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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 532432ISIN: INE854D01024INDUSTRY: Beverages & Distilleries

BSE   ` 647.45   Open: 645.00   Today's Range 642.75
+5.45 (+ 0.84 %) Prev Close: 642.00 52 Week Range 439.00
Year End :2017-03 


(a) Buildings include an amount of INR 357 (2016: INR 357, 2015: INR 357) in respect of which title deeds are yet to be registered in the name of the Company.

(b) Cost of buildings includes the following payments made for the purpose of acquiring the right of occupation:

i) 660 equity shares (unquoted) of INR 100/- each fully paid in Shree Madhu Industrial Estate Limited INR 0.066 (2016 and 2015: INR 0.066).

ii) 199, 6 % Debentures (unquoted) of INR 1,000/- each fully paid in Shree Madhu Industrial Estate Limited INR 0.199 (2016 and 2015: INR 0.199).

iii) Deposit with Shree Madhu Industrial Estate Limited INR 0.132 (2016 : INR 0.132 ; 2015: INR 0.132).

iv) Fully paid shares INR 0.006 (2016 : INR 0.006 ; 2015: INR 0.006) held in a Co-operative Housing Society.

(c) Disposal includes write down of INR 217 in the value of certain plant and equipment disclosed as exceptional items (refer Note 28).

Leased assets

Property, plant and equipment pledged as security

Refer to Note 34 for information on property, plant and equipment pledged as security by the Company.

Contractual obligations

Refer to Note 53 for disclosure of contractual commitments for the acquisition of property, plant and equipment.


(a) Investment as a sole beneficiary in USL Benefit Trust was made as per the terms of composite scheme of arrangement approved by the Honourable High Courts of Karnataka and Bombay, for amalgamating various companies with the United Spirits Limited. The trust has been established for the exclusive benefit of the Company and holds 3,459,090 shares of the Company. As per the terms of the aforesaid scheme of arrangement, Company has carried this investment at the aggregate of book value as per the books of the concerned transferor companies. Also refer Notes 34 and 46, for assets pledged.

(b) Additional information

The Company has measured its investments in subsidiaries at cost in accordance with Ind AS 27. On adoption of Ind AS, Company has measured these investments at deemed cost using the net carrying value as per previous GAAP as at March 31, 2015.

(b) Rights, preferences and restrictions attached to equity shares

The Company has one class of equity shares having a face value of INR 10 per share. Each holder of the equity shares is entitled to one vote per share. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in the case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, if any in proportion to their holdings.

* On December 20, 2013, the Honorable Karnataka High Court passed an order in the matter involving United Breweries (Holdings) Limited (UBHL) and its creditors and the Diageo Plc. setting aside an earlier leave order which permitted UBHL to sell 10,141,437 equity shares in the Company to Relay B V (included above), pending disposal of the winding up petitions against UBHL. On the above matter, UBHL and Diageo Plc. have approached the Honorable Supreme Court by way of special leave petitions (SLPs) challenging the order of the division bench. Pending, disposal of the above SLPs, the Honorable Supreme Court has directed that status quo be maintained in respect of the above mentioned transaction of sale of shares to Relay B V.

(f) During the financial year 2005 - 06, the Company had issued 17,502,762 Global Depository Shares (GDSs) representing 8,751,381 equity shares with 2 GDSs representing 1 equity share of face value of Rs. 10/- each at US$ 7.4274 per GDS, aggregating to US$ 130 million, listed on the Luxembourg stock exchange. These GDSs did not carry any voting rights. The Company during the year has terminated the deposit agreement in respect of the GDSs and has communicated to the Luxembourg Stock Exchange with the objective of delisting these GDSs listed with Luxembourg stock exchange. There are no GDS outstanding as at March 31, 2017. Notwithstanding this development, the number of shares outstanding or issued and subscribed in the share capital of the Company remains unchanged and the Company's shares continue to be listed with the National Stock Exchange of India Limited (NSE) and BSE Limited (BSE).

(g) There are no shares reserved for issue under options and contracts / commitments for the sale of shares / disinvestments.

(h) There are no bonus shares issued, bought back during the period of five years immediately preceding the reporting date.

(i) Details of shares in the Company held by Company, subsidiaries or associates

Fair value hierarchy

This section explains the judgments and estimates made in determining the fair values of the financial instruments that are recognized and measured at fair value. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under Ind AS 109 and all financial instruments measured at fair value fall under Level 1.

The carrying amounts of trade receivables, deposits and advances, trade payables, borrowings, capital creditors, dues to employees and other parties and cash and cash equivalents are same as their fair values, due to their short-term nature.

An explanation of each level follows is provided below:

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments and mutual funds that have quoted price. The fair value of all equity instruments which are traded on the stock exchanges is valued using the closing price as at the reporting date. The mutual funds are valued using the closing NAV (Net Asset value).

Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the counter derivatives) is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

1. Financial risk management

The Company's activities expose it to market risk, liquidity risk and credit risk. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk.

The Company's risk management is carried out by a central treasury department under policies approved by the Board of Directors. Central treasury identifies, evaluates and hedges financial risks in close co-operation with the Company's other functions. The board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

(A) Credit risk

Credit risk arises from cash and cash equivalents, financial assets measured at amortized cost and deposits with banks and financial institutions, as well as credit exposures to trade receivables.

Credit risk management

Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to INR 29,605, INR 23,140 and INR 16,510 as of March 31, 2017, March 31, 2016 and April 1, 2015, respectively.

Trade receivables are typically unsecured and are derived from revenue earned from 2 main classes of trade receivables, receivable from sales to government corporations and receivables from sales to private third parties. Receivables from government corporation customers amounted to INR 18,985 and 64% (2016: INR 12,059 and 52%; 2015: INR. 9,286 and 56%) and private customers amounted to INR 10,620 and 36% (2016: INR 11,081 and 48%; 2015: INR 7,224 and 44%), of total trade receivables, respectively, on the reporting date.

Credit risk is managed by the Company through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of customers to which the Company grants credit terms in the normal course of business. On account of adoption of Ind AS 109, the Company uses an expected credit loss model to assess the impairment loss or gain. The Company uses a provision matrix to compute the expected credit loss allowance for trade receivables. The provision matrix takes into account available external and internal credit risk factors such as regulatory developments which may impact the customers' ability to repay, and the Company's historical experience for each of its customers.

At March 31, 2017, the Company was exposed to trade receivables of INR 30,060 (2016: INR 23,947 and 2015: INR 19,476) against which the Company is carrying an expected credit loss allowance of INR 455 as at the year-end (2016: INR 807 and 2015: INR 2,966).

The Company's financial assets also includes investments, loans, advances and deposits amounting to INR 20,254 (2016: INR 22,555 and 2015: INR 35,462)

The Company actively monitors the performance of each party to whom loans has been advanced, and based on the historical performance and future anticipated cash flows, the ability of the entity to generate sufficient cash flows to service its loan commitments to the Company is assessed. Where the Company believes that the entity will not be able to service its loan commitments over the next 12 months or over the lifetime of the loan, a suitable provision for impairment of the loan receivable is created.

