BACKGROUND

Music Broadcast Limited (“the Company”) was incorporated and domiciled in India on November 4, 1999. The Company is engaged in the business of operating Private FM radio stations through the brand ‘Radio City’. The Company started its operations in India in July, 2001 in Bangalore and operates radio stations in 39 cities across India. During the year ended March 31, 2017, the Company raised money from public by issue of equity shares which were listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) on March 17, 2017.

NOTE 1: CRITICAL ESTIMATES AND JUDGEMENTS

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Company’s accounting policies. This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgements is included in relevant notes together with information about the basis of calculation for each affected line item in the financial statements.

The areas involving critical estimates or judgements are:

a) Estimation of defined benefit obligation - Note 11

b) Loss allowance of trade receivables - Note 22

c) Estimated useful life of tangible and intangible assets -Notes 3,4

d) Contingencies - Note 25 - ‘Management judgement is required for estimating the possible outflow of resources, if any, in respect of contingencies/claim/litigations against the Company as it is not possible to predict the outcome of pending matters with accuracy.

e) Estimation of current tax expense and deferred tax - Note 20

Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Company and that are believed to be reasonable under the circumstances.

Terms and rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs.10 per share. Each shareholder is eligible for one vote per share held. The dividend proposed, if any, by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

In the event of liquidation of the Company, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

(iv) Aggregate number of shares issued for consideration other than cash 3,125,000 equity shares of Rs.10 each fully paid were allotted as consideration on November 24, 2016 pursuant to the scheme of arrangement with Shri Puran Multimedia Limited.

Nature and purpose of reserves

Capital reserve

The profits earned by the Company through a special transaction, which is not available for distribution as dividend to shareholders. The reserve is utilised in accordance with the provisions of the Act.

Securities premium reserve

Securities premium reserve is used to record the premium on issue of shares. The reserve is utilised in accordance with the provisions of the Act.

Debenture redemption reserve

The Company is required to create a debenture redemption reserve out of the profits, which are available for payment of dividend for the purpose of redemption of debentures.

(i) Nature of security:

Secured by a first pari passu charge on the entire book assets, including fixed assets, current assets and investments of the Company with aggregate market value of above Rs.5,000 and also by letter of comfort provided by Jagran Prakashan Limited, in favour of the Company and the debenture trustee. The debentures are listed on BSE Limited.

Series A and B of NCDs amounting to Rs.5,000 and Rs.10,000 respectively were redeemed on respetive due dates of redemption.

(i) Leave obligations

The leave obligations cover the Company’s liability for earned leave.

(ii) Post-employment obligations Gratuity

The Company provides for gratuity for employees in India as per the Payment of Gratuity Act, 1972, except that there is no benefit ceiling. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of gratuity payable on retirement/termination is the employees last drawn basic salary per month computed proportionately for 15 days’ salary multiplied for the number of years of service. The gratuity plan is a funded plan and the Company has taken an insurance policy for the purpose. The Company does not fully fund the liability and maintains a target level of funding to be maintained over a period of time based on estimations of expected gratuity payments.

(iii) Defined contribution plans Provident fund

The Company also has a defined contribution plan. Contributions are made to provident fund in India for employees at the rate of 12% of basic salary as per regulations. The contributions are made to registered provident fund administered by the government. The obligation of the Company is limited to the amount contributed and it has no further contractual or any constructive obligation. The expense recognised during the year towards defined contribution plan is Rs.261.01 (March 31, 2017: Rs.239.02).

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the balance sheet.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.

(vii) Risk exposure

Through its defined benefit plan, the Company is exposed to a number of risks, the most significant of which are detailed below: Asset volatility :

The plan liabilities are calculated using a discount rate set with reference to bond yields; if plan assets underperform this yield, this will create a deficit. These are subject to interest rate risk.

(viii) Defined benefit liability and employer contributions

Funding levels are monitored on an annual basis and the current agreed contribution rate is 12% of the basic salaries

Expected contribution to post-employment benefit plan for the year ending 31 March 2019 are Rs.95.

NOTE 2: FAIR VALUE MEASUREMENTS

The financial instruments are classified in the following categories and are summarised in the table below

a) Fair value through profit and loss (FVTPL)

b) Fair value through other comprehensive income (FVOCI)

c) Amortised cost

(i) Fair value hierarchy: The following table summarises the financial instruments at fair value by valuation methods. The different levels have been defined as follows:-

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes mutual funds that have quoted price. The mutual funds are valued using the closing NAV

Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise 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. There are no financial instruments measured using level 2 valuation techniques.

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

The Company’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. There are no transfers between levels 1, 2 and 3 during the year.

(ii) Valuation technique used to determine fair value

Specific valuation techniques used to value financial instruments include:

- the use of quoted market prices or dealer quotes for similar instruments.

(iii) Valuation process

The finance department of the Company includes a team that performs the valuations of financial assets and liabilities required for financial reporting purposes, including level 3 fair values. This team reports directly to the Chief Financial Officer (CFO). Discussions of valuation processes and results are held between the CFO and the valuation team at least once every three months, in line with the Company’s quarterly reporting periods.

NOTE 3: FINANCIAL RISK MANAGEMENT

The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial performance.

Risk management is carried out under policies approved by the board of directors which provide principles for overall risk management.

(A) Credit risk

The credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers including outstanding receivables.

