Note no.1
I. CORPORATE INFORMATION
Kallam Textiles Limited (Formerly known as "Kallam Spinning Mills Limited") incorporated on 18th February, 1992. It is a leading textile company engaged in the business of Manufactuirng of Cotton Yarn, Dyed Yarn, Grey Fabric and Dyed Fabric. The Company has its Corporate office at Chowdavaram, Guntur.
II. Standards Issued but not effective
On March 28, 2018, the Ministry of Corporate Affairs (MCA) has notified Ind AS 115 - Revenue from Contract with Customers and certain amendments to existing Ind AS. These amendments shall be applicable to the company from April 01, 2018.
a) Issue of Ind AS 115 - Revenue from Contracts with Customers
Ind AS 115 will supersede the current revenue recognition standard Ind AS-18 Revenue, Ind AS-11 Construction Contracts and the related interpretations. Ind AS-115 provides a single model of accounting for revenue arising from contracts with customers based on the identification and satisfaction of performance obligations.
b) Amendment to Existing Ind AS
The MCA has also carried out amendments in some of the existing standards but application of said standards are not expected to have any significant impact on the Company’s Financial Statements.
FIRST TIME ADOPTION OF IND AS:
The company has adopted Indian Accounting Standards (Ind AS) as notified by the Ministry of Corporate Affairs with effected from 1st April, 2017 with transition date of 1st April, 2016. These financial statements for the year ended 31st March, 2018 are the first Ind As financial statements. For all periods upto and including the year ended 31st March, 2017, the company prepared its financial statements in accordance with the accounting standards notified under section 133 of the Companies Act, 2013 read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Previous GAAP).
The adoption of Ind AS has been carried out in accordance with Ind AS 101, First time adoption of Indian Accounting Standards requires that all Ind AS standards and interpretations that are issued and effective for the first Ind AS financial statements be applied retrospectively and consistently for all financial years presented. Accordingly, the company has prepared financial statements which comply with Ind AS for the year ended 31st March, 2018 together with the comparative information as at and for the year ended 31st March, 2017 and the opening Ind AS balance sheet as at 1st April, 2016, the date of transition to Ind AS.
In preparing these Ind AS financial statements, the company has availed certain exemptions and exceptions in accordance with Ind AS 101. The resulting difference between the carrying values of the assets and the liabilities in the financial statements as at the transition date under Ind AS and previous GAAP have been recognized directly in equity.
A. Exceptions from retrospective application.
(i) Estimates exception: Upon an assessment of the estimates made under Previous GAAP, the Company has concluded that there was no necessity to revise such estimates under Ind AS except where estimates were required by Ind AS and not required by Previous GAAP.
(ii) Classification and measurement of financial assets: The Company has determined the classification of financial assets in terms of whether the meet the amortised cost creteria or the fair value through other comprehensive income creteria based on the facts and circumstances that existed as of the transition date.
(iii) Deemed cost for property, plant and equipment and intangible assets: The Company has elected to continue with carrying value of all its property plant and equipment, and intangible assets recognised as of April 1, 2016 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date except in case of land where fair value was adopted. The excess amount of fair value over its carrying amount was transferred to revaluaton surplus and grouped under Reserves and Surplus.
(iv) Interest free loans from Government: The requirements of Ind AS 20- Accounting for Government Grants and Disclosure of Government Assistance and Ind AS 109- Financial Instruments, in respect of recognition and measurement of interest free loans from government authorities is opted to be applied prospectively to all grants received after the date of transition to Ind AS. Consequently, the carrying amount of such interest free loans as per the financial statements of the Company prepared under Previous GAAP is considered for recognition in the opening Ind AS Balance Sheet.
B. Transition to Ind AS - Reconciliations.
The following reconciliations provide a quantification of the effect of significant differences arising from the transition from Previous GAAP to Ind AS in accordance with Ind AS 101:
(i) Adjustments made by the company in restating the financial statements prepared under previous GAAP, including the balance sheet as at 1st April, 2016 and the financial statements as at and for the year ended 31st March, 2017.
(ii) Reconciliation of Equity as at 1st April, 2016 and 31st March, 2017
(iii) Reconciliation of Total Comprehensive Income for the year ended 31st March, 2017
Notes to Reconciliation between previous GAAP and Ind AS
1. Deferred Government grants
Under previous GAAP, government grants received in the nature of EPCG and other subsidies are deducted in the value of the asset and the net amount is capitalised in the books of accounts. Under Ind AS, government grants received have been recognised separately in the financial statements with the name Deferred Government grants under Other current liabilities. The deferred grant is recognised in the Statement of Profit and Loss in proportion of depreciation charged on such assets.
