Post on 02-Apr-2018
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Accounting Standards
A Financial Accounting Project
MET-PGDM
Prepared by
Nishant ShahPGD12053Kunal Gala
Samir
Anil Visave
Sumit Dev
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Acknowledgement
We take this opportunity to express our profound gratitude and deep regards to our guide
(Professor/Mentor Faculty Name) for his exemplary guidance, monitoring and constant
encouragement throughout the course of this thesis.
The help and guidance given by him time to time shall carry us a long way in the journey of
life on which we are about to embark.
We would also like to thank MET Management Centre for their constant support and
encouragement to undertake this project. And finally, doing this project has indeed been a
very enriching and a great learning experience for us and will definitely help us in our futureendeavours.
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INTRODUCTION
Financial statements are prepared to summarize the end-result of all the business activities by
an enterprise during an accounting period in monetary terms. These business activities vary
from one enterprise to other. To compare the financial statements of various reporting
enterprises poses some difficulties because of the divergence in the methods and principles
adopted by these enterprises in preparing their financial statements. In order to make these
methods and principles uniform and comparable to the extent possiblestandards are
evolved.
ACCOUNTING STANDARDS & BASICS
Accounting Standards are the statements of code of practice of the regulatory accounting
bodies that are to be observed in the preparation and presentation of financial statements. In
layman terms, accounting standards are the written documents issued by the expert institutes
or other regulatory bodies covering various aspects of measurement, treatment, presentation
and disclosure of accounting transactions.
Objectives of Accounting Standards
The basic objective of Accounting Standards is to remove variations in the treatment of
several accounting aspects and to bring about standardization in presentation. They intent to
harmonize the diverse accounting policies followed in the preparation and presentation of
financial statements by different reporting enterprises so as to facilitate intra-firm and inter-
firm comparison.
Authority to issue Accounting Standards in IndiaThe Institute of Chartered Accountants of India (ICAI) recognizing the need to harmonize the
diverse accounting policies and practices at present in use in India constituted Accounting
Standards Board (ASB) on April 21, 1977. The main role of ASB is to formulate Accounting
Standards from time to time.
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Duty of Statutory Auditor for Compliance with Accounting Standards
Section 211(3A) of Companies Act, 1956 provides that every profit and loss account and
balance sheet of the company shall comply with the accounting standards. The statutory
auditors are required to make qualification in their report in case any item is treated
differently from the prescribed Accounting Standard. However, while qualifying, they should
consider the materiality of the relevant item. In addition to this Section 227(3)(d) of
Companies Act, 1956 requires an auditor to report whether, in his opinion, the profit and loss
account and balance sheet are complied with the accounting standards referred to in Section
211(3C) of Companies Act, 1956.
Level of Companies
In all 29 Accounting Standards have been prescribed. However their applicability is
dependent on its sizeLevel I / II / III company. The following table lists out the Accounting
Standards and its applicability.
A) Level I Company:Enterprises, which fall in any one or more of the following categories, at any time during the
accounting period, are classified as Level I enterprises:
i) Enterprises whose equity or debt securities are listed whether in India or outside India.
ii) Enterprises, which are in the process of listing their equity or debt securities as evidenced
by the board of directors resolution in this regard.
iii) Banks including co-operative banks.
iv) Financial Institutions
v) Enterprises carrying on insurance business.
vi) All commercial, industrial and business reporting enterprises, whose turnover for the
immediately preceding accounting period on the basis of audited financial statements exceeds
Rs. 500 million. Turnover does not include other income.
vii) All commercial, industrial and business reporting enterprises having borrowings,
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including public deposits, in excess of Rs. 100 million at any time during the accounting
period.
viii) Holding and subsidiary enterprises of any one of the above at any time during the
accounting period.
B) Level II Company:
Enterprises, which are, not Level I enterprises but fall in any one or more of the following
categories are classified as Level II enterprises
i) All commercial, industrial and business reporting enterprises, whose turnover for the
immediately preceding accounting period on the basis of audited financial statements exceeds
Rs. 4 million, but does not exceed Rs. 500 million. Turnover does not include other income.
ii) All commercial, industrial and business reporting enterprises having borrowing, including
public deposits, in excess of Rs. 10 million but not in excess of Rs. 100 million at any time
during the accounting period.
iii) Holding and subsidiary enterprises of any one of the above at any time during the
accounting period.
C) Level III Company:
Enterprises, which are not covered under Level I and Level II, are considered as Level III
enterprises.Applicability - Level II and Level III enterprises are considered as SMEs.Level I
enterprises are required to comply fully with all the accounting standards.
No relaxation is given to Level II and Level III enterprises in respect of recognition and
measurement principles. Relaxations are provided with regard to disclosure requirements.
