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NOTES TO ACCOUNTS

Indo Tech Transformers Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 96.48 Cr. P/BV 0.77 Book Value (₹) 117.86
52 Week High/Low (₹) 150/74 FV/ML 10/1 P/E(X) 0.00
Bookclosure 14/08/2019 EPS (₹) 0.00 Div Yield (%) 0.00
Year End :2018-03 

1 Company overview

Indo Tech Transformers Limited (‘Indo Tech’ / ‘the Company’) is engaged in the business of manufacturing power and distribution transformers and various special application transformers, mobile sub-station transformers and sub-stations. The Company has manufacturing plants located at Chennai and Kancheepuram in Tamil Nadu.

2 Basis of preparation

a. Statement of compliance

These financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of Companies Act, 2013, (the ‘Act’) and other relevant provisions of the Act.

The Company’s financial statements up to and for the year ended March 31, 2017 were prepared in accordance with the Companies (Accounting Standards) Rules, 2006, notified under Section 133 of the Act and other relevant provisions of the Act.

As these are the first financial statements prepared in accordance with Indian Accounting Standards (Ind AS), Ind AS 101, First-time Adoption of Indian Accounting Standards has been applied. An explanation of how the transition to Ind AS has affected the previously reported financial position, financial performance and cash flows of the Company is provided in Note 30.

The financial statements were authorised for issue by the Company’s Board of Directors on May 16, 2018.

Details of the Company’s accounting policies are included in Note 3.

b. The Company has consistently been incurring operational losses over the last few years and has significant accumulated losses as at the year ended March 31, 2018. In order to overcome this, the Company has developed a business plan to streng then its financial position / liquidity and is in the process of initiating various measures to improve it’s operational performance. Prolec GE (the holding company) has also continued to support the Company over the years. Based on the approved business plans, commitment by the holding company to provide financial and other assistance as is necessary to enable the Company to continue in operational existence for the foreseeable future (at least for the next 12 months) and availability of banking limits, the Company believes that it would be able to meet its financial requirements and no adjustments would be required in respect of the carrying values of assets/liabilities. Accordingly, this Financial Statements has been prepared on a going concern basis.

c. Functional and presentation currency

These financial statements are presented in Indian Rupees (Rs.), which is also the Company’s functional currency. All amounts have been rounded-off to the nearest lakhs, unless otherwise indicated

d. Basis of measurement

The financial statements have been prepared on the historical cost basis except for the following items:

e. Use of estimates and judgements

I n preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.

Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending March 31, 2018 is included in the following notes:

Note 3(c) - estimated useful life of property, plant and equipment and intangible assets.

Note 3(i) and Note 31 - recognition and measurement of provisions and contingencies; key assumptions about the likelihood and magnitude of an outflow of resources.

Note 7 - recognition of deferred tax assets: availability of future taxable profit against which tax losses carried forward can be used;

Note 18 - measurement of defined benefit obligations: key actuarial assumptions;

Note 3(f) - impairment of financial assets

f. Measurement of fair values

A few of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

The Company has an established control framework with respect to the measurement of fair values.

Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

- Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the following notes:

- Note 29 - financial instruments;

* Deferred tax asset on unabsorbed depreciation or carry forward of losses are recognized only if there is a probable certainty of realization of such assets. Hence, deferred tax asset on carried forward tax losses and other provisions has been restricted to the extent of deferred tax liabilities.

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the unused tax losses amounting to Rs. 15,734.26 lakhs as at March 31, 2018 and Rs. 16,054.73 lakhs as at March 31, 2017 because it is not probable that future taxable profit will be available against which the Company can use the benefits therefrom:

Tax losses carried forward

Tax losses for which no deferred tax asset was recognised expire as follows.

Note: The above amount is net of bad debts aggregating to Rs. 111.94 lakhs (March 31, 2017 : Rs. Nil, April 01, 2016: Rs. 726.59 lakhs).

For trade reeivables from related parties, refer note 33.

The Company’s exposure to credit risks and loss allowances related to trade receivables are disclosed in note 29.

During the year 2017, the Board of Directors had approved the shifting of the business operations from one manufacturing location to another. Free hold Land and Building classified as held for sale during the reporting period March 31, 2017 was measured at the lower of its carrying amount and fair value less costs to sell at the time of the reclassification and as at March 31, 2017. These assets are not considered for active use. As at March 31, 2018 such assets includes freehold land amounting to Rs. 36.42 lakhs for which the Company has obtained the perfection of title during the year. At March 31, 2018, the assets held for sale has been stated at carrying amount being lower than fair value less costs to sell.

