By Himanshu V. Kishnadwala
Chartered Accountant
Miscellaneous
I) Financial statements prepared on ‘Going Concern’ basis on net worth becoming positive post use of fair value option on adoption of Ind AS
Jindal Stainless Ltd. (31-3-2017)
From Notes to Financial Statements
34. Post adoption of Ind AS and due to adoption of fair valuation of assets (including property, plant and equipment as allowed in Ind AS and liabilities) the net worth of the company became positive (refer note no.56). Further, to strengthen its net worth, the Company is taking necessary steps towards full implementation of AMP including conversion of Funded Interest Term Loan (FITL) by the Lenders of the Company into Equity Shares / Optionally Convertible Redeemable Preference Shares (refer note no.32 (A)(ii). Thus, these accounts have been prepared on a going concern basis.
56. Transition to Ind AS
Exemptions availed
As permitted by Ind AS 101, the company has availed following exemptions from the retrospective application of certain requirements under Ind AS. These exemptions are:
– The company has chosen to measure all items of PPE on transition date i.e. 1st April 2015 at fair value as their deemed cost.
– The company has elected to adopt the fair value as a deemed cost of investments (Other than its subsidiaries, associates and joint ventures).
– The company has chosen to continue recognising Exchange difference of other long term outstanding loan/liability (against which there is no depreciable fixed assets that exists) as Foreign Currency Monetary Item Transition Difference Account and amortised over period/remaining period of loan/liability.
– The company has chosen to consider the cumulative transition difference for all foreign operations that existed at the date of transition at zero.
– The company has opted to apply business combination Ind AS 103 post transition date and not retrospectively.
From Auditors’ Report
Emphasis of Matter
(a) to (d) … not reproduced
(e) Net Worth post considering the fair value became positive as stated in Note No. 34 of the financial statements.
II) Life of Goodwill reconsidered from definite to indefinite on adoption of IndAS
Jindal Stainless (Hisar) Ltd.(31-3-2017)
From Note below schedule on Property, Plant and Equipment
Goodwill and Intangible assets
Goodwill was initially recognised and decided by the management to amortise over a period of two years, accordingly Rs. 10.34 Crore was amortised during the earlier year (2014-15). During the year 2016-17, life of goodwill was reconsidered from definite to indefinite as per Ind AS, and accordingly the Goodwill was restated at Rs. 10.34 Crore as at 1st April 2015. (Refer Note No.54)
From Notes to Financial Statements
54 Assets are tested for impairment whenever there are any internal or external indications of impairment. Impairment test is performed at the level of each Cash Generating Unit (‘CGU’) within the Company at which the goodwill or other assets are monitored for internal management purposes, within an operating segment. The impairment assessment is based on higher of value in use and fair value less costs of disposal. During the year, the testing did not result in any impairment in the carrying amount of goodwill and other assets. The measurement of the cash generating units’ value in use is determined based on financial plans that have been used by management for internal purposes. The planning horizon reflects the assumptions for short to mid-term market conditions.
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Assumption
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Approach
used to determine values
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Sales
volume
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Average
annual growth rate over the five-year forecast period; based on past
performance and management’s expectations of market development.
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Sales
price
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Average
annual growth rate over the five-year forecast period; based on current
industry trends and including long term inflation forecasts for each
territory.
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Budgeted
gross margin
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Based
on past performance and management’s expectations for the future.
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Other
operating costs
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Fixed
costs of the CGUs, which do not vary significantly with sales volumes or
prices. Management forecasts these
costs based on the current structure of the business, adjusting for
inflationary increases but not reflecting any future restructurings or cost
saving measures. The amounts disclosed
above are the average operating costs for the five-year forecast period.
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Annual
capital
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Expected
cash costs in the CGUs. This is based on the historical experience of
management, and the planned refurbishment expenditure. No incremental revenue
or cost savings are assumed in the value-in-use model as a result of this
expenditure.
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Long-term
growth rate
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This
is the weighted average growth rate used to extrapolate cash flows beyond the
budget period. The rates are consistent with forecasts included in industry
reports.
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Pre-tax
discount rates
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Reflect
specific risks relating to the relevant segments and the countries in which
they operate.
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III) Factors considered to assess carrying values and impairment loss for investments in and loans and advances to subsidiaries / JVs (as per Ind AS)
JSW Steel Ltd. (31-3-2017)
From Significant Accounting Policies
First time adoption – mandatory exceptions and optional exemptions (extract)
(c) Deemed cost for investments in subsidiaries, associates and joint ventures.
The Company has elected to continue with the carrying value of all of its investments in subsidiaries, joint ventures and associates recognised as of 1st April, 2015 (transition date) measured as per the previous GAAP as its deemed cost as at the date of transition.
