derivative instruments) that are
measured at fair value;
2) defined benefit plans - plan assets
measured at fair value;
(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 (twelve months) and
other criteria set out in the Schedule III to the
Act.
(v) Rounding off amounts
All amounts disclosed in the standalone
financial statements and notes have been
rounded off to the nearest lakhs, unless
otherwise stated.
(b) use of estimates and judgments
the estimates and judgments used in the
preparation of the standalone 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 recognised in the period in which the results
are known/materialised. 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
Freehold land is carried at historical cost. All other
items of 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.
Subsequent costs are included in the asset’s
carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that future
economic benefits associated with the item will
flow to the Company and the cost of the item can
be measured reliably. the carrying amount of any
component accounted for as a separate asset is
derecognised when replaced. 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
the Company depreciates its property, plant and
equipment on a straight line method net of residual
values over the useful life in the manner prescribed
in Schedule II of the Act, and management believe
that useful lives of assets are same as those
prescribed in Schedule II of the Act, except for
the following class of assets, useful life for which
is based on a technical evaluation and taking into
consideration nature of Company’s business and
past experience of usage of such assets:
Leasehold improvements are depreciated over the
shorter of their useful life or the lease term, unless
the entity expects to use the assets beyond the lease
term. Period of lease is either the primary lease
period or where the Company as a lessee has the right
of renewal of lease, and it is intended to renew for
further periods, then such extended period.
The residual values are generally not more than 5%
of the original cost of the asset.
An asset’s carrying amount is written down
immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated
recoverable amount.
Gains and losses on disposals are determined by
comparing proceeds with carrying amount. These are
included in the Statement of Profit and Loss.
(d) Investment properties
Property that is held for long-term rental yields
or for capital appreciation or both, and that is not
occupied by the Company, is classified as investment
property. Investment property is initially recognized
at cost, including related transaction costs and where
applicable borrowing costs. Subsequent expenditure
is capitalised to the asset’s carrying amount only
when it is probable that future economic benefits
associated with the expenditure will flow to the
Company and the cost of the item can be measured
reliably. All other repairs and maintenance costs are
expensed when incurred. When part of an investment
property is replaced, the carrying amount of the
replaced part is derecognised.
Investment properties, net of residual value are
depreciated using the straight-line method over their
useful life in the manner prescribed in Schedule II of
the Act, and management believe that useful lives of
assets are same as those prescribed in Schedule II of
the Act.
(e) Intangible assets
Computer software
Computer software are stated at cost, less accumulated
amortisation and impairments, if any.
Amortisation method
The Company amortizes intangible assets using the
straight-line method over following period:
Nature of intangible asset useful life
- Computer Software 6 Years
Gains and losses on disposals are determined by
comparing proceeds with carrying amount. These are
included in the Statement of Profit and Loss.
(f) Lease
As lessee
The Company’s lease asset classes primarily consist
of leases for Land and Buildings. The Company
assesses whether a contract is or 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.
At the date of commencement of the lease, the
Company recognises 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 leases of low value assets. For
these short term and leases of low value assets,
the Company recognises the lease payments as
an operating expense on a straight line basis over
the term of the lease. Variable lease payments that
depend on sales are recognised in profit or loss
in the period in which the condition that triggers
those payments occurs.
The lease liability is initially measured at the present
value of the future lease payments and payments to
be made under reasonably certain extension option
are also included in measurement of liability. The
lease payments are discounted using the interest rate
implicit in the lease or, if not readily determinable,
using the incremental borrowing rates. The lease
liability is subsequently remeasured by increasing
the carrying amount to reflect interest on the lease
liability, reducing the carrying amount to reflect the
lease payments made.
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. They
are subsequently measured at cost less accumulated
depreciation and impairment losses, if any. 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.
A lease liability is remeasured upon the occurrence
of certain events such as a change in the lease term.
The amount on remeasurement of lease liability is
adjusted to the right of use asset and any remaining
amount is recognised in statement of profit and loss.
Variable Lease payments
Certain property leases contain variable payment
terms that are linked to sales generated from a store.
For individual stores, up to 100% of lease payments
are on the basis of variable payment terms with
percentages ranging from 10% to 30% of sales.
Variable payment terms are used for a variety of
reasons, including minimising the fixed costs base
for newly established stores, etc.. Variable lease
payments that depend on sales are recognised in
statement of profit or loss in the period in which the
condition that triggers those payments occurs.
Lease liability and ROU asset have been presented
separately on the face of the Balance Sheet and lease
payments have been classified as financing cash
flows.
As lessor
Lease income from operating leases where the
Company is a lessor is recognised as income on
a straight-line basis over the lease term unless
the receipts are structured to increase in line with
expected general inflation to compensate for the
excepted inflationary cost increases.
(g) Cash and Cash Equivalents
For the purpose of presentation in the statement
of cash flows, cash and cash equivalents includes
cash on hand, Bank overdrafts, deposits and other
short-term highly liquid investments with original
maturities of three months or less that are readily
convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value.
(h) Inventories
Inventories of Raw Materials, Work-in-Progress,
Stock-in-trade, Stores and spares and Finished Goods
are stated ‘at cost or net realisable value, whichever
is lower’. Cost comprise all cost of purchase, cost of
conversion and other costs incurred in bringing the
inventories to their present location and condition.