3 a. share capital

a The details of authorised, issued, subscribed and paid up share capital is as under:

b reconciliation of the shares outstanding at the beginning and at the end of the year is as under:

c rights, preferences and restrictions attached to equity shares

The Company has a single class of equity shares. Accordingly, all equity shares rank equally with regard to dividends and share in the Company’s residual assets. The equity shares are entitled to receive dividend as declared from time to time. The voting rights of an equity shareholder in a poll (not on show of hands) are in proportion to its share of the paid-up equity capital of the Company. During the year ended March 31, 2018, the Company has not declared any dividend.

On winding up of the Company, the holders of equity shares will be entitled to receive the residual assets of the company, remaining after distribution of all preferential amounts in proportion to the number of equity shares held.

d shares held by holding company and / or their subsidiaries / associates

e Particulars of shareholders holding more than 5% shares of a class of shares

B. capital management

The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. It sets the amount of capital required on the basis of annual business and long-term operating plans which include capital and other strategic investments.

4 other equity

a. securities premium

Securities premium is used to record the premium received on issue of shares. It is utilised in accordance with the provisions of the Companies Act, 2013

b. capital reserve

Capital reserve represents the subvention (voluntary, non-repayable financial grant) of US$ 25 million (Rs. 14,912.50 lakhs) received from the holding company, Prolec GE.

c. General reserve

General reserve is the accumulation of retained earnings of the Company, apart from the statement of profit and loss balance, which is utilised for meeting future obligations.

d. other comprehensive Income

Remeasurements of defined benefit liability comprises of actuarial gains / losses and return on plan assets (excluding interest income).

(a) Provisions for employee benefits

For details about the related employee benefit expense, Refer note 25.

The Company operates the following post-employment defined benefit plans.

Gratuity: The Company has a defined benefit gratuity plan, governed by the Payment of Gratuity Act, 1972. It entitles an employee, who has rendered at least five years of continuous service, to gratuity at the rate of fifteen days wages for every completed year of service or part thereof in excess of six months, based on the rate of wages last drawn by the employee concerned. The gratuity plan is a funded plan and the Company makes contributions to a fund managed by the LIC. The Company does not fully fund the liability and maintains a target level of funding to be maintained over a period of time based on estimations of expected gratuity payments.

These defined benefit plans expose the Company to actuarial risks, such as longevity risk, interest rate risk and market (investment) risk.

A. Funding

The gratuity plan is fully funded by the Company. The funding requirements are based on the gratuity fund’s actuarial measurement framework set out in the funding policies of the plan. The funding of Plan is based on a separate actuarial valuation for funding purposes for which the assumptions may differ from the assumptions set out in (D). Employees do not contribute to the plan.

B. Reconciliation of the net defined benefit (asset) liability

The following table shows a reconciliation from the opening balances to the closing balances for the net defined benefit (asset) liability and its components.

Provision for warranties: A provision is estimated for expected warranty claims in respect of products sold during the year on the basis of a technical evaluation and past experience regarding failure trends of products and costs of rectification or replacement. The provision for warranty is maintained over the period of the warranty, as per the terms of the contract.

Provision for income tax :During the year 2016-17, the Company had filed an application for settlement under ‘The Direct Tax Dispute Resolution Scheme, 2016’ to facilitate quick resolution of certain tax disputes relating to earlier years. Provision for income tax represents the tax expense of Rs. 220.65 lakhs, interest expense of Rs. 72.81 lakhs (included in Note 26) and penalty of Rs. 55.16 lakhs (included in Note 28) accrued based on such settlement.

Provision for others: This represents provisions made for probable liabilities / claims arising out of pending disputes / litigations with customs authorities. Timing of outflow of resources will depend upon timing of decision of cases.

5 financial instruments - fair values and risk management

a. accounting classifications and fair values

The following table shows the carrying amounts and fair values of financial assets and financial liabilities. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value._

Note: The Company has not disclosed fair values of financial instruments such as trade receivables and related unbilled revenue, cash and bank balances, bank deposit, interest accrued, other receivables, trade payables and amount payable towards Investor Education and Protection Fund (that are short term in nature), because their carrying amounts are reasonable approximations of their fair values. Such items have been classified under amortised costs in the above table.

The fair values for deposits are 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 use of unobservable inputs.

B. Financial risk management

The Company has exposure to the following risks arising from financial instruments:

- Credit risk (See B(ii))

- Liquidity risk (See B(iii)) and

- Market risk (See B(iv))

(i) Risk management framework

The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The board of directors along with the top management are responsible for developing and monitoring the Company’s risk management policies.

The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Company’s audit committee oversees how management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The audit committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the audit committee.

(ii) credit risk

Credit risk is the risk of financial loss to the company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s trade receivables, deposits and other financial assets.