Significant estimates and judgments in Impairment of financial assets

The impairment provisions for financial assets disclosed above are based on assumptions about risk of default and expected loss rates. The Company uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the Company's past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

(B) Liquidity Risk

Changes in regulations, guidelines and operating models influences liquidity risk. A prudent liquidity risk management is to ensure maintaining the required cash and / or have access to funds required through committed banking lines from banks or markets to address such risks, when they arise.

(i) Company has developed three year 'Capital structure and funding strategy' with an objective to gauge potential risk, project and strategically address funding needs, among others and ensure continued operations within acceptable tolerance limits.

(ii) Treasury team monitors rolling forecasts of the company's liquidity position on a periodic basis. Funds are optimally used through centralized cash management system across the company and deficit if any are availed from the undrawn committed borrowing facilities (as below). Internal stake holders are aligned to provide 'early warning' surprises should they occur, so as to enable treasury to pro-actively align the appropriate source and cost of borrowing to mitigate funding and interest risk (comprising the undrawn borrowing facilities below).

(iii) Management has planned monetization of certain non-core assets to infuse liquidity and reduce debts, thereby freeing up the banking lines to access in future, if required.

Maturities of financial liabilities

The tables below analyze the Company's financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

(C) Cash flow and fair value interest rate risk

Company's main interest rate risk arises from Long-Term borrowings with variable rates, which expose the Company cash flow interest rate risk.

Presently interest rates seems to be bottomed out and the Company expects this to be stable in the near term. In view of this the Company has kept long term borrowings at variable interest rate, however the Company has an option to exit at the end of interest reset period which is one month. This allows flexibility and insulates the Company from adverse movements.

Majority of the Company's short term and long term borrowings are benchmarked to Bank's MCLR (Marginal Cost of Lending Rates) and are already fair valued.

(D) Foreign currency risk

The Company is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the USD, EUR and GBP. Foreign Exchange risk arises from future commercial transactions and assets and liabilities denominated in a currency that is not the Company's functional currency (INR). The risk is measured through a forecast of highly probable foreign currency cash flows.

Foreign currency risk management

The Company's risk management policy is to assess the Company's net exposures which is mainly represented by receivable towards exports and payable towards imports. The Company hedges its net exposures with a view on forex outlook. The Company's overall forex net exposures is not material and given that INR is stable against USD and strengthening against GBP, the Company has kept its exposures presently open. However, the present forex policy is being revised to assess the exposures in a robust and structured manner and align mitigation plan.

Impact on Profit after Tax

The sensitivity of profit or loss due to changes in exchange rates arises mainly from foreign currency denominated net trade exposures. There is no material impact on foreign currency loans given to subsidiaries as they are largely provided for.

2. Capital management Risk management

The Company's objectives when managing capital is to:

a) have a balanced financial profile from short term (1 year) to mid-term (3 years) for sustainable leverage, providing;

- Headroom for future growth / expansion

- Financial flexibility in case of adverse business cycles

b) ensure the capital structure is at competitive advantage when compared to peers and other sector players through optimum debt mix through:

- Diversification of funding sources to manage liquidity and rollover risk

- Financial flexibility in case of adverse business cycles

3. Share based payments Diageo Incentive Plan (DIP)

DIP is a one-time long term incentive scheme for select employees who were active on Company's payroll on September 1, 2016. A single grant was made in September 2016 with zero pay out for any leaver prior to vesting in September 2019 (vesting period - 3 years). Diageo Plc.'s share options (one option equivalent to one share) were granted to such employees as a percentage of salary. Vesting is subject to conditions such as continuity of employment, Diageo's productivity and NSV growth and individual's net promoter score. As at March 31, 2017 such outstanding share options were 97,904 (2016: Nil) and the charge recorded for the current year included in employee benefit expense was INR 40 (2016: Nil) (Refer Note 25). The carrying amount of liability of INR 40 has been included in other equity (Refer Note 15).

Share Appreciation Rights (SAR)

The India SAR Plan creates an opportunity to link the employee reward to Company's share price performance. Under this plan, Company grants stock appreciation rights (based on USL share price) to select employees. The grant is made in September every year, as a percentage of salary. Cash pay-out equivalent to the value of shares will be made at the end of three years from the date of grant (the vesting period).

4. Impairment of investment in subsidiaries

The Company has performed an assessment for impairment of its investment in subsidiaries owing to continuing losses incurred by subsidiaries and decline in the value of underlying net assets held by these subsidiaries, based on which company has recognized/ reversed impairment charge in its investments in Asian Opportunities Investments Limited (AOIL), Four Seasons Wines Limited (FSWL), Sovereign Distilleries Limited (SDL), Pioneer Distilleries Limited (PDL) and Tern Distilleries Limited (TDL).

The Company has determined recoverable values of its investments as fair value, less cost of disposal. Company has used the 'cost approach' valuation technique for determining fair value of its investment in subsidiaries using Level 3 inputs. An analysis of investments in subsidiaries where impairment charge/ reversal has been recognized, is provided below:

5. Related party disclosures

(a) Names of related parties and description of relationship

(i) Parent entities

- Diageo Plc. (Ultimate Holding company)

- Relay B V (Holding company)

Pursuant to settlement agreement entered on February 25, 2016 with Dr. Vijay Mallya, erstwhile Chairman and non -executive director and the parties mentioned below have not be considered as related parties post the settlement date [Refer Note 43 and 58(a)].

- United Breweries (Holdings) Limited

- Kingfisher Finvest India Limited

- City Properties Maintenance Company Bangalore Limited

- United Breweries Limited

(iii) Fellow subsidiaries

- Diage- Scotland Limited

- Diageo India Private Limited

- Diageo Brands BV

- Diageo Vietnam Limited

- Diageo Great Britain Limited

- Diageo Australia Limited

- Diageo North America Inc.

- Diageo Singapore Pte Limited

- Diageo Singapore Supply Pte Limited

- Guinness Nigeria Limited

- UDV Kenya Limited

- Diageo Business Services India Private Limited

(iv) Entity where there is control

- USL Benefits Trust

(v) Employees' Benefit Plans :

- McDowell & Company Limited Staff Gratuity Fund (McD SGF)

- McDowell & Company Limited Officers' Gratuity Fund (McD OGF)

- Phipson & Company Limited Management Staff Gratuity Fund (PCL SGF)

- Phipson & Company Limited Gratuity Fund (PCL GF)

- Carew & Company Limited Gratuity Fund (CCL GF)

- McDowell & Company Limited Provident Fund (McD PF)

- Shaw Wallace & Associated Companies Employees Gratuity Fund (SWCEGF)

- Shaw Wallace & Associated Companies Executive Staff Fund (SWCSGF)

- Shaw Wallace & Co. Associated Companies Provident Fund (SWCPF)

- United Spirits Superannuation Fund (with effect from 15 June 2015)

Refer note 39 for information on transactions with post-employment benefit plans mentioned above.