Accordingly, Level II and Level III enterprises are fully exempted from certain accounting
standards, which mainly lay down disclosure requirements. In respect of certain other
accounting standards, which lay down recognition, measurement and disclosure
requirements, relaxations from certain disclosure requirements are given.
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LIST OF ACCOUNTING STANDARDS
Sr. No. Particulars Applicability
1 Disclosure of Accounting Policies I, II, III
2 Valuation of Inventories I, II, III
3 Cash Flow Statements I
4Contingencies and Events Occurring After
the Balance Sheet Date
I, II, III
5
Net Profit or Loss for the period, Prior
period Items and Changes in Accounting
Policies.
I, II, III
6 Depreciation Accounting I, II, III
7 Construction Contracts I, II, III
8
Accounting for Research and
Development (This standard has been
withdrawn w.e.f. 01.04.2004 for all levels
of enterprises and AS 26 is applicable)
As withdrawn
9 Revenue recognition I, II, III
10 Accounting for Fixed Assets I, II, III
11The Effect of Changes in Foreign
Exchange RatesI, II, III
12 Accounting for Government Grants I, II, III
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13 Accounting for Investments I, II, III
14 Accounting for Amalgamations I, II, III
15Accounting for Retirement Benefits in the
Financial Statements of EmployersI, II, III
16 Borrowing Costs I, II, III
17 Segment Reporting
I
II-with modification
III- with modification
18 Related Party Disclosures
I
II-with modification
III- with modification
19 Leases
I
II-with modificationIII- with modification
20 Earning Per Share
I
II-with modification
III- with modification
21 Consolidated Financial Statements I
22 Accounting for Taxes on Income I,II,III
23Accounting for Investments in Associates
in Consolidated Financial StatementsI
24 Discontinuing Operations I
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25 Interim Financial Reporting I
26 Intangible Assets I,II,III
27Financial Reporting of Interests in Joint
Ventures
I-with clarification
II-with clarification
III-with clarification
28 Impairment of Assets
I
II-with modification
III-with modification
29Provisions, Contingent Liabilities and
Contingent AssetI
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DEFINITIONS & MEANING
Disclosure of Accounting Policies: Accounting Policies refer to specific accounting
principles and the method of applying those principles adopted by the enterprises inpreparation and presentation of the financial statements.
Valuation of Inventories: The objective of this standard is to formulate the method of
computation of cost of inventories / stock, determine the value of closing stock / inventory at
which the inventory is to be shown in balance sheet till it is not sold and recognized as
revenue.
Cash Flow Statements: Cash flow statement is additional information to user of financial
statement. This statement exhibits the flow of incoming and outgoing cash. This statement
assesses the ability of the enterprise to generate cash and to utilize the cash. This statement is
one of the tools for assessing the liquidity and solvency of the enterprise.
Contingencies and Events occurring after the balance sheet date: In preparing financial
statement of a particular enterprise, accounting is done by following accrual basis of
accounting and prudent accounting policies to calculate the profit or loss for the year and to
recognize assets and liabilities in balance sheet. While following the prudent accounting
policies, the provision is made for all known liabilities and losses even for those liabilities /
events, which are probable. Professional judgement is required to classify the likelihood of
the future events occurring and, therefore, the question of contingencies and their accounting
arises.
Objective of this standard is to prescribe the accounting of contingencies and the events,
which take place after the balance sheet date but before approval of balance sheet by Board of
Directors. The Accounting Standard deals with Contingencies and Events occurring after the
balance sheet date.
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Net Profit or Loss for the Period, Prior Period Items and change in Accounting Policies
The objective of this accounting standard is to prescribe the criteria for certain items in the
profit and loss account so that comparability of the financial statement can be enhanced.
Profit and loss account being a period statement covers the items of the income andexpenditure of the particular period. This accounting standard also deals with change in
accounting policy, accounting estimates and extraordinary items.
Depreciation Accounting: It is a measure of wearing out, consumption or other loss of value
of a depreciable asset arising from use, passage of time. Depreciation is nothing but
distribution of total cost of asset over its useful life.
Construction Contracts: Accounting for long term construction contracts involves question
as to when revenue should be recognized and how to measure the revenue in the books of
contractor. As the period of construction contract is long, work of construction starts in one
year and is completed in another year or after 4-5 years or so. Therefore question arises how
the profit or loss of construction contract by contractor should be determined. There may be
following two ways to determine profit or loss: On year-to-year basis based on percentage ofcompletion or On completion of the contract.