The carrying amount of financial assets represents the maximum credit exposure.

Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of the Company’s trade receivables and other financial assets.

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry and country in which customers operate. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including end-user customers, industry, trading history with the Company and existence of previous financial difficulties.

Expected credit loss assessment for customers as at April 1, 2016, March 31, 2017 and March 31, 2018 The Company based on internal assessment which is driven by the historical experience / current facts available in relation to default and delays in collection thereof uses an allowance matrix to measure the expected credit loss of trade receivables. Exposures to customers outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses.

The following table provides information about the exposure to credit risk and expected credit loss for trade receivables;

(iii) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the company’s reputation.

Exposure to liquidity risk

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, including contractual interest but excluding impact of netting agreements.

(iv) Market risk

Market risk is the risk that changes in market prices - such as foreign exchange rates and interest rates - will affect the Company’s income or the value of its holdings of financial instruments. The Company is domiciled in India and has its majority of revenues and other transactions in its functional currency i.e. Rs. Accordingly the Company is not exposed to any high currency risk.

Currency risk

The Company is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales and purchases are denominated and the functional currency. The currencies in which these transactions are primarily denominated is USD.

Exposure to currency risk

The summary quantitative data about the Company’s exposure to currency risk are as follows:

A reasonably possible strengthening (weakening) of the INR against US dollar as at March 31 would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

6 Explanation of transition to Ind AS

As stated in Note 2(a), these are the Company’s first financial statements prepared in accordance with Ind AS. For the year ended March 31, 2017, the Company had prepared its financial statements in accordance with Companies (Accounting Standards) Rules, 2006, notified under Section 133 of the Act and other relevant provisions of the Act (‘previous GAAP’).

The accounting policies set out in Note 3 have been applied in preparing these financial statements for the year ended March 31, 2018 including the comparative information for the year ended March 31, 2017 and the opening consolidated Ind AS balance sheet on the date of transition i.e. April 1, 2016.

In preparing its Ind AS balance sheet as at April 1, 2016 and in presenting the comparative information for the year ended March 31, 2017, the Company has adjusted amounts reported previously in financial statements prepared in accordance with previous GAAP. This note explains the principal adjustments made by the Company in restating its financial statements prepared in accordance with previous GAAP, and how the transition from previous GAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows.

Optional exemptions availed and mandatory exceptions

In preparing these financial statements, the Company has applied the below mentioned optional exemptions and mandatory exceptions.

A. Optional exemptions availed

1. Property, plant and equipment and intangible assets

As per Ind AS 101 an entity may elect to use carrying values of property, plant and equipment and intangible assets as on the date of transition to Ind AS (which are measured in accordance with previous GAAP and after making adjustments relating to decommissioning liabilities prescribed under Ind AS 101) if there has been no change in its functional currency on the date of transition.

As permitted by Ind AS 101, the Company has elected to continue with the carrying values under previous GAAP for all the items of property, plant and equipment and intangible assets.

B. Mandatory exceptions

1. Estimates

As per Ind AS 101, an entity’s estimates in accordance with Ind AS at the date of transition to Ind AS at the end of the comparative period presented in the entity’s first Ind AS financial statements, as the case may be, should be consistent with estimates made for the same date in accordance with the previous GAAP unless there is objective evidence that those estimates were in error. However, the estimates should be adjusted to reflect any differences in accounting policies.

As per Ind AS 101, where application of Ind AS requires an entity to make certain estimates that were not required under previous GAAP, those estimates should be made to reflect conditions that existed at the date of transition (for preparing opening Ind AS balance sheet) or at the end of the comparative period (for presenting comparative information as per Ind AS).

The Company’s estimates under Ind AS are consistent with the above requirement. Key estimates considered in preparation of the financial statements that were not required under the previous GAAP are listed below:

- Impairment of Financial Assets based on the expected credit Loss model.

- Determination of the discounted value for Financial instruments carried at amortised cost.

2. derecognition of financial assets and liabilities

As per Ind AS 101, an entity should apply the derecognition requirements in Ind AS 109, Financial Instruments, prospectively for transactions occurring on or after the date of transition to Ind AS. However, an entity may apply the derecognition requirements retrospectively from a date chosen by it if the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions.

The Company has elected to apply the de-recognition principles of Ind AS 109 prospectively from the date of transition to Ind AS.

3. classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification of financial assets on the basis of facts and circumstances existing as on the date of transition. Further, the standard permits measurement of financial assets accounted at amortised cost based on facts and circumstances existing at the date of transition if retrospective application is impracticable.

