By Himanshu V. Kishnadwala, Chartered Accountant
Creation of business reconstruction reserve to adjust impairment of fixed assets, goodwill on consolidation and other costs
Hindalco Industries Ltd.
— (31-3-2009) (standalone)
From Notes to Accounts :
(a) The Company has formulated a scheme of financial restructuring to deal with various costs associated with its organic and inorganic growth plan. The recent economic downturn particularly in the commodity space is also expected to result in impairment/diminution in value of certain assets/investments. Accordingly, as per a scheme of Arrangement under Sections 391 to 394 of the Companies Act 1956 (‘the Scheme’) between the Company and its equity shareholders approved by the High Court of Judicature of Bombay, a separate reserve account titled as Business Reconstruction Reserve (‘BRR’) has been created by transferring balance standing to the credit of Securities Premium Account of the Company for adjustment of certain expenses as prescribed therein. Accordingly, Rs.8,647.37 crores has been transferred to BRR and following expense