Revenue Recognition: The standard explains as to when the revenue should be recognized in
profit and loss account and also states the circumstances in which revenue recognition can be
postponed. Revenue means gross inflow of cash, receivable or other consideration arising in
the course of ordinary activities of an enterprise such as:- The sale of goods, Rendering of
Services, and Use of enterprises resources by other yielding interest, dividend and royalties.In other words, revenue is a charge made to customers / clients for goods supplied and
services rendered.
Accounting for Fixed Assets: It is an asset, which is:- Held with intention of being used for
the purpose of producing or providing goods and services. Not held for sale in the normal
course of business. Expected to be used for more than one accounting period.
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The Effects of changes in Foreign Exchange Rates: Effect of Changes in Foreign
Exchange Rate shall be applicable in Respect of Accounting Period commencing on or after
01-04-2004 and is mandatory in nature. This accounting Standard applicable to accounting
for transaction in Foreign currencies in translating in the Financial Statement Of foreign
operation Integral as well as non- integral and also accounting for forward exchange. Effect
of Changes in Foreign Exchange Rate, an enterprises should disclose following aspects:
Amount Exchange Difference included in Net profit or Loss; Amount accumulated in foreign exchange translation reserve; Reconciliation of opening and closing balance of Foreign Exchange translation
reserve;
Accounting for Government Grants: Government Grants are assistance by the Govt. in the
form of cash or kind to an enterprise in return for past or future compliance with certain
conditions. Government assistance, which cannot be valued reasonably, is excluded from
Govt. grants,. Those transactions with Government, which cannot be distinguished from the
normal trading transactions of the enterprise, are not considered as Government grants.
Accounting for Investments: It is the assets held for earning income by way of dividend,
interest and rentals, for capital appreciation or for other benefits.
Accounting for Amalgamation: This accounting standard deals with accounting to be made
in books of Transferee company in case of amalgamation. This accounting standard is not
applicable to cases of acquisition of shares when one company acquires / purchases the shareof another company and the acquired company is not dissolved and its separate entity
continues to exist. The standard is applicable when acquired company is dissolved and
separate entity ceased exist and purchasing company continues with the business of acquired
company
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Employee Benefits: Accounting Standard has been revised by ICAI and is applicable in
respect of accounting periods commencing on or after 1st April 2006. The scope of the
accounting standard has been enlarged, to include accounting for short-term employee
benefits and termination benefits.
Borrowing Costs : Enterprises are borrowing the funds to acquire, build and install the fixed
assets and other assets, these assets take time to make them useable or saleable, therefore the
enterprises incur the interest (cost on borrowing) to acquire and build these assets. The
objective of the Accounting Standard is to prescribe the treatment of borrowing cost (interest
+ other cost) in accounting, whether the cost of borrowing should be included in the cost of
assets or not.
Segment Reporting: An enterprise needs in multiple products/services and operates in
different geographical areas. Multiple products / services and their operations in different
geographical areas are exposed to different risks and returns. Information about multiple
products / services and their operation in different geographical areas are called segment
information. Such information is used to assess the risk and return of multiple
products/services and their operation in different geographical areas. Disclosure of suchinformation is called segment reporting.
Related Party Disclosure : Sometimes business transactions between related parties lose the
feature and character of the arms length transactions. Related party relationship affects the
volume and decision of business of one enterprise for the benefit of the other enterprise.
Hence disclosure of related party transaction is essential for proper understanding of financial
performance and financial position of enterprise.
Accounting for leases: Lease is an arrangement by which the lesser gives the right to use an
asset for given period of time to the lessee on rent. It involves two parties, a lessor and a
lessee and an asset which is to be leased. The lessor who owns the asset agrees to allow the
lessee to use it for a specified period of time in return of periodic rent payments.
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Earnings Per Share: Earnings per share (EPS) is a financial ratio that gives the information
regarding earning available to each equity share. It is very important financial ratio for
assessing the state of market price of share. This accounting standard gives computational
methodology for the determination and presentation of earning per share, which will improvethe comparison of EPS. The statement is applicable to the enterprise whose equity shares or
potential equity shares are listed in stock exchange.
Consolidated Financial Statements: The objective of this statement is to present financial
statements of a parent and its subsidiary as a single economic entity. In other words the
holding company and its subsidiary are treated as one entity for the preparation of these
consolidated financial statements. Consolidated profit/loss account and consolidated balance
sheet are prepared for disclosing the total profit/loss of the group and total assets andliabilities of the group. As per this accounting standard, the consolidated balance sheet if
prepared should be prepared in the manner prescribed by this statement.
Accounting for Taxes on Income: This accounting standard prescribes the accounting
treatment for taxes on income. Traditionally, amount of tax payable is determined on the
profit/loss computed as per income tax laws. According to this accounting standard, tax on
income is determined on the principle of accrual concept. According to this concept, taxshould be accounted in the period in which corresponding revenue and expenses are
accounted. In simple words tax shall be accounted on accrual basis; not on liability to pay
basis.