Cost formula used is ‘First-in-First-Out’, ‘Weighted
Average cost’ or ‘Specific Identification’, as
applicable.
Materials and other items held for use in the
production of inventories are not written down below
cost if the finished products in which they will be
utilised are expected to be sold at or above cost.
Net realisable value is the estimated selling price in
the ordinary course of business, less the estimated
cost of completion and the estimated cost necessary
to make the sale.
Slow-moving, non-moving and defective inventories
are identified and wherever necessary, provision is
made for such inventories considering various factors
such as likely usage, obsolescence etc.
(i) Investment in subsidiary
Investment in subsidiary is recognised at cost (less,
impairment, if any), as per Ind AS - 27 ‘Separate
Financial Statements’.
(j) Investments and other financial assets
(i) Classification
The Company classifies its financial assets in the
following measurement categories:
* those to be measured subsequently at fair value
(either through other comprehensive income, or
through the Statement of Profit and Loss), and
* those measured at amortised cost.
The classification depends on the company’s
business model for managing the financial assets
and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses
will either be recorded in the Statement of Profit
and Loss or other comprehensive income. For
investments in debt instruments, this will depend
on the business model in which the investment
is held. For investments in equity instruments,
this will depend on whether the Company has
made an irrevocable election at the time of initial
recognition to account for the equity investment at
fair value through other comprehensive income.
(ii) Recognition
Purchases and sales of financial assets are
recognised on trade - date, being the date on
which the Company commits to purchase or sale
the financial asset.
(iii) Measurement
At initial recognition, the Company measures a
financial asset at its fair value plus, in the case
of a financial asset not at fair value through
profit or loss, transaction costs that are directly
attributable to the acquisition of the financial
asset. Transaction costs of financial assets
carried at fair value through the Statement of
Profit and Loss are expensed in the Statement
of Profit and Loss.
Debt instruments:
Subsequent measurement of debt instruments
depends on the Company’s business model
for managing the asset and the cash flow
characteristics of the asset. There are three
measurement categories into which the
Company classifies its debt instruments:
* Amortised cost: Assets that are held for
collection of contractual cash flows where
those cash flows represent solely payments of
principal and interest are measured at amortised
cost. Interest income from these financial assets
is included in other income using the effective
interest rate method.
* Fair value through other comprehensive
income (FVOCI): Assets that are held for
collection of contractual cash flows and for
selling the financial assets, where the assets’ cash
flows represent solely payments of principal and
interest are measured at fair value through other
comprehensive income (FVOCI). Movements
in the carrying amount are taken through OCI,
except for the recognition of impairment losses,
interest revenue which are recognised in the
Statement of Profit and Loss. When the financial
asset is derecognised, the cumulative gain or
loss previously recognised in OCI is reclassified
from equity to the Statement of Profit and Loss
and recognised in other income/expense. Interest
income from these financial assets is included
in other income using the effective interest rate
method.
* Fair value through profit and loss: Assets
that do not meet the criteria for amortised cost
or FVOCI are measured at fair value through
Statement of Profit and Loss. Interest income
from these financial assets is included in other
income.
Equity instruments:
The Company subsequently measures all equity
investments at fair value. Where the Company
has elected to present fair value gains and losses
on equity investments in other comprehensive
income, there is no subsequent reclassification of
fair value gains and losses to the Statement of
Profit and Loss. Dividends from such investments
are recognised in the Statement of Profit and
Loss as other income when the Company’s right
to receive payments is established.
Changes in the fair value of financial assets at
fair value through profit or loss are recognised as
other income in the Statement of profit or loss.
Impairment losses (and reversal of impairment
losses) on equity investments measured at
FVOCI are not reported separately from other
changes in fair value.
(iv) Impairment of financial assets
In accordance with Ind-AS 109, the Company
applies expected credit loss (ECL) model for
measurement and recognition of impairment loss
on the following financial assets and credit risk
exposure:
(a) Financial assets that are measured at amortised
cost e.g., loans, deposits and bank balance.
(b) Trade receivables - The application of
simplified approach does not require the
Company to track changes in credit risk. Rather,
it recognises impairment loss allowance based
on lifetime ECLs at each reporting date, right
from its initial recognition. Trade receivables are
tested for impairment on a specific basis after
considering the sanctioned credit limits, security
like letters of credit, security deposit collected
etc. and expectations about future cash flows.
(v) Derecognition
A financial asset is derecognised only when
- the Company has transferred the rights to
receive the cash flows from the financial asset or
- retains the contractual rights to receive the
cash flows of the financial asset, but assumes a
contractual obligation to pay the cash flows to
one or more recipients.
Where the entity has transferred an asset, the
Company evaluates whether it has transferred
substantially all risks and rewards of ownership
of the financial asset. In such cases, the financial
asset is derecognised. Where the entity has not
transferred substantially all risks and rewards
of ownership of the financial asset, the financial
asset is not derecognised.
(vi) Income recognition
Interest income
Interest income from debt instruments is
recognised using the effective interest rate
method.
Dividends
Dividends are recognised in the Statement of
Profit and Loss only when the right to receive
payment is established.
(k) Borrowings
Borrowings are initially recognised at net of
transaction costs incurred. Borrowings are
subsequently measured at amortised cost. Any
difference between the proceeds (net of transaction
costs) and the redemption amount is recognised in
the Statement of Profit and Loss over the period of
the borrowings using the effective interest method.
|