2. Dividend and Tax on Dividend
Under previous GAAP, dividend payable is recorded as a liability in the period to which it relates and under Ind AS dividend is recognised as a liability in the period in which the obligation to pay is established.
3.Remeasurement of net defined benefit plans :
Under previous GAAP, actuarial gains and losses were recognised in the statement of profit and loss. Under Ind AS, the actuarial gains and losses form part of remeasurement of net defined benefit liability which is recognised in other comprehensive income in respective years. However, such a change does not have any effect on total comprehensive income or total equity.
4. Cost of Property, plant and equipment
The company has elected to measure all its property, plant and equipment and intangible assets at the previous GAAP carrying amount as its deemed cost at the date of transition to Ind AS except in case of land where fair value was adopted.
The excess amount of fair value over its carrying amount was transferred to revaluation surplus and grouped under Reserves and Surplus .
5. Interest free sales tax loan
In the financial statements prepared under Previous GAAP, the carrying value of Interest free loan was recognised at the principal amounts payable by the company. Under Ind AS, Interest free borrowing being a financial liability is required to be recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. The difference between such fair value and the carrying value is recognised as deferred income disclosed under Other liabilities.
On the date of transition, there is no change in the amount of Interest free loan since the Company has opted for exemption from retrospective application for fair valuation of such financial instruments. However, the company has not received any such loans subsequent to the date of transition.
6. Deferred Tax :
Under previous GAAP, deferred tax was accounted using the income statement approach, on the timing differences between the taxable profit and accounting profits for the period. Under IND AS, deferred tax is recognized following balance sheet approach on the temporary differences between the carrying amount of asset or liability in the balance sheet and its tax base. In addition, various transitional adjustments has also lead to recognition of deferred taxes on new temporary differences.Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as deferred tax asset if there is convincing evidence that the company will pay normal Income Tax.
Note :
(i) The mode of valuation of inventories has been stated in significant accounting Policies.
(ii) The cost of inventories recognised as an expense for the year ended 31st March, 2018 was Rs. 1,88,20,92,825/-(for the year ended 31st March, 2017: Rs. 1,77,27,93,287/-)
(iii) All the above inventories are offered as security in respect of working capital loans availed by the company from all the banks.
(iv) There are no inventories expected to be recovered after more than twelve months.
Note :
a) The average credit period of trade receivables varies from 15-45 days.
b) The above does not include any amount due from related parties.
c) The company has used practical expedient by computing the expected credit loss for doubtful trade receivables based on the ageing of receivables, history of recoverability from the customers, credit worthiness of the customers etc.,
d) During the year, the company has recognised loss allowance of Rs.Nil under 12 months expected credit loss model.
Note: During the year 2016-17, the company has sub divided one equity share of Rs.10/- each into 5 equity shares of Rs.2/- each. During the year 2017-18, the company has issued and alloted Nos.85,63,875 of Equity shares as fully paid up bonus shares in the ratio of 1:4 one (1) equity share for every four (4) equity shares held by capitalizing retained earnings.
Rights, Preferences and restrictions attached to Equity shares
The Company has only one class of Equity shares having a face value of Rs.2/- each. Each holder of equity share is entitled to one vote per share on poll and have one vote on show of hands. In the event of liquidation of Company, the equity share holders are eligible to receive the remaining assets of the company in proportion to their shareholding after distribution of payments to preferential creditors.
Out of last five financial years, during the financial year 2017-18, the company has issued bonus shares Nos.85,63,875 in ratio of 1:4 i.e one equity share for every four shares held by capitalizing part of retained earnings. None of the shares were alloted in pursuant to contract without payment being received in cash.
Note :
a) The above amount includes Rs. 60,81,86,602/- being measurement of Land at fair value and the value represents excess of fair value over its carrying amount. The fair value model was adopted for land on 1st time adoption of Ind AS on 1.4.2016 and the difference amount was adjusted against Reserves and surplus.
b) The company subsequent to the adoption of Ind AS, remeasured its land and revalued its buildings on 31.3.2018 and the difference amount of Rs. 503,820,677/- (Net of deferred tax) was recognised under Other comprehensive Income.