Accordingly, the Company has determined the classification of financial assets based on facts and circumstances that exist on the date of transition. Measurement of the financial assets accounted at amortised cost has been done retrospectively except where the same is impracticable. reconciliation of equity

statement of cash FIows

Other than effect of certain reclassifications due to difference in presentation, there was no other material effect of cash flow from operating, financing, investing activities for all periods presented.

Notes to the reconciliations

a. Adjustment arising from fair valuation of interest free earnest money deposits

Under the previous GAAP, interest free earnest money deposits advanced for various tenders and projects usually spanning over a period of 2 to 10 years was presented at its transaction value. However, as per Ind AS 109 Financial Instruments, such interest free deposits are measured at its fair value at the time of its initial recognition. The difference between the initial fair value and the transaction value of deposit is considered as a prepayment made which is straightlined over the period of the term / expected date of refund. Such deposits are fair valued at the end of each period based upon Company’s borrowing rates and an interest expense is recognised in the statement of profit and loss.

The Company has fair valued such interest free deposits as at the April 1, 2016 with an impact to opening reserves amounting to Rs. 6.74 lakhs and recognition of prepayments amounting to Rs. 73.03 lakhs. During the year ended March 31, 2017, the Company has recognised interest income on fair valuation of such deposit amounting to Rs. 13.60 lakhs and an interest expense of Rs. 13.81 lakhs on account of passage of time.

b. Excise duty

Under previous GAAP, revenue from sale of goods was presented net of the excise duty on sales. Under Ind AS, revenue from sale of goods is presented inclusive of excise duty. Excise duty is presented in the Statement of Profit and Loss as an expense. This has resulted in an increase in the revenue from operations and expenses for the year ended March 31, 2017. The total comprehensive income for the year ended and equity as at March 31, 2017 has remained unchanged.

c. Loss allowance

On transition to Ind AS, the Company has recognised impairment loss on trade receivables measured at amortised cost on the expected credit loss model as required by Ind AS 109. Consequently, trade receivables measured at amortised cost have been reduced with a corresponding decrease in retained earnings on the date of transition and there has been a reduction in provision for the year ended March 31, 2017.

d. Actuarial gain and loss

Under previous GAAP the Company recognised actuarial gains and losses in profit or loss. Under Ind AS, all actuarial gains and losses are recognised in other comprehensive income. However, this has no impact on the total equity as on April 1, 2016 or as on March 31, 2017.

Income tax

Considering the brought forward loss and unabsorbed depreciation, the above adjustments will have no impact on the tax expense and the net deferred tax asset / liability.

Notes:

Sales tax - During the year 2011-2012, the Company had received sales tax assessment orders raising demand of Rs. 14.21 lakhs and Rs. 14.41 lakhs for FY 2005-06 and FY 2006-07 respectively. The Company had paid Rs. 25 lakhs (under protest) against these orders. Any liability in respect of these orders will be met by the ex-promoters to the benefit of the Company.

4 The Ministry of Micro, Small and Medium Enterprises has issued an office memorandum dated 26 August 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the Entrepreneurs Memorandum Number as allocated after filing of the Memorandum in accordance with the Micro, Small and Medium Enterprise Development Act, 2006 (‘the Act’). Accordingly, the disclosure in respect of the amounts payable to such enterprises as at 31 March 2018 has been made in the financial statements based on information received and available with the Company. Further in view of the Management, the impact of interest, if any, that may be payable in accordance with the provisions of the Act is not expected to be material. The Company has not received any claim for interest from any supplier as at the balance sheet date.

5 Transfer pricing

The Company has transactions with related parties. For the financial year 2016-17, the Company has obtained the Accountant’s Report from a Chartered Accountant as required by the relevant provisions of the Income-tax Act, 1961 and has filed the same with the tax authorities. For the financial year 2017 -18, the management confirms that it maintains documents as prescribed by the Income-tax Act, 1961 to prove that these transactions are at arm’s length considering the economic scenario, prevailing market conditions etc. and the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

6 During the year ended March 31, 2017, and as renewed in the current year the Company has entered into an agreement with Prolec GE, whereby Prolec GE has assured the Company that they would make good the loss to the benefit of the Company in case certain identified customers do not pay or default in the payment of outstanding dues. In the earlier years, the Company had recorded provision on a portion of the total balance receivable from these identified customers. Based on the agreement, the balance outstanding from these customers has been presented as ‘secured debtors’.

7 disclosure of specified bank notes

During the previous year, the Company had specified bank notes or other denomination note as defined in the MCA Notification G.S.R 308(E) dated March 31, 2017 on the details of specified bank notes (SBN) held and transacted during the period from November 8, 2016 to December 30, 2016. The denomination wise SBN and other notes as per the notification are given below:

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