The Company considers factors such as track record, size of the institution, market reputation and service standards to select the banks/ institutions with which balances are maintained. The Company does not maintain significant cash and deposit balances other than those required for its day to day operations.

The Company extends credit to customers in normal course of business. The Company considers factors such as credit track record in the market and past dealings with the Company for extension of credit to customers. The Company monitors the payment track record of the customers.

The Company considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk, the Company compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportive forwarding-looking information.

A default on a financial asset is when the counterparty fails to make contractual payments when they fall due or when the extended credit period expires. This definition of default is determined by considering the business environment in which the Company operates and other macro-economic factors.

The Company provides for expected credit loss when there is no reasonable expectation of recovery, such as a debtor declaring bankruptcy or failing to engage in a repayment plan with the Company. The Company categorises a provision when a customer fails to make contractual payments as per agreed terms. Where loans or receivables have been impaired, the Company continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognised in profit or loss.

Significant estimates and judgements 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 judgement in making these assumptions and selecting the inputs to the impairment calculation, based on Company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

(B) Liquidity risk

The Company relies on a mix of excess operating cash flows, investments in marketable securities, borrowings and capital infusion to meet its needs for funds. The current committed lines of credit are sufficient to meet its short to medium term expansion needs. The Company monitors rolling forecasts of the liquidity position, cash and cash equivalents on the basis of expected cash flows to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times.

The bank overdraft facilities may be drawn and terminated at any time by the bank without any prior notice. This facility is secured by lien against mutual funds.

(ii) Maturities of financial liabilities

The tables below analyse, the Company’s financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities. There are no derivative financial instruments in respect of reporting periods disclosed under these financial statements.

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) Market risk

(i) Foreign currency risk

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

(a) Foreign currency risk exposure:

The Company’s exposure to foreign currency risk at the end of the reporting period expressed in ‘, are as follows

(b) Sensitivity

The sensitivity of profit or loss to changes in the exchange rates arises mainly from foreign currency denominated financial instruments:

(ii) Cash flow and fair value interest rate risk

The Company’s borrowings are fixed rate borrowings and are carried at amortised cost. They are, therefore, not subject to interest rate risk as defined in Ind AS 107, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.

Interest rate risk exposure

The exposure of the Company’s borrowing to interest rate changes at the end of the reporting period are as follows:

NOTE 4: CAPITAL MANAGEMENT Risk management

The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for stakeholders. The Company also proposes to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust any dividend payments, return capital to shareholders or issue new shares.

Consistent with the industry standards the Company monitors capital on the basis of debt to equity ratio where debt comprises of total borrowings, net off cash and cash equivalents and equity comprises of equity share capital, reserves and surplus and other reserves.

The Debt to Equity position at each reporting date is summarised below:

(i) Loan covenants

Under the terms of borrowing facility, the Company is required to maintain security cover at a minimum of 1.0x until the NCD holders are repaid.

The Company has complied with this covenent throughout the reporting period.

(h) Terms and conditions

The sales, purchases and other transactions with related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the year end are unsecured and interest free and settlement occurs in cash except barter balances, which are settled on receipt/provision of service by the parties. For the year ended March 31, 2018, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (March 31, 2017: ‘ Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

NOTE 5: CONTINGENT LIABILITIES

a) The Company has received certain claims towards royalty for use of sound recordings over its radio stations amounting to Rs.429.17 (March 31, 2017: Rs.517.04). Out of the above, the Company has paid Rs.200 (March 31, 2017: Nil) under protest (refer note 8). Based on the external legal counsel advice, the Company believes that more likely than not no outflow of resources will be required.

b) In respect of defamation case, it is either not quantifiable or cannot be reliably estimated. Hence the same has not be disclosed. NOTE 26: (A) CAPITAL COMMITMENTS

Capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows:

Event occuring after the reporing period

The Board of Directors at their meeting held on April 23, 2018 approved the acquisition of Radio Business Undertaking of Ananda Offset Private Limited, engaged in Radio Broadcasting Business under the brand name “Friends 91.9 FM” in Kolkata, through a slump sale, subject to receipt of approval from Ministry of Information and Broadcasting, for a cash consideration of Rs.3,500 lakhs (minus) Net External Debt (plus/minus) adjustment of normalised working capital of Rs.924 lakhs and actual working capital.

(b) Leases

The Company is obligated under non-cancellable leases for offices renewable on a periodic basis at the option of lessor and lessee. The leases have varying terms and on renewal, the terms of escalation clauses of the leases are re-negotiated.

NOTE 6 UTILISATION OF INITIAL PUBLIC OFFERING (‘IPO’) PROCEEDS

A Amount utilised for share issue expenses

Amount utilised for share issue expenses Rs.1,988.63 includes payments made to merchant bankers, attorneys, consultants and registrars towards IPO of shares.

B Utilisation of funds raised through fresh issue of equity shares pursuant to IPO is as follows:

Specified Bank Notes (SBNs) means the bank notes of denominations of the existing series of the value of five hundred rupees and one thousand rupees and one thousand rupees as defined under the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs no. S.O 3407(E), dated November 8, 2016.

NOTE 7 SEGMENT INFORMATION

The Company is engaged primarily in the business of operating private FM radio stations constitutes a single reportable segment. Revenues of approximately Rs.4,002.09 (March 31, 2017: Rs.3,567.58) are derived from a single external customer.