Nature of reserves:
a) Revaluation surplus
The revaluation surplus represents revaluation of land by the company as at 1st April, 2016 at its fair market value and the resultant excess amount over its book value was transferred to other equity as Revaluation Surplus.
During the year ended on 31.3.2018, the company keeping in view of changes in fair value of land, remeasured the land at fair value and differential amount was transferred to revaluation surplus through other comprehensive income.
During the year ended on 31.3.2018, subsequent to recognition of buildings at deemed cost on 1st April, 2016, being the date of transition to Ind AS, the company adopted revaluation model for its buildings and consequent to that decision, valued its buildings at their fair value. The resultant increase over its carrying value was transferred to Revaluation surplus through other comprehensive income.
b) General reserve
The general reserve is created by way of tranfer of part of the profits before declaring dividend pursuant to the provisions of Companies Act, 1956. Mandatory transfer to general reserve is not required under the Companies Act, 2013.
c) Retained Earnings
Retained earnings are the profits that the company has earned till date less transfers to general reserves and dividends paid to share holders.
I) HYDEL POWER PLANT :
i) IREDA :
a) Term loan from IREDA is secured by first charge on all the movable and immovable assets of the company's power division of 0.8 MW small hydro project at 16th & 17th branch canal at mile # 3, Nela kondapalli Village & Mandal, Khammam Dist., Telangana. Further guaranteed by six promoter directors of the company and corporate guarantee of two companies.
b) The above loan carry interest @10%.
c) The above loan is repayable in following manner. 2019-20 Rs. 16,19,252/- ; 2020-21: Rs.16,20,418/
d) There are no defaults in repayment of above loan.
ii) ANDHRA BANK :
a) Term loan from Andhra Bank is secured by way of charge on movable and immovable assets of power plant at Nelakondapalli and Bhairavanipalli of Khammam Dist., Telangana., excluding those assets specifically charged to IREDA which are exclusively created out of said loan. The said loan is further guaranteed by two directors in their personal capacities.
b) The above loan carry interest @ 12.25%
c) The above loan is repayable in following manner. 2019-20: Rs.3,11,00,000/
d) There are no defaults in repayment of above loan.
(II) SPINNING UNIT :
i) ANDHRA BANK :
a) Term loans from Andhra Bank are secured on pari passu basis by way of first charge on all the movable and immovable assets of spinning division (all units at Chowdavaram, Guntur Dist.) of the company. Further guaranteed by two directors in their personal capacities.
b) The above loans carry interest @ 12.25%, 11.50%, 11.00%, 11.50%, 11.25%, 12.25% and 10.4%.
c) The above loans are repayable in following manner. 2019-20 Rs.4,98,00,000/- ; 2020-21: Rs.9,93,00,000/- ; 2021-22: Rs.10,82,67,030/- ; 2022-23: Rs.7,89,65,500/- ; 2023-24: Rs.9,28,19,805 ; 2024-25 : Rs.2,01,86,589/- ; 2025-26 : Rs.7,56,39,119/
d) There are no defaults in repayment of above loans.
ii) INDIAN BANK :
a) Term loans from Indian Bank are secured on pari passu basis by way of first charge on all the movable and immovable assets of spinning division (all units at Chowdavaram, Guntur Dist.) of the company. Further guaranteed by two directors in their personal capacities.
b) The above loans carry interest @ 12.70% and 10%.
c) The above loans are repayable in following manner. 2019-20 Rs.5,00,00,000/- ; 2020-21: Rs.6,25,00,000/
d) There are no defaults in repayment of above loans.
III. WEAVING UNIT :
i) INDIAN BANK :
a) Term loans from Indian Bank are secured by exclusive charge on all the movable and immovable assets of weaving division at Kunkupadu Village, Addanki Mandal, Prakasam Dist. of the company. Further guaranteed by two directors in their personal capacities.
b) The above loans carry interest @10.00%, 10.00%, 10.00% and 11.10%.
c) The above loans are repayable in following manner. 2019-20 : Rs.16,80,00,000/-; 2020-21: Rs.21,00,00,000/-; 2021-22 Rs.14,90,00,000/- ; 2022-23 : Rs.18,00,00,000/-; 2023-24: Rs.20,31,95,900/- and 2024-25: Rs.' 6,30,00,000/
d) There are no defaults in repayment of above loans.