(vi) Key management personnel Non-executive directors

- Mahendra Kumar Sharma

- Indu Ranjit Shahani

- Rajiv Gupta

- Sivanandhan Dhanushkodi

- Nicholas Bodo Blazquez (till January 21, 2017)

- Vegulaparanam Viswanathan (w.e.f October 16, 2016)

- John Thomas Kennedy (w.e.f August 17, 2016)

- Randall David Ingber (w.e.f February 2, 2017)

- Vinod Rao (w.e.f May 24, 2016)

- Ravi Rajagopal (till October 13, 2016)

- Vijay Mallya (till February 25, 2016)

Executive directors

- Anand Kripalu (Managing Director & Chief Executive Officer)

- Sanjeev Churiwala (Chief Financial Officer) (w.e.f. April 1, 2017)

- P A Murali (Chief Financial Officer) (till April 22, 2015)

6. General terms and conditions for transactions with related parties

Transactions with related parties are carried out in the normal course of business and are generally on normal commercial terms.

Loans to subsidiaries which are generally for an indefinite period or for a period of three years with an option to rollover based on mutually agreed terms. Interest rates range from nil to 12%. All loans to related parties are unsecured. Further, the Company has granted loans to certain subsidiaries, in substance, these loans form part of the Company's net investment in the subsidiary, as the settlement of these loans is neither planned nor likely to occur in the foreseeable future and the management intends to convert these loans into investment in equity of the respective subsidiary in near future.

The Company has not recognized interest amounting to INR 431 during the year (2016: INR 479) on loans to certain subsidiaries as recoverability of interest is not reasonably certain. Aggregate of amounts of such unrecognized interest as at year end is INR 910 (2016: INR 479, 2015: Nil).

(a) The Company provides working capital support to certain tie-up manufacturers (TMUs), who are responsible for manufacturing and distribution of certain products on behalf of the Company. The aforesaid working capital is represented by inventories, trade receivables, other financial assets and other financial liabilities. The Company has reported net working capital excluding inventory as other financial assets /liability (net) in lieu of working capital exposure to TMUs, as these amounts are expected to be settled on net basis.

(b) The Company gives volume based rebates to certain customers. As a practice amounts payable by Company are offset against receivables from such customers and only the net amounts are settled. The relevant amounts have therefore been presented net in the balance sheet.

7. (a) Defined contribution plans

The Company contributes to defined contribution plans for employee such as Provident Fund (PF), Employees' Pension Scheme (EPS), Superannuation Fund (SF), Death benefit plan and Employees' State Insurance (ESI). PF and EPS cover substantially all regular employees while the SF covers certain executives and ESI covers eligible employees. Contribution to SF is made to United Spirits Superannuation Fund ('USSF'). Other contributions are made to the Government funds or insurance companies. While both the employees and the Company pay predetermined contributions into the Provident Fund and the ESI Scheme, contributions into the pension fund, death relief fund and the superannuation fund are made only by the Company. The contributions are normally based on a certain percentage of the employee's salary.

During the year, the Company has recognized the following amounts in the Statement of profit and loss, which are included in contribution to provident and other funds in the employee benefits expense.

(b) Defined benefit plans Gratuity:

The Company provides for gratuity, a defined benefit plan (the Gratuity Plan), to its employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, of an amount based on the respective employee's last drawn salary and years of employment with the Company. The Company has employees' gratuity funds managed by the Company as well as by Insurance Companies.


The Company operates a defined benefit pension plan for certain executives and workers of the Company. This plan is final salary pension plan, which provide benefits to members in the form of a guaranteed level of pension payable for life. The level of benefits provided depends on their salary in the final year leading up to retirement.

Provident fund:

For certain executives and workers of the Company, contributions are made as per applicable Indian laws towards Provident Fund to certain Trusts set up and managed by the Company, where the Company's obligation is to provide the agreed benefit to the employees and the actuarial risk and investment risk fall, in substance, on the Company. Having regard to the assets of the Fund and the return on the investments, shortfall if any, in the assured rate of interest notified by the Government, which the Company is obliged to make good is determined actuarially.

The Company actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the employee benefit obligations. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. A large portion of assets in 2017 consists of government and public sector bonds, although the Company also invests in private sector bonds, special deposit schemes and bank balances. The plan asset mix is in compliance with the requirements of the respective local regulations.

8. (a) Effect of the defined benefit plan on the entity's future cash flows

Funding levels are monitored on an annual basis and the current agreed contribution rate is 12% of the basic salaries for PF and 4.7% for Gratuity. The Company considers that the contribution rates set at the last valuation date are sufficient to eliminate the deficit over the agreed period and that regular contributions, which are based on service costs, will not increase significantly.

Expected contributions to post-employment benefit plans for the year ending March 31, 2018 is INR 266. The weighted average duration of the defined benefit obligation is 13 years (2016: 13 years, 2015: 13.1 years). The expected maturity analysis of undiscounted pension, gratuity and other post-employment benefits is as follows:

9. Leases

(a) Finance lease:

The Company has acquired land, office equipment and vehicles on finance leases. The lease agreements for office equipment and vehicles are generally a primary period of 36 to 60 months. The Company has an option to renew these leases for a secondary period. Lease arrangement for land is generally for a period of 95-99 years.

(b) Operating lease:

The Company's significant operating leasing arrangements are in respect of premises (residential, office, manufacturing facilities, etc.) and plant and equipment, which are for a period generally ranging between 11 months and 3 years and are cancellable. These arrangements are usually renewable on mutually agreeable terms.

Contingent rent represents bottling fees paid to tie-up manufacturers under an arrangement which are in nature of operating lease, where rent is determined based on the output/ volume.

There are no commitments for non-cancellable operating leases during the current and comparable reporting period.

10. As disclosed in the financial statements for the years ended March 31, 2015 and March 31, 2016, the Board initiated an inquiry ("Initial Inquiry"), which was completed in April 2015. The Initial Inquiry revealed (amongst other things), past instances of improper transactions concerning USL and its subsidiaries in India, including what appeared, prima facie, to be diversions of funds from USL and its subsidiaries to various UB Group companies including Kingfisher Airlines Limited ("KFA"). All such diverted amounts were provided for by the Company in the financial statements for the year ended March 31, 2015. In connection with the funds that were identified by the Initial Inquiry to have been diverted from the Company and/or its subsidiaries, the Company executed settlement agreements with ten parties as of March 31, 2017. These settlements resulted in write-off of receivables balance of INR 358 (2016: INR 5,666) outstanding from such parties, corresponding write back of provisions against such receivables amounting to INR 370 (2016: INR 6,209) and interest claims from such parties amounting to INR 28 (2016: Nil) all of which have been treated as exceptional items during the year (refer Note 28). Settlements with four parties have not been reached as yet. Discussions with two of these parties are continuing and the Company is hopeful of reaching settlements with them. Discussions with the third party have turned adverse and the matter appears likely to manifest itself into a dispute with claims and counter-claims by both parties. The last remaining party identified in the Initial Inquiry has ceased to be in business and therefore it is not possible to reach any settlement with this party. As all the amounts including the likely exposure of counter-claims have been fully provided for, there is no further material exposure to the Company.