Accounting for Investments in Associates in consolidated financial statements: The
accounting standard was formulated with the objective to set out the principles and
procedures for recognizing the investment in associates in the consolidated financialstatements of the investor, so that the effect of investment in associates on the financial
position of the group is indicated.
Discontinuing Operations: The objective of this standard is to establish principles for
reporting information about discontinuing operations. This standard covers "discontinuing
operations" rather than "discontinued operation". The focus of the disclosure of the
Information is about the operations which the enterprise plans to discontinue rather than
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disclosing on the operations which are already discontinued. However, the disclosure about
discontinued operation is also covered by this standard.
Interim Financial Reporting (IFR): Interim financial reporting is the reporting for periodsof less than a year generally for a period of 3 months. As per clause 41 of listing agreement
the companies are required to publish the financial results on a quarterly basis.
Intangible Assets : An Intangible Asset is an Identifiable non-monetary Asset without
physical substance held for use in the production or supplying of goods or services for rentals
to others or for administrative purpose
Financial Reporting of Interest in joint ventures: Joint Venture is defined as a contractual
arrangement whereby two or more parties carry on an economic activity under 'joint control'.
Control is the power to govern the financial and operating policies of an economic activity so
as to obtain benefit from it. 'Joint control' is the contractually agreed sharing of control over
economic activity.
Impairment of Assets: The dictionary meaning of 'impairment of asset' is weakening in
value of asset. In other words when the value of asset decreases, it may be called impairment
of an asset. As per AS-28 asset is said to be impaired when carrying amount of asset is more
than its recoverable amount.
Provisions, Contingent Liabilities And Contingent Assets: Objective of this standard is to
prescribe the accounting for Provisions, Contingent Liabilities, Contingent Assets, Provision
for restructuring cost.
Provision: It is a liability, which can be measured only by using a substantial degree of
estimation.
Liability: A liability is present obligation of the enterprise arising from past events the
settlement of which is expected to result in an outflow from the enterprise of resources
embodying economic benefits.
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Financial Instrument: Recognition and Measurement, issued by The Council of the Institute
of Chartered Accountants of India, comes into effect in respect of Accounting periods
commencing on or after 1-4-2009 and will be recommendatory in nature for An initial period
of two years. This Accounting Standard will become mandatory in respect of Accountingperiods commencing on or after 1-4-2011 for all commercial, industrial and business Entities
except to a Small and Medium-sized Entity. The objective of this Standard is to establish
principles for recognizing and measuring Financial assets, financial liabilities and some
contracts to buy or sell non-financial items. Requirements for presenting information about
financial instruments are in Accounting Standard.
Financial Instrument Presentation: The objective of this Standard is to establish principlesfor presenting financial instruments as liabilities or equity and for offsetting financial assets
and financial liabilities. It applies to the classification of financial instruments, from the
perspective of the issuer, into financial assets, financial liabilities and equity instruments; the
classification of related interest, dividends, losses and gains; and the circumstances in which
financial assets and financial liabilities should be offset. The principles in this Standard
complement the principles for recognising and measuring financial assets and financial
liabilities in Accounting Standard Financial Instruments.
Financial Instruments, Disclosures and Limited revision to accounting standards: The
objective of this Standard is to require entities to provide disclosures in their financial
statements that enable users to evaluate:
The significance of financial instruments for the entitys financial position andperformance; and
The nature and extent of risks arising from financial instruments to which the entity isexposed during the period and at the reporting date, and how the entity manages those
risks.
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NESTLE INDIA
Nestl India is a subsidiary of Nestl S.A. of Switzerland. With seven factories and a large
number of co-packers, Nestl India is a vibrant Company that provides consumers in India
with products of global standards and is committed to long-term sustainable growth and
shareholder satisfaction.
The Company insists on honesty, integrity and fairness in all aspects of its business and
expects the same in its relationships. This has earned it the trust and respect of every strata of
society that it comes in contact with and is acknowledged amongst India's 'Most Respected
Companies' and amongst the 'Top Wealth Creators of India'.
Nestl's relationship with India dates back to 1912, when it began trading as The Nestl
Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finishedproducts in the Indian market.
After India's independence in 1947, the economic policies of the Indian Government
emphasized the need for local production. Nestl responded to India's aspirations by forming
a company in India and set up its first factory in 1961 at Moga, Punjab, where the
Government wanted Nestl to develop the milk economy. Progress in Moga required the
introduction of Nestl's Agricultural Services to educate, advice and help the farmer in a
variety of aspects. From increasing the milk yield of their cows through improved dairyfarming methods, to irrigation, scientific crop management practices and helping with the
procurement of bank loans.