From Notes to Financial Statements
48. In assessing the carrying amounts of Investments in and loans / advances (net of impairment loss / loss allowance) to certain subsidiaries and a JV and financial guarantees to certain subsidiaries (listed below), the Company considered various factors as detailed there against and concluded they are recoverable.
(a) Investments aggregating to Rs. 294.63 crore (Rs. 814.30 crore as at March 31, 2016, Rs. 727.53 crore as at April 1, 2015) in equity and preference shares of NBV, loans of Rs. 105.20 crore (Rs. 70.73 crore as at March 31, 2016, Rs. Nil as at April 1, 2015), Rs. 1,921.70 crore (Rs. 683.39 crore as at March 31, 2016, Rs. 3,063.65 crore as at April 1, 2015) and Rs. 839.92 crore (Rs. 252.41 crore as at March 31, 2016, Rs. 646.18 crores as at April 1, 2015) to NBY, PHL and JPHC respectively and the financial guarantees of Rs. 3,177.08 crore (Rs. 3,900.37 crore as at March 31, 2016, Rs. 3,429.98 crore as at April 1, 2015) and Rs. 198.57 crore (Rs. 319.23 crore as at March 31, 2016, Rs. Nil crore as at April 1, 2015) on behalf of PHL and JSU respectively – Estimate of values of the businesses and assets by independent external valuers based on cash flow projections/implied multiple approach. In making the said projections, reliance has been placed on estimates of future prices of iron ore and coal. mineable resources, and assumptions relating to operational performance including significant improvement in capacity utilisation and margins based on forecasts of demand in local markets, and availability of infrastructure facilities for mines.
(b) Equity shares of JSW Steel Bengal Limited, a subsidiary (carrying amount Rs. 438.34 crore (Rs. 436.04 crore as at March 31, 2016, Rs. 427.98 crore as at April 1, 2015) – Evaluation of the status of its integrated Steel Complex (including power plant) to be implemented in phases at Salboni of district Paschim Medinipur in West Bengal by the said subsidiary, and the projections relating to the said complex considering estimates in respect of future raw material prices, foreign exchange rates, operating margins, etc. and the plans for commencing construction of the said complex.
(c) Equity shares of JSW Jharkhand Steel Limited, a subsidiary (carrying amount of Rs. 80.27 crore as at March 31, 2017; Rs. 76.71 crore as at March 31, 2016, Rs. 76.71 crore as at April 1, 2015) – Evaluation of the status of its integrated Steel Complex to be implemented in phases at Ranchi, Jharkhand by the said subsidiary, and the projections relating to the said complex considering estimates in respect of future raw material prices, foreign exchange rates, operating margins, etc. and the plans for commencing construction of the said complex.
(d) Equity shares of Peddar Realty Private Limited (PRPL) (carrying amount of investments: Rs. 24.04 crore as at March 31, 2017; Rs. 56.72 crore as at March 31, 2016. Rs. 56.72 crore as at April 1, 2015, and loans of Rs. 156.79 crore as at March 31, 2017 Rs. 158.18 crore as at March 31, 2016, Rs. 185.83 crore as at April 1, 2015) -Valuation by an independent valuer of the residential complex in which PRPL holds interest.
(e) Investment on Rs. 3.93 crore (Rs. 3.93 crore as at March 31, 2016, Rs. 3.93 crore as at Aprii 1, 2015) and loan on Rs. 116.70 crore (Rs. 112.42 crore as at March 31, 2016, Rs. 95.25 crore as at April 1, 2015) relating to JSW Natural Resources Mozambique Limitada and JSW ADMS Carvo Limitada (step down subsidiaries) – Assessment of minable reserves by independent experts and cash flow projections based on the plans to commence operations after mining lease arrangements are in place for which application has been submitted to regulatory authorities, and infrastructure is developed.
(f) Equity shares of JSW Severfield Structures Limited, a joint venture (carrying amount Rs. 115.44 crore as at March 31, 2017; Rs. 115.44 crore as at March 31, 2016, Rs. 115.44 crore as at April 1, 2015) – Cash flow projections approved by the said JV which are based on estimates and assumptions relating to order book, capacity utilisation, operational performance, market prices of materials, inflation, terminal value, etc.
From Auditors’ Report
Emphasis of Matter
Attention is invited to note 48 to the standalone Ind AS financial statements regarding the factors considered in the Company’s assessment that the carrying amounts of the investments aggregating to Rs. 956.66 crore in and the loans and advances aggregating to Rs. 3,140.31 crore to certain subsidiaries and a joint venture are recoverable and that no loss allowance is required against the financial guarantees of Rs. 3,375.65 crore.
Our opinion is not modified in respect of this matter.