The documents reviewed during the Initial Inquiry contained references to certain additional parties ("Additional Parties") and matters ("Additional Matters") indicating possible existence of other improper transactions. While such references could not be fully analyzed during the Initial Inquiry, the nature of these references raised concerns regarding the propriety of the underlying transactions. Therefore, after the Initial Inquiry was concluded, and as disclosed in the Company's financial results and financial statements from time to time, the Board mandated that USL's managing director and chief executive officer ("MD & CEO") conduct a further inquiry ("Additional Inquiry") into historical transactions involving the Additional Parties and Additional Matters, to determine whether transactions with these Additional Parties and/or involving these Additional Matters also suffered from improprieties. Pending the Additional Inquiry, and as disclosed in the audited financial statements for the years ended March 31, 2015 and March 31, 2016, certain audit qualifications were made in respect of USL's financial statements for those financial years, as the statutory auditors were unable to comment on the nature of those matters, the provisions established therefore, or any further potential impact on the financial statements. Pursuant to the Board's directions, the MD & CEO engaged independent experts with specialized forensic skills to assist with this Additional Inquiry and provide inputs and expert advice in connection therewith. Notwithstanding the limitations posed by lack of access to complete documentation despite best efforts, in July 2016 the MD & CEO submitted his report, taking into account the inputs and expert advice of the independent experts, to the Board. The Board, at its meeting held on July 9, 2016, discussed and considered in detail the report submitted by the MD & CEO in relation to the Additional Inquiry.

a) The Board noted that while only a court or concerned regulatory authority would be in a position to make final determinations as to fault or culpability, the Additional Inquiry, prima facie, revealed further instances of actual or potential fund diversions arising from improper transactions amounting to approximately INR 9,135 using March 31, 2015 exchange rates (approximately INR 9,504 using March 31, 2016 exchange rates) as well as other potentially improper transactions involving USL and its Indian and overseas subsidiaries amounting to approximately INR 3,118 using March 31, 2015 exchange rates (approximately INR 3,260 using March 31, 2016 exchange rates). These transactions occurred during the review period covered by the Additional Inquiry, i.e., from October 2010 to July 2014 ("Review Period", which was substantially the same as the period covered by the Initial Inquiry), although certain transactions appear to have been initiated in years prior to the Review Period.

b) The improper transactions identified in the Additional Inquiry involved, in most cases, diversion of funds to overseas and Indian entities that appear to be affiliated or associated with USL's former non-executive chairman, Dr. Vijay Mallya. The overseas beneficiaries or recipients of these funds include entities such as Force India Formula One, Watson Ltd, Continental Administrative Services, Modall Securities Limited, Ultra Dynamix Limited and Lombard Wall Corporate Services Inc., in each of which Dr. Mallya appears to have a material, direct or indirect, interest. The Indian beneficiaries or recipients of the funds identified by the Additional Inquiry included, in most cases, KFA.

c) Most of the amounts identified in the Additional Inquiry have been previously provided for or expensed in the financial statements of USL or its subsidiaries for prior periods (including by way of provision made in relation to impairment in the value of or loss on sale of USL's overseas subsidiaries). With an additional charge of INR 217 in respect of a write down in the value of certain items of plant and equipment made in the current reporting period and disclosed under exceptional items (Refer Note 28), there are no other improper transactions identified by the Additional Inquiry, which have not been expensed or provided. At this stage, it is not possible for the management to estimate the financial implications, if any, arising out of potential non-compliance with applicable laws on the Company.

d) In connection with the recovery of funds that are prima facie identified by the Additional Inquiry to have been diverted from the Company and its subsidiaries, the Company has been undertaking a detailed review of each case of fund diversion to assess the Company's legal position and is in the process of initiating such action as is necessary to recover the funds from the relevant parties and individuals, to the extent possible. The Company has taken appropriate action in relation to employees named in the Additional Inquiry. In respect of on-going relationships with counter-parties involved in the improper transactions identified by the Additional Inquiry, the Company has undertaken a detailed review of such relationships and ascertained whether they were entered into on an arms-length basis and with appropriate controls and has taken appropriate action on the basis of these findings.

e) During the course of the Additional Inquiry, certain other matters pertaining to historical transactions (carried out during the Review Period of October 2010 to July 2014) were identified, which raised concerns in relation to internal controls regarding vendor invoices with certain vendors and in relation to certain historical sales promotion schemes. The amounts involved were charged off in the relevant prior financial years. Management has carried out a further review which indicates that the said matters did not continue post the Review Period.

11. As disclosed in the financial statements for the years ended March 31, 2015 and March 31, 2016, the Company had preexisting loans/ deposits/ advances/accrued interest that were due to the Company and its wholly-owned subsidiaries from United Breweries (Holdings) Limited ("UBHL") and its subsidiaries aggregating INR 13,374 and that were consolidated into, and recorded as, an unsecured loan by way of an agreement entered into between the Company and UBHL on July 3, 2013 ("Loan Agreement"). The Company has already made provision in prior financial years for the entire principal amount due, of INR 13,374, and for the accrued interest of INR 846 up to March 31, 2014. The Company has also not recognized interest income on said loan aggregating to INR 3,748 for the period from April 1, 2014 to March 31, 2017. During the year Company has set-off payable to UBHL under the trademark agreement amounting to INR 290 (2016: INR 249) (cumulatively INR 539) against the interest receivable from UBHL and consequently corresponding allowance for interest receivable has been reversed to 'Other Income" in the related periods.

The Company is seeking redressal of these disputes and claims through arbitration under the terms of the Loan Agreement and the arbitration proceedings have commenced. On February 7, 2017, the High Court of Karnataka ordered, inter alia, that UBHL be wound up, and that the Official Liquidator be appointed as the liquidator of UBHL. The Company has subsequently secured leave from the Hon'ble High Court of Karnataka to continue the arbitration proceedings.