Nestl set up milk collection centers that would not only ensure prompt collection and pay
fair prices, but also instill amongst the community, a confidence in the dairy business.
Progress involved the creation of prosperity on an on-going and sustainable basis that has
resulted in not just the transformation of Moga into a prosperous and vibrant milk district
today, but a thriving hub of industrial activity, as well.
Nestl has been a partner in India's growth for over nine decades now and has built a very
special relationship of trust and commitment with the people of India. The Company's
activities in India have facilitated direct and indirect employment and provides livelihood to
about one million people including farmers, suppliers of packaging materials, services and
other goods.
The Company continuously focuses its efforts to better understand the changing lifestyles of
India and anticipate consumer needs in order to provide Taste, Nutrition, Health and
Wellness through its product offerings. The culture of innovation and renovation within the
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Company and access to the Nestl Group's proprietary technology/Brands expertise and the
extensive centralized Research and Development facilities gives it a distinct advantage in
these efforts. It helps the Company to create value that can be sustained over the long term by
offering consumers a wide variety of high quality, safe food products at affordable prices.
Nestl India is a responsible organization and facilitates initiatives that help to improve the
quality of life in the communities where it operates.
After nearly a century-old association with the country, today, Nestl India has presence
across India with 7 manufacturing facilities and 4 branch offices spread across the region.
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Accounting Convention
The financial statements are prepared under the historical cost convention, in accordance with
applicable mandatory accounting standards prescribed under the Companies (Accounting
Standards) Rules, 2006 and the relevant provisions of the Companies Act, 1956.
Sales
Sale of goods is recognised at the point of dispatch to the customer. Sales include excise duty
but exclude value added tax/sales tax. In order to comply with Accounting Standards on
Revenue Recognition (AS- 9), gross sales (including excise duty) and net sales (excluding
excise duty) is disclosed in the profit and loss account.
Inventories
Stores and spare parts are stated at cost or under. Stock-in-trade is valued at cost or net
realisable value, whichever is lower. The bases of determining cost for various categories of
inventories are as follows:
Raw and packing materials: First-in-first out
Stores and spare parts: Weighted average
Work-in-progress and finished goods: Material cost plus appropriate share of production
overheads and excise duty, wherever applicable.
Employee Benefits
Contributions to the provident fund and provision for pension and gratuity are charged to
revenue every year. Provision for pension is made on the basis of an actuarial valuation
carried out by an independent actuary as at the year-end. Provision for gratuity is made on the
basis of actuarial valuation after taking into account the net result of gratuity trust fund.Recognition of other long term employee benefits, comprising largely of long service awards
and compensated absences, is done on a discounted, accrual basis over the expected service
period until the benefits become vested. Actuarial gains and losses are recognised
immediately in the profit and loss account.
Liability on account of short term employee benefits, including performance incentives, is
recognised on an undiscounted, accrual basis during the period when the employee rendersservice / vesting period of the benefit.
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Depreciation / Amortisation
Depreciation is provided as per the straight-line method at rates provided in Schedule XIV to
the Companies Act, 1956, except for the following
Classes of fixed assets, where the useful life has been estimated as under: -
Information technology equipment: 3 years
Furniture and fixtures and Vehicles: 5 years
Leasehold land and improvements: Lease period
Intangible fixed assets: Over their estimated economic life.
Impairment of Fixed Assets
Regular review is done to determine whether there is any indication of impairment of the
carrying amount of the companys fixed assets. If any indication exists, an assets recoverable
amount is estimated. An impairment loss is recognised whenever the carrying amount of an
asset exceeds its recoverable amount. The recoverable amount is the greater of the net selling
price and value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value based on an appropriate discount factor.
Reversal of impairment losses recognised in prior years is recorded when there is an
indication that the impairment losses recognised for the asset no longer exist or have
decreased. However, the increase in carrying amount of an asset due to reversal of an
impairment loss is recognised to the extent it does not exceed the carrying amount that
would have been determined (net of depreciation) had no impairment loss been recognised
for the asset in prior years.
Taxation
The provision for taxation for the period comprises the residual tax
liability for the assessment year 2011-2012 relevant to the period
April 1, 2010 to March 31, 2011 and the liability, which has accrued on
the profit for the period April 1, 2011 to December 31, 2011 under the
provisions of the Indian Income tax Act, 1961.
Deferred tax is recognised, subject to the consideration of prudence,on timing difference, being the difference between taxable income and
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accounting income that originate in one period and are capable of
reversal in one or more subsequent periods.