IV. DYEING UNIT :
i) BANK OF BARODA :
a) Term loan from Bank of Baroda is secured by way of first charge on fixed assets of Company's Dyeing Unit at Kunkupadu Village, Addanki Mandal, Prakasam Dist. of the company. Further guaranteed by two directors in their personal capacities.
b) The above loan carry interest @11.80%.
c) The above loan is repayable in following manner. 2019-20: Rs.2,00,00,000/- ; 2020-21: Rs.2,75,00,000/and 2021-22 Rs.3,15,00,000/
d) There are no defaults in repayment of above loan.
V. INTEREST FREE SALES TAX LOAN :
a) The Company availed interest free sales tax loan for the period from 1995-96 to 2008-09 aggregating to Rs.2,54,75,992/-. The said loan is repayable within a period of 10/14 years from each year of availment. The Company has to pay an amount of Rs.3,03,900/- as on 31-03-2018 and entire amount is due for payment during financial year 2018-19.
VI. Loans accepted from promoters, directors and their relatives are interest free and are accepted as per the conditions of sanction of term loans from banks and shall not be repayable during the currency of term loans.
EMPLOYEE BENEFITS
a. Defined contribution plans : The Company makes Provident Fund and Employees' State Insurance Scheme contributions which are defined contribution plans, for qualifying employees. The Company recognised Rs.41,53,321/-(Year ended March 31, 2017: Rs.29,56,720/- ) for provident fund contributions, and Rs. 7,00,980/- (Year ended March 31, 2017: Rs. 5,37,453/-) towards Employees' State Insurance Scheme contributions in the Statement of Profit and Loss.
b. Defined benefit plans : The Company provides to the eligible employees defined benefit plans in the form of gratuity. The gratuity plan provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 days' salary payable for each completed year of service. Vesting occurs upon completion of five continuous years of service. The measurement date used for determining retirement benefits for gratuity is March 31.
(VII) Discontinuance Liability
Amount payable upon discontinuance of all employment is Rs.79,62,547/-
(VIII) Best Estimate of Contribution During the Next Year
The Best Estimate Contribution for the Company during the next year would be Rs. Nil , Since the company is not contributing to any fund.
Note : The company received government grants in the nature of export incentives. During the year, the company received incentives under EPCG Schemes and same is utilised against import of capital goods and capitalised to Property, plant and equipment.
The deferred government grant will be recognised in statement of profit and loss over the period in proportion in which depreciation expense on the assets is recognised.
Note : A. Secured
a) Working Capital Loan from Andhra Bank is secured by way of exclusive charge on current assets of spinning division of all units at Chowdavaram Village , Guntur Dt. This loan carries interest @ 9.5%.
b) Working Capital loan from Indian Bank is secured by way of Hypothecation of stocks of cotton, stock in process, Finished Goods, Stores and Spares , Book Debts , Goods in Transit .This loan is also secured by way of Extension of EM/ Second and exclusive charge by way of EM of Land admeasuring AC 25.72 at Weaving Division of the Company at kunkupadu and Hypothecation of Plant& Machinery, Spares and Other assets Acquired ( Existing and Future).This Loan carries interest @ 9%.
c) Working Capital Loan from Bank of Baroda is secured by way of Hypothecation of Stocks and Book debts and further secured by way of personal guarantee of 2 Directors .This Loan carries interest @ 11.80%.
B. Unsecured
a) Loan from Directors is Interest free and no specific terms of repayment were defined for the same , hence categorised as short term.
2. Dividend:
The Board of directors at its meeting held on 28.05.2018 have recommended a dividend Rs. 0.20/ share of face value of Rs. 2/- each (ie 10% dividend) for the financial year ended 31.03.2018. The above is subject to approval at the ensuing Annual general meeting of the company and hence not recognised as a liability.
3. Foreign exchange earnings on exports during the year calculated on FOB basis Rs.89,04,12,531/- (Previous year Rs.41,79,26,429/-
4. FAIR VALUE HIERARCHY
The fair value of financial instruments as referred to above note have been classified into three categories depending on the inputs used in the valuation technique. The hierarchy gives the highest priority to quoted prices in active markets for identified assets or liabilities [Level 1 measurements] and lowest priority to unobservable inputs [Level 3 measurements] The categories used are as follows:
Level 1 : Quoted prices for identified instruments in an active market.