12. As disclosed in the financial statements for the year ended March 31, 2016 the Company entered into a settlement agreement with its former non-executive chairman, Dr. Mallya ("Agreement"), pursuant to which he resigned from his positions as a director and chairman of the Company and its subsidiaries. In connection with the settlement, Dr. Mallya procured or undertook to procure the termination by the relevant counterparties of certain historical agreements to which the Company was party and which were not approved by the shareholders of the Company at the extraordinary general meeting ("EGM") held on November 28, 2014. Pursuant to the Agreement, the Company entered into mutual release and termination agreements with all the respective counterparties of these historical agreements, save one. The Company has executed an Agreement with the said remaining party by paying a sum of INR 75 ("Amount") during the quarter ended September 30, 2016. The Company made a claim against Dr. Mallya seeking refund of the Amount in terms of the Agreement. Since the refund of the Amount was not forthcoming from Dr. Mallya, the Company has sought indemnification and made a claim against Diageo Plc., for the refund amount which has been recorded as 'Receivable from related parties' under Other current financial assets as at March 31, 2017 and has been realized post the balance sheet date. There is therefore no financial impact on the Statement of profit and loss of the Company. As previously disclosed by the Company, the Company and Dr. Mallya agreed a mutual release in relation to civil claims arising out of the Initial Inquiry. The Agreement does not extend to matters covered by the Additional Inquiry, any claims connected with the UBHL loan, or any recovery proceedings by USL connected with the Additional Inquiry.

As part of the Agreement with Dr Mallya, the Company, inter alia, also entered into certain principles, pursuant to which Dr Mallya or a party nominated by him would have a limited period option to purchase up to thirteen non-core properties from the Company. The Company secured independent valuation for these properties and had shared the same with Dr. Mallya. Though the Company received call notices from a party nominated by Dr. Mallya indicating its intention to purchase four non-core properties from the Company, the said call notices have since expired due to inaction by the party nominated by Dr.Mallya. As a result, the period of this option has now expired with Dr Mallya (or his nominee) not purchasing any of the non-core properties. The Company now intends to divest these non-core assets at market value through a transparent process, under the overall supervision and direction of the concerned Board Committee.

The Company had received certain undertakings from Dr. Mallya in relation to termination of the Shreholders' Agreement. During the quarter ended September 30, 2016, on seeking a further update on the status of the termination of the Shareholders' Agreement by UBHL, the Company was informed by Dr. Mallya that UBHL would not be seeking leave of court to terminate the Shareholders' Agreement.

13. The managerial remuneration for the financial year ended March 31, 2015 aggregating INR 63 and INR 153 to the Managing Director & Chief Executive Officer ("MD & CEO") and the former Executive Director and Chief Financial Officer ("ED & CFO"), respectively, was approved by the shareholders at the annual general meeting of the Company held on September 30, 2014. The aforesaid remuneration includes amounts paid in excess of the limits prescribed under the provisions of Schedule V to the Companies Act, 2013 ("Act") by INR 51 to the MD & CEO and INR 134 to the former ED & CFO. Accordingly, the Company applied for the requisite approval from the Central Government for such excess remuneration. The Central Government, vide letters dated April 28, 2016 did not approve the Company's application for the waiver of the excess remuneration. On May 24, 2016 the Company resubmitted the applications, along with detailed explanations, to the Central Government to reconsider approving the waiver of the excess remuneration paid. In light of the findings from the Additional Inquiry as set out in Note 41 above, the Company has withdrawn its application for approval of excess remuneration paid to the former ED & CFO of the Company through a letter dated July 12, 2016. The Company is awaiting response from the Central Government to its resubmitted application in respect of the MD & CEO. As notified to the Central Government, the Company initiated steps seeking refund of excess remuneration paid to the former ED & CFO. Since the refund was not forthcoming, the Company has, on January 5, 2017, filed a suit before the jurisdictional court to recover the excess remuneration paid by the Company to the former ED & CFO.

14. The Company has received and continues to receive letters and notices from various regulatory authorities and other government authorities. The Company has responded to the respective letters and notices and is cooperating with the regulatory authorities. Amongst others, the following letters and notices have been received and/ or responded to by the Company:

a. From the Securities Exchange Board of India ("SEBI"), in relation to the Initial Inquiry, Additional Inquiry, and matters arising out of the Agreement entered into by the Company with Dr. Mallya;

b. From the Ministry of Corporate Affairs ("MCA") in relation to its inspection conducted under section 206(5) of the Companies Act, 2013 during the year ended March 31, 2016 and subsequent show cause notices alleging violation of certain provisions of the Companies Act, 1956 and Companies Act, 2013;

c. From the Enforcement Directorate ("ED") in connection with agreements entered into with Dr. Mallya and investigations under the Foreign Exchange Management Act, 1999 and Prevention of Money Laundering Act, 2002;

d. From the Company's authorized dealers in relation to certain queries from Reserve Bank of India ("RBI") with regard to remittances made in prior years to subsidiaries of the Company and branch in the United Kingdom and past acquisition of the Whyte and Mackay group; and

e. From the Central Bureau of Investigation (CBI) relating to the Initial Inquiry and Additional Inquiry.

15. As disclosed in the financial statements for the years ended March 31, 2015 and March 31, 2016, during the year ended March 31, 2014, the Company decided to prepay a term loan taken in earlier years under a consortium from bank, secured by assets of the Company and pledge of shares of the Company held by the USL Benefit Trust (of which the Company is the sole beneficiary) with the security trustee. The Company deposited a sum of INR 6,280, including prepayment penalty of INR 40, with the bank and instructed the bank to debit the amount from its cash credit account towards settlement of the loan and release the assets and shares pledged by the Company. The bank, however, disputed the prepayment. The Company has disputed the stand taken by the bank and its writ petition is pending before the Hon'ble High Court of Karnataka. On completion of the loan tenure on March 31, 2015, the bank demanded an amount of INR 474 towards principal and interest on the said loan, which the Company contested in the Hon'ble High Court of Karnataka. As per the order of the Hon'ble High Court of Karnataka directing the parties to consider a negotiated settlement, the Company engaged with the bank to commence discussions towards settlement. In August 2015, the bank obtained an ex parte injunction in proceedings between the bank and KFA, before the Debt Recovery Tribunal, Bangalore ("DRT"), restraining the USL Benefit Trust from disposing of the pledged shares until further orders. The Company and USL Benefit Trust, upon receiving notice of the said order, filed their objections against such ex parte order passed in proceedings in which neither the Company nor the USL Benefit Trust are or have been enjoined as parties. In December 2015, the Hon'ble High Court of Karnataka issued a stay order restraining the bank from dealing with the above mentioned pledged shares until further orders. Thereafter in February 2016, the Company received a notice from the bank seeking to recall the loan and demanding a sum of INR 459, and the Company also received a subsequent notice in March 2016 issued under section 13(2) of SARFAESI Act in relation to the same loan. Pursuant to an application filed by the Company before the Hon'ble High Court of Karnataka, in the writ proceedings, the Hon'ble High Court directed that if the Company deposited the sum of INR 459 with the bank, the bank should hold the same in a suspense account and should not deal with any of the secured assets including shares pledged with the Bank till disposal of the original writ petition filed by the Company before the Hon'ble High Court of Karnataka. During the quarter ended June 30, 2016, the Company accordingly deposited the said sum and replied to the bank's various notices in light of the above. The aforesaid amount has been accounted as other non-current financial assets. On January 19, 2017, the DRT dismissed the application filed by the bank seeking the attachment of USL Benefit Trust shares. The Company on March 13, 2017 issued a legal notice to the bank asking them to provide the 'no-objection' for the release of the pledged shares, withdrawing the notices under SARFESI and also to pay compensation on account of loss of interest, value of differential share price, loss of reinvestment opportunity, reputational damage etc to which the bank has responded denying the claim. The Company is in the process of sending an appropriate rejoinder and is also making efforts to expedite the hearing of its Writ Petition before the Karnataka High Court.