CONTINGENT LIABILITIES AND PROVISIONS
Contingent liabilities are disclosed after a careful evaluation of the
facts and legal aspects of the matter involved, in line with the
provisions of Accounting Standard (AS) 29. Provisions are recognised
when the Company has a legal/constructive obligation and on management
judgement as a result of a past event, for which it is probable that a
cash outflow may be required and a reliable estimate can be made of the
amount of the obligation.
FIXED ASSETS
Fixed assets are stated at cost (net of CENVAT, wherever applicable)
less accumulated depreciation. Cost is inclusive of freight, duties,
levies and any directly attributable cost of bringing the assets to
their working condition for intended use.
(Also refer to accounting policies on Borrowing Costs and Foreign
Exchange Transactions).
INVESTMENTS
Investments are classified into current and long-term investments.Current investments are stated at the lower of cost or fair value.
Long-term investments are stated at cost.
FOREIGN EXCHANGE TRANSACTIONS
Transactions in foreign currency are recorded on initial recognition at
the exchange rate prevailing on the date of the transaction.
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costs are charged to the profit and loss account.
Notes to Accounts
Notes to Accounts Year End : Dec '11
1. Total impairment loss on fixed assets for the year ended December
31, 2011 is Gross Rs. 103,867 thousands, net of deferred taxes Rs.
70,167 thousands (Previous Year Rs. Nil). Impairment loss relates to
various items of plant and machinery that have been brought down to
their recoverable values upon evaluation of future economic benefits
from their use.
2. The Company has created a contingency provision of Rs. 492,637
thousands (previous year Rs. 433,375 thousands) for various
contingencies resulting mainly from matters, which are under
litigation/dispute and other uncertainties requiring management
judgement. The Company has also reversed/utilised contingency provision
of Rs. 23,600 thousands (previous year Rs. 249,696 thousands) due to
the satisfactory settlement of certain disputes for which provision was
no longer required. The details of class-wise provisions are given
below :
Notes:
(a) Litigations and related disputes - represents estimates made mainly
for probable claims arising out of litigations / disputes pending with
authorities under various statutes (i.e. Income Tax, Excise Duty,
Service Tax, Sales and Purchase Tax etc.). The probability and the
timing of the outflow with regard to these matters depends on the
ultimate settlement /conclusion with the relevant authorities.
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(b) Others - include estimates made for products sold by the Company
which are covered under free replacement warranty on becoming unfit for
human consumption during the prescribed shelf life, investments held by
the employee benefit trusts (in previous year) and other uncertainties
requiring management judgement. The timing and probability of outflow
with regard to these matters will depend on the external environment
and the consequent decision /conclusion by the Management.
(a) Licensed/IEM Capacity include registered capacities of industrial
activities existing prior to the Industries (Development and
Regulation) Act, 1951 and capacities as shown in the Industrial
Entrepreneurs Memorandum (IEM) filed with the Government pursuant to
Notification no. 477(E) dtd. 27-07-1991 under the said Act.
(b) The installed capacities are as certified by the management on
which the auditors have relied. These are based on maximum utilisation
of the plant and machinery taking into account production efficiencies,
maintenance of plant and machinery, shifts, seasonality etc.
(c) The products are manufactured in integrated plants as certified by
the Management on which the auditors have relied. Hence, in respect of
all the above class of goods, individual registered/installed
capacities given can vary depending on the product mix.
(d) Actual production and purchases include purchase of 22,249 MT(22,399 MT) in Milk Products and Nutrition, 208 MT (231 MT) in
Beverages, 12 MT (Nil MT) in Prepared dishes and cooking aids, 222 MT
(218 MT) in Chocolate and Confectionery. The total value of these
purchases is Rs. 1,148,033 thousands (Rs. 957,038 thousands).
(e) Previous year''s figures are indicated in brackets.
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3. Segment reporting
Based on the guiding principles given in Accounting Standard on
''Segment Reporting'' (AS-17), the Company''s primary business segment is
Food. The food business incorporates product groups viz. Milk Products
and Nutrition, Beverages, Prepared dishes and cooking aids, Chocolates
and Confectionery, which mainly have similar risks and returns. As the
Company''s business activity falls within a single primary business
segment the disclosure requirements of AS -17 in this regard are not
applicable.