Level 2 : Directly or indirectly observable market inputs, other than Level 1 inputs; and Level 3 : Inputs which are not based on observable market data.
This note provides information about how the Company determines fair values of various financial assets and financial liabilities. Fair value of the Company's financial assets and financial liabilities that are measured at fair value on a recurring basis. Some of the Company's financial assets are measured at the fair value at the end of each reporting period.
The Company has disclosed financial instruments such as cash and cash equivalents, other bank balances, trade receivables, trade payables and Short Term Borrowings at carrying value because their carrying amounts approximate the fair value because of their short term nature. Difference between carrying amounts and fair values of bank borrowings, other financial assets and financial liabilities subsequently measured at amortised cost is not significant in each of the years presented.
5. FINANCIAL RISK MANAGEMENT
The Company financial liabilities comprise mainly of borrowings, trade payables and other payables. The Company financial assets comprise mainly of cash and cash equivalents, trade and other receivables.
The Company's business activities are exposed to a variety of financial risks namely credit risk, liquidity risk and foreign currency risk. The Company's senior management has the overall responsibility for establishing and governing the Company's risk management framework. The Company's risk management policies are established to identify and analyse the risks faced by the Company, to set and monitor appropriate risk limits and controls, periodically review the changes in market conditions and reflect the changes in the policy accordingly. The key risks and mitigating actions are also placed before the Board of Directors of the Company.
A. Credit Risk
Credit risk is the risk of financial loss to the Company if a customer fails to meet its contractual obligation. To manage this, the company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends and analysis of historical bad debts and ageing of the account receivables. Individual risk limits are set accordingly.
Receivables from customers
Concentration of credit risk with respect to trade receivables are limited, due to Company's customer base being large and diverse. All trade receivables are reviewed and assessed for default on a monthly basis.
On historical experience of collecting receivables is that credit risk is low. Hence, trade receivables are considered to be a single class of financial assets.
Other financial assets
The Company maintains exposure in cash and cash equivalents and margin money deposits with banks. The Company's maximum exposure of credit risk as at March 31, 2018, March 31, 2017 and April 1, 2016 is the carrying value of each class of financial assets.
B. Foreign currency risk management
Foreign currency risk is the risk that the Fair value or Future cashflows of an exposure will fluctuate due to changes in foreign currency rates. Exposures can arise on account of various assets and liabilities which are denominated in currencies other than Indian rupee. The Company has not entered into any forward exchange contract to hedge against currency risk. The Company manages currency exposures within prescribed limits. The aim of the Company's approach to management of currency risk is to leave the Company with no material residual risk.
Foreign currency sensitivity analysis
A 5% strengthening of the INR against key currencies to which the Company is exposed would have led to approximately an additional Rs. 38,09,998/- gain in the Statement of Profit and Loss (2016-17: Rs.19,23,043/- Loss ). A 5% weakening of the INR against these currencies would have led to an equal but opposite effect.
C. Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Also, the Company has availed credit limits with banks. The Company maintained a cautious liquidity strategy, with a positive cash balance throughout the year ended March 31, 2018 , March 31, 2017 and on 01st April 2016 . Cash flow from operating activities provides the funds to service the financial liabilities on a day to day basis. The Company regularly maintains the rolling forecasts to ensure it has sufficient cash on an on-going basis to meet operational needs. Any short-term surplus cash generated, over and above the amount required for working capital management and other operational requirements, is retained as cash and cash equivalents (to the extent required) and any excess if any, is invested in interest bearing term deposits.
The company is repaying its borrowings as per the schedule of repayment and no amount was pending for remittance beyond its due date. All the amounts due to trade payables falls due within one year and the company is able to meet its obligations within the due dates. In case of borrowings from banks, the maturity pattern has been given under Note no. 13.
D. Capital Management
Equity share capital and other equity are considered for the purpose of Company's capital management.
The Company manages its capital so as to safeguard its ability to continue as a going concern and to optimise returns to shareholders. The capital structure of the Company is based on Management's judgment of its strategic day-to-day needs with a focus on total equity so as to maintain investor, creditors and market confidence.
The Management and the Board of Directors monitors the return on capital as well as the level of dividends to shareholders. The Company may take appropriate steps in order to maintain, or is necessary, adjust its capital structure.
6. General:
Previous year figures have been regrouped where ever necessary.
7. Paise have been rounded off to the nearest rupee.
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