16. Consequent to a voluntary disclosure made by the Company to a customer regarding prices historically charged by the Company to said customer being inconsistent with trading terms that apply between the Company and the said customer, the Company received a claim during the quarter ended September 30, 2016 and thereafter a debit note for the period upto December 31, 2016, in the quarter ended March 31, 2017. After considering an accrual of INR 250 which was made on this account in the financial year ended March 31, 2016, an additional liability has been recorded for the balance amount of INR 3,030 (including potential liability of INR 130 for the period January to March 2017) during the current year (of which INR 460 relate to claims for current year sales which has been recorded as reduction from Revenue from Operations) and INR 2,570 pertaining to earlier years which has been disclosed as exceptional item in the Statement of profit and loss. In respect of some of the specific products the prices demanded by the Customer result in the Company incurring a forseeable loss and accordingly a provision for the onerous element in such contracts amounting to INR 75 has been made and included in exceptional item. The aggregate amount included in exceptional items is therefore INR 2,645 (Refer Note 28).

17. The Bihar State Government by its notification dated April 5, 2016 imposed a ban on trade and consumption of Indian Made Foreign Liquor and foreign liquor in the state of Bihar with immediate effect. Writ petitions were filed with the Hon'ble High Court of Patna challenging the said notification and seeking payment for supplies made by the Company and its tie-up manufacturing units to Bihar State Beverages Corporation Limited ("BSBCL"). By an order dated September 30, 2016, the Hon'ble High Court of Patna set aside the notification dated April 5, 2016 and Section 19(4) of the Bihar Excise Act, 1915, as ultra vires the Constitution of India. Subsequently, the Bihar Government re-imposed prohibition by notifying a new legislation i.e. The Bihar Prohibition and Excise Act, 2016, on October 02, 2016. The Bihar Government also preferred a special leave petition ("SLP") before the Hon'ble Supreme Court against the judgment of the Hon'ble High Court of Patna pursuant to which the Hon'ble Supreme Court has stayed the order of the Hon'ble High Court of Patna. During the quarter ended December 31, 2016, the Company filed an application seeking compensation from the Government of Bihar towards losses suffered as a result of arbitrary imposition of prohibition.

On January 24, 2017, the Government of Bihar issued a Notification prohibiting the manufacture of alcoholic beverages in the State (w.e.f April 1, 2017) the consequences of which criminalises the continued storage of all stock of raw material and finished goods in the State of Bihar (including the stock lying at BSBCL). Pursuant to an application by Confederation of Indian Alcoholic Beverage Companies (CIABC) in the Supreme Court, the Bihar Government extended this timeline to April 30, 2017 and the Hon'ble Supreme Court thereafter extended this to July 31, 2017 to allow additional time for companies to transfer said materials out of the state of Bihar. In light of the challenges in carrying out this unique and one time exercise, CIABC has sought an extension of the deadline from the Supreme Court.

The Company has initiated the process of transferring such stocks of raw materials and finished goods outside the state of Bihar. The 'billed stocks' supplied by the Company pursuant to valid orders for sales which are currently in the possession of BSBCL, are also in the process of being transferred out of the state of Bihar. The Company will take appropriate steps in due course to persuade the Bihar Government to refund the statutory duties i.e. VAT and Excise duty paid in respect of the said stocks aggregating to INR 553 which is considered good and receivable and disclosed as other non-current financial assets. The Company has made a provision during the current reporting period of INR 267 (2016: INR 107) towards reprocessing charges for inventory and INR 110 (2016: Nil) towards employee retrenchment totalling INR 377 (2016: Nil) which has been disclosed as exceptional item under Note 28.

18. Agreement for sale of United Spirits Nepal Private Limited

On January 15, 2016, the Company entered into an agreement for the sale of its entire holding in United Spirits Nepal Private Limited of 67,716 equity shares (constituting 82.46% of the paid up equity share capital of United Spirits Nepal Private Limited). The sale is subject to various regulatory approvals (both in India and Nepal) and other conditions precedent which are normal for such transactions, and which the Company is in the process of seeking. Pending such approvals, the investment in United Spirits Nepal Private Limited amounting to INR 66 (2016: INR 66) has been classified as asset held for sale under current assets (Refer Note 13).

19. During the year ended March 31, 2016, the Company has infused:

(a) Equity capital of INR 987 in Tern Distilleries Private Limited, a wholly owned subsidiary of the Company ("Tern"). Tern has repaid the loans of INR 767 and accrued interest of INR 208 to the Company. Subsequent to the infusion, Tern has made an application to the Board for Industrial and Financial Reconstruction ("BIFR") for deregistering its name from the list of sick industrial undertakings. Accordingly, the Draft Rehabilitation Scheme for the amalgamation of Tern with the Company, as submitted to the BIFR, stands abandoned.

(b) Equity capital of INR 4,267 in Sovereign Distilleries Limited, a wholly owned subsidiary of the Company ("SDL"). SDL has repaid the loans of INR 3,399 and accrued interest of INR 857 to the Company.

(c) Company has recognized exceptional gain of INR 2,480 during the year ended March 31, 2016 pursuant to aforesaid transaction and recovery loans, whose deemed cost was considered lower by INR 2,480.(Refer Note 28).

20. (a) The Scheme of Amalgamation between the Company and SW Finance Co. Limited, a wholly owned subsidiary of the Company ("SWFCL"), under Section 391 and 394 read with Sections 100 to 103 of the Companies Act, 1956 (the "Scheme") with the appointed date of January 1, 2014 has been sanctioned by the Hon'ble High Court of Karnataka and Hon'ble High Court of Judicature at Bombay under the orders dated June 12, 2015 and August 28, 2015, respectively. Upon necessary filings with the respective Registrars of Companies, the Scheme has become effective from September 28, 2015 (the 'Effective Date') and effect thereof have been given in these financial statements. Consequently:

(i) the Share capital of SWFCL to the extent held by SWFSL Trust stood cancelled;

(ii) the entire business and undertakings of SWFCL including all assets and liabilities, as a going concern transferred to and vested in the Company in accordance with the provisions of the Scheme with effect from the appointed date;

(iii) the Authorized capital of the Company increased to INR 7,192 divided into 548,000,000 equity shares of INR 10/- each, 159,200,000 preference shares of INR 10/- each and 1,200,000 preference shares of INR 100/- each; and

(iv) SWFCL ceased to be subsidiary of the Company, and as SWFCL was a wholly owned subsidiary (WOS) of the Company, no consideration was payable pursuant to amalgamation of SWFCL with the Company. Shaw Wallace Overseas Limited, a WOS of SWFCL has become a direct subsidiary of the Company.