4. Related party disclosures under Accounting Standard-18
Holding companies: Nestl S.A. and Maggi Enterprises Limited
Fellow subsidiaries are disclosed to comply with para 3 (a) of
Accounting Standard -18 on Related Party Disclosures albeit these do
not control or exercise significant influence on Nestl India Limited:
Belte, Italiana Spa, Casa Buitoni Srl, CPW Philippines, Inc., CPW S.A.,
Nestec S.A., Nestec York Ltd, Nestl (China) Ltd., Nestl (South
Africa) (Pty) Ltd, Nestl (Thai) Ltd., Nestl Asean (Malaysia) Sdn Bhd,
Nestl Australia Ltd, Nestl Bangladesh Ltd., Nestl Belgilux SA,
Nestl Brasil Ltda, Nestl Business Services AOA, Inc., Nestl Canada
Inc, Nestl Central And West Africa, Nestl Cesko s.r.o., NESTL CHILE
S.A., Nestl Cote d''Ivoire, Nestl Deutschland AG, Nestl DongguanLtd., Nestl Dubai Manufacturing LLC, Nestl Egypt S.A.E., Nestl
Equatorial African Region, Nestl Espana, S.A., Nestl Foods Kenya Ltd,
Nestl France, Nestl Ghana Limited, Nestl Hong Kong Limited, Nestl
Hungaria Kft., Nestl International Travel Retail, Nestl Iran (Private
Joint Stock Company), Nestl Italiana S.p.A., Nestl Japan Ltd, Nestl
Korea Ltd., Nestl Kuban LLC, Nestl Lanka PLC, Nestl Manufacturing
(Malaysia), Nestl Manufacturing Ltd., Nestl Maroc S.A., Nestl
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Mexico, S.A. de C.V., Nestl Middle East FZE, Nestl Nederland B.V.,
Nestl Nespresso SA, Nestl New Zealand Ltd, Nestl Nigeria Plc, Nestl
Operational Services Worldwide SA, Nestl Pakistan Ltd., Nestl
Philippines, Inc., Nestl Polska S.A., Nestl Product Technology
Centre, Nestl Products Sdn Bhd, Nestl Ptc Marysville, Nestl Purina
Petcare Company, Nestl Purina Petcare France, Nestl Purina Petcare
Tianjin Ltd., Nestl Qingdao Limited, Nestl Quality Assurance Center,
Nestl R&D Center Inc, Nestl R&D Center Shanghai Ltd., Nestl R&D
Centre (Pte) Ltd, Nestl R&D Centre Beijing Limited, Nestl R&D Centre
India Private Ltd, Nestl ROH (Thailand) Ltd., Nestl Romania SRL,
Nestl S E P N, Nestl Shanghai Ltd., Nestl Singapore (Pte) Ltd,
Nestl Suisse S.A., Nestl Syrie S.A., Nestl Taiwan Limited, Nestl
Tianjin Ltd., Nestl Turkiye Gida Sanayi A.S., Nestl UK Limited,
Nestl USA Inc, Nestl Vietnam Ltd., Nestl Waters Management &
Technology, Nestl Zimbabwe (Private) Ltd, Nestrade S.A., Osem
Investments Ltd., Osem UK Ltd, PT Nestl Indofood Citarasa, PT Nestl
Indonesia, Quality Coffee Products Ltd., R&D - Singapore, San
Pellegrino S.p.A., Saudi Food Industries Limited Liability Company,
Servcom S.A.
Whole time directors: Antonio Helio Waszyk, Chairman & Managing
Director, Shobinder Duggal, Director - Finance & Control, Christian
Schmid, Director - Technical
Notes:
i. Balance payable to whole time directors as on December 31, 2011 is
Rs. 22,506 thousands (Previous year Rs. 19,808 thousands).
ii. Other transactions with Key Managerial Personnel during the year:
Lease rentals paid (included in (k) above) (at market rates) during the
year: Rs. 2,040 thousands (previous year Rs. 1,800 thousands).
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Balance outstanding against loans disbursed under Company''s employee
loan schemes for its employees includes Rs. 544 thousands (previous
year Rs. 919 thousands). Transactions during the year in this employee
loan account: repayments Rs. 375 thousands (previous year Rs. 156
thousands).
5. On the basis of confirmation obtained from suppliers who have
registered themselves under the Micro Small Medium Enterprise
Development Act, 2006 (MSMED Act, 2006) and based on the information
available with the Company, the balance due to Micro & Small
Enterprises as defined under the MSMED Act, 2006 is Rs. 44,805
thousands (previous year Rs. 52,451 thousands). Further, no interest
during the year has been paid or payable under the terms of the MSMED
Act, 2006.
6. Employee Plans
a) The Company makes contribution towards employees'' provident fund and
employees'' state insurance plan scheme. Under the rules of these
schemes, the Company is required to contribute a specified percentage
of payroll costs. The Company during the year recognised Rs. 181,046
thousands (previous year Rs. 156,180 thousands) as expense towards
contributions to these plans.
Out of the total contribution, made for employees'' provident fund, Rs.89,156 thousands (previous year Rs. 77,540 thousands) is made to the
Nestl India Limited Employees Provident Fund Trust while the remainder
contribution is made to provident fund plan operated by the Regional
Provident Fund Commissioner. The outstanding balance payable as at
December 31, 2011 to the Trust is Rs. 16,787 thousands (previous year
Rs. 14,078 thousands) on account of Company''s and employees
contribution for the month of December 2011. The same has since been
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paid on 05.01.2012.
The total plan liabilities under the Nestl India Limited Employees
Provident Fund Trust as at December 31, 2011 as per the unaudited
financial statements for the year then ended is Rs. 1,426,379 thousands
(previous year Rs. 1,202,164 thousands) as against total plan assets of
Rs. 1,416,620 thousands (previous year Rs. 1,198,580 thousands). The
funds of the Trust have been invested under various securities as
prescribed under the rules of the Trust.
b) Gratuity scheme - This is a funded defined benefit plan for
qualifying employees. The Company makes contributions to the Nestl
India Limited Employees'' Gratuity Trust Fund. The scheme provides for a
lump sum payment to vested employees at retirement, death while in
employment or on termination of employment. Vesting occurs upon
completion of five years of service.
c) Pension scheme - The Company operates a non funded pension defined
benefit scheme for its employees that qualify under the scheme. The
scheme is discretionary in nature.
The estimates of future salary increases, considered in actuarial
valuation, take account of inflation, seniority, promotion and other
relevant factors such as demand and supply in the employment market.
The expected return on plan assets is determined considering severalapplicable factors mainly the composition of the plan assets held,
assessed risks of assets management, historical results of return on
plan assets and the policy for plan assets management.
7. The Company participates in the Nestl Restricted Stock Unit (RSU)
Plan of Nestl S.A., whereby select employees are granted non- tradable
Restricted Stock Units with the right to obtain Nestl S.A. shares or
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cash equivalent. Restricted Stock Units granted to employees vest,
subject to certain conditions, after completion of three years. Upon
vesting Nestl S.A. determines, whether shares, free of charge or cash
equivalent to the value of shares, is to be transferred to the
employee. The Company has to pay Nestl S.A. an amount equivalent to
the value of Nestl S.A. shares on the date of vesting, delivered to
the employee. Provisions are made based on estimates including Nestl
S.A. share price over the vesting period.
8. The Company''s significant leasing arrangements are primarily in
respect of operating leases for premises (office, residential,
warehouses etc.) and vehicles. These leasing arrangements which are not
non-cancellable are usually renewable on mutually agreeable terms. The
aggregate lease rentals charged to the profit and loss account are Rs.
454,909 thousands (previous year Rs. 395,851 thousands)
9. During the year Company had drawn US Dollars 136,000 thousands
(Previous year Nil) from Nestl S.A. for 5 years for the purpose of
capital expenditure under the External Commercial Borrowings (ECB)
approval from Reserve Bank of India. Total amount of loan outstanding
as on 31st Dec 2011 is Rs. 7,249,480 thousands (Previous year Rs. Nil).
Total cost of this borrowing, including interest and exchange
differences, during 2011 is Rs. 1,168,673 thousands (Previous year Rs.
Nil).
10. During the year Company had drawn US Dollars 45,978 thousands(Previous year Rs. Nil) as Buyer''s Credit from various commercial banks
for a period upto one year. Total amount of loan outstanding as on 31st
December 2011 is Rs. 2,450,840 thousands (Previous year Rs. Nil).
Total cost of this borrowing, including interest and exchange
differences, during 2011 is Rs. 19,559 thousands (Previous year Rs.
Nil).
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11. The Company''s borrowing facilities, comprising fund based and non
fund based limits from various bankers, are secured by way of a first
pari passu charge on all movable assets (excluding plant and
machinery), finished goods, work in progress, raw materials and book
debts.
b) All the forward contracts are for hedging foreign exchange exposures
against firm commitments and/or forecasted transactions.
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BIBLIOGRAPHY
1. www.moneycontrol.com
2. www.icai.com
3. http://www.nestle.com/investors/reports/report-2011#.UL-geOTSzlN
4. http://www.joshiapte.com/Accounting%20Standards.aspx
http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.icai.com/http://www.icai.com/http://www.nestle.com/investors/reports/report-2011#.UL-geOTSzlNhttp://www.nestle.com/investors/reports/report-2011#.UL-geOTSzlNhttp://www.joshiapte.com/Accounting%20Standards.aspxhttp://www.joshiapte.com/Accounting%20Standards.aspxhttp://www.joshiapte.com/Accounting%20Standards.aspxhttp://www.nestle.com/investors/reports/report-2011#.UL-geOTSzlNhttp://www.icai.com/http://www.moneycontrol.com/