The Company has given effect to the Scheme in the accounts with effect from April 1, 2015 being the date of transition in accordance with Ind AS 101 as this is a common control transaction under Ind AS 103.

(i) Surplus arising out of cancellation of equity shares to the extent held by SWFSL Trust in SWFCL has been credited to "Capital Reserve" for an amount of INR 683.

(ii) Difference between the values of net assets of SWFCL (including reserves) transferred to the Company after adjusting for investments cancelled has been debited to "General Reserve" for an amount of INR 742.

20. (b) During the year ended March 31, 2016 USL's wholly owned subsidiary Asian Opportunities & Investments Limited (AOIL), has sold its entire interest in Bouvet Ladubay S.A. (and its wholly owned subsidiary Chapin Landais S.A.S). Consequent to the above sale Bouvet Ladubay S.A. (and its wholly owned subsidiary Chapin Landais S.A.S) ceased to be subsidiaries of the Company.

21. Effective December 1, 2016, the provisions of Sick Industrial Companies Act, 1985 was repealed. As a result, Board of Industrial Finance and Reconstruction (BIFR) ceases to exist and all proceedings before BIFR stand automatically dropped. The Company and its four subsidiary companies namely, Pioneer Distilleries Limited, Sovereign Distilleries Limited, Tern Distilleries Private Limited and Four Seasons Wines Limited had been referred to BIFR due to the erosion of more than 50/100% of the net worth of those companies. As a result, the requirement to report erosion of net worth of the Company to the shareholders is not required.

The Company has also given letter of support to the following subsidiaries to conduct their operations in such a manner as to enable them to meet their obligations, as and when they fall due for a period of twelve months:

i) Pioneer Distilleries Limited ii) Sovereign Distilleries Limited iii) Tern Distilleries Private Limited iv) Four Seasons Wines Limited v) Royal Challengers Sports Private Limited vi) Asian Opportunities & Investment Limited vii) United Spirits Singapore Pte Limited viii) Montrose International SA ix) Palmer Investment Group Limited x) UB Sports Management Overseas Ltd (Formerly known as " JIHL Nominees Limited") xi) USL Holdings Limited xii) USL Holdings (UK) Limited xiii) United Spirits (UK) Limited xiv) United Spirits (Great Britain) Limited xv) Liquidity Inc. xvi) United Spirits (Shanghai) Trading Co. Limited

22. Corporate Social Responsibility:

Since the average net profit of the Company during the three immediately preceding financial years is negative, the Company has no obligation to spend towards the Corporate Social Responsibility as required under the provisions of Section 135 of the Act.

23. During the year ended March 31, 2017 no material foreseeable loss was incurred for any long-term contracts including derivative contracts.

24. First-time adoption of Ind AS Transition to Ind AS

These are the Company's first financial statements prepared in accordance with Ind AS.

The accounting policies set out in Note 1, have been applied in preparing the financial statements from the year ended March 31, 2017, the comparative information presented in these financial statements for the year ended March 31, 2016 and in the preparation of an opening Ind AS balance sheet at April 1, 2015 (the Company's date of transition). In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP or Indian GAAP). An explanation of how the transition from previous GAAP to Ind AS has affected the Company's financial position, financial performance and cash flows is set out in the following tables and notes.

A. Exemptions and exceptions availed

Set below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.

A.1 Ind AS optional exemptions

A.1.1 Deemed cost

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment and investment in subsidiaries as recognized in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets.

Accordingly, the Company has elected to measure all of its Investments in subsidiaries, property, plant and equipment and intangible assets at their previous GAAP net carrying value.

A.1.2 Leases

Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. Ind AS 101 provides an option to make this assessment on the basis of facts and circumstances existing at the date of transition to Ind AS.

The Company has elected to apply this exemption for such contracts/arrangements.

A.1.3 Business Combination

Ind AS 101 provides the option to apply Ind AS 103 prospectively from the transition date or from a specific date prior top the transition date. This provides relief from full retrospective application that would require restatement of all business combination to the transition date.

The Company has elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Business combinations occuring prior to the transition date have not been restated.

A.1.4 Designation of previously recognized financial instruments

Ind AS 101 allows an entity to designate investments in equity instruments other than subsidiaries at FVOCI on the basis of the facts and circumstances at the date of transition to Ind AS.

Accordingly, the Company has elected to classify fair value gains/losses on such investments in statement of other comprehensive income.

A.1.5 Cumulative translation differences

Ind AS 101 permits cumulative translation gains and losses to be reset to zero at the transition date. The Company elected to reset all cumulative translation gains and losses to zero by transferring it to opening retained earnings at its transition date.

A.1.6 Prospective application of Ind AS 21 to business combinations

Ind AS 101 allows a first-time adopter not to apply Ind AS 21 Effects of changes in Foreign Exchange Rates retrospectively for business combinations that occurred before the date of transition to Ind AS. In such cases, where the entity does not apply Ind AS 21 retrospectrively to fair falue adjustments and goodwill, the entity treats them as assets and liabilities of the acquirer entity and not as the acquiree.

The Company has elected to apply this exemption.

A.2 Ind AS mandatory exceptions A.2.1 Estimates

An entity's estimates in accordance with Ind ASs at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

Ind AS estimates as at April 1, 2015 are consistent with the estimates as at the same date made in conformity with previous GAAP.

A.2.2 De-recognition of financial assets and liabilities

Ind AS 101 requires a first-time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101 allows a first time adopter to apply the de-recognition requirements in Ind AS 109 retrospectively from a date of the entity's choosing, provided that the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognized 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 provisions of Ind AS 109 prospectively from the date of transition to Ind AS.

A.2.3 Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis of the fact and circumstances that exits at the date of transition to Ind AS.

B. Reconciliations between previous GAAP and Ind AS

Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for prior periods. The following tables provide the reconciliations from previous GAAP to Ind AS.

C. Foot Notes to first-time adoption:

25. Business combination - SW Finance Co. Limited

As noted in Note 51(a) on August 28, 2015, the Company received an approval to merge with SW Finance Co. Limited (SWFCL) with an effective date of January 1, 2014, accordingly company had recorded below mentioned merger entries on August 28, 2015 (being the appointed date) under the previous GAAP. However, as per Ind AS 103, the results of SWFCL have been merged with the company with effect from April 1, 2015 as this is a common control transaction, and below adjustments were made to opening Balance sheet as at the transition date:

26. Cumulative translation differences

The Company elected to reset all cumulative translation reserve to zero by transferring it to opening retained earnings at its transition date. Consequently, the loan to USL Holdings Limited BVI which was not considered as doubtful under previous GAAP to the extent of balance in Foreign Currency Translation Reserve, has been fully provided for as at the transition date amounting to INR 10,274. This resulted in net reduction in Reserves and Surplus amounting to INR 10,274 and an equivalent reduction in loans.

27. Revenue recognition

Under Ind AS 18, revenue is recognized when significant risk and reward is transferred and company does not retain either continuing managerial involvement or effective control over the goods sold. Hence, revenue recognized under previous GAAP relating to certain customers have been reversed. Net impact of reversal of revenue for the year ended March 31, 2016 is as below:

a. Decrease in Revenue from Operations : INR 352 (net of opening)

b. Increase in Cost of materials consumed: INR 229 (net of opening)

c. Decrease in changes in inventories of work-in-progress, stock-in-trade and finished goods: INR 326 (net of opening)

d. Decrease in Excise duty: INR 229 (net of opening)

e. Increase in inventories : INR 1,045 (2015 : INR 719)

f. Decrease in trade receivables: INR 1,154 (2015 : INR 802)

g. Corresponding deferred tax asset on aforesaid items amounted to INR 37 (2015: INR 28) has been created with a corresponding increase in deferred tax income.

h. Reduction in Reserves and Surplus by INR 56 as at April 1, 2015 and INR 72 as at March 31, 2016.

28. Excise duty

Under the previous GAAP, revenue from sale of products was presented exclusive of excise duty. Under Ind AS, revenue from sale of goods is presented inclusive of excise duty paid and charged to customers. The excise duty paid is presented on the face of the statement of profit and loss as part of expenses. This change has resulted in an increase in total revenue and total expenses for the year ended March 31, 2016 by INR 132,242. There is no impact on the total equity and profit.

29. Trade discount

Under Indian GAAP, trade and cash discounts of INR 4,111 was recognized as part of other expenses which has been adjusted against the revenue under Ind AS during the year ended March 31, 2016.

30. Remeasurements of post-employment benefit obligations

Under Ind AS, remeasurements i.e. actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognized in other comprehensive income. Under the previous GAAP, these remeasurements were forming part of the profit or loss for the year. As a result of this change, the profit for the year ended March 31, 2016 decreased by INR 165 with a corresponding increase in Other Comprehensive Income. There is no impact on the total equity as at March 31, 2016. Deferred tax assets of INR 64 reclassified to Other Comprehensive Income on this account.

31. Fair valuation of investments

Under the previous GAAP, investments in equity instruments other than investments in subsidiaries and mutual funds were classified as long-term investments or current investments based on the intended holding period and realisability. Long-term investments were carried at cost less provision for other than temporary decline in the value of such investments. Current investments were carried at lower of cost and fair value. Under Ind AS, these investments are required to be measured at fair value.

Fair value changes with respect to these items designated as at FVOCI have been recognized in FVOCI- equity investments reserve as at the date of transition and subsequently in the other comprehensive income for the year ended March 31, 2016. This resulted in- an increase of INR 8,417 in investments and an equivalent increase in other reserves as at the transition date, which includes gains of INR 70 on equity investments unsold as at March 31, 2016 .

- fair value gain of INR 187 for the year ended March 31, 2016 which is accounted under FVOCI reserves with a corresponding increase in investment, which includes a loss of INR 2 on equity investments unsold as at March 31, 2016

- Gain of INR 8,536 on sale of investments during the year ended March 31, 2016 which was earlier recognized under exceptional items in previous GAAP, has been recognized under Ind AS as part of FVOCI reserve as at transition date of INR 8,347 and in other comprehensive income of INR 189 for the year ended March 31, 2016

- FVOCI equity instruments reserves as at March 31, 2016 has increased by INR 68 (representing gains on transition amounting to INR 70 and loss of INR 2 during the year ended March 31, 2016) as compared to previous GAAP for unsold equity investments as at March 31, 2016.

32. Assets classified as held for sale

On January 15, 2016, the Company entered into an agreement for the sale of its entire holding in United Spirits Nepal Private Limited of 67,716 equity shares (constituting 82.46% of the paid up equity share capital of United Spirits Nepal Private Limited). Accordingly, investments in United Spirits Nepal Private Limited amounting to INR 65 is presented as held for sale. Under previous GAAP, the Company had disclosed this under 'Long-term investments'

33. Tie-up manufacturing arrangements

The Company has entered into arrangements with certain distilleries and bottling units (Tie-up units) for manufacture and marketing of its own brands. The Tie-up units have necessary license and regulatory permits to manufacture beverage alcohol. Under previous GAAP Company had recognized net surplus (total revenue over total expense) from operation through these Tie-up units under Revenue from operations. However, under Ind AS 18, Company has aggregated the below mentioned amounts in its Statement of Profit and Loss and balance sheet with respect to these tie-up units. Consequent to these changes, there is no impact on the total equity and profit.

34. Deemed investments

The Company has granted loans amounting to INR 6,041 during the year ended March 31, 2016 (2015: INR 8,597), to its subsidiaries. Settlement of these loans is likely to occur only on liquidation of subsidiaries, hence under Ind AS 109 these are reclassified to investments.

35. De-recognition of borrowing cost capitalized on inventory

Ind AS 23 does not require borrowing costs directly attributable to the inventories to be capitalized. Under previous GAAP, these cost were capitalized to inventory. Accordingly, inventory as at March 31, 2016 has reduced by INR 713 (2015: INR 536) with a corresponding adjustment to retained earnings. The profit for the year ended March 31, 2016 reduced by INR 178 as a result of additional interest expense with a corresponding decrease in inventory. Corresponding deferred tax asset amounted to INR 242 (2015: INR 198) has been created. Net reduction in retained earnings is INR 338 as at April 1, 2015 and INR 472 as at March 31, 2016.

36. Reversal of brand amortization

Under Indian GAAP, Brand was amortized over a period of 10 years which was recognized as part of Depreciation and amortization expense. Based on the assessment performed by the management, it has been determined that these Brand has an infinite useful life under Ind AS. As a result of this change, the profit for the year ended March 31, 2016 increased by INR 4 as a result of reversal of depreciation and amortization expense.

37. Stamp duty on erstwhile amalgamations

The Company had omitted recognition of stamp duty payable and penalties payable on various amalgamations effected through court orders in earlier years. On adoption of Ind AS, at the date of transition the Company has recorded the stamp duty and penalties payable upto the transition date amounting to INR 188 (2015: INR 175) through debit to retained earnings. For the year ended March 31, 2016, the Company has recognized charge of INR 13 in the statement of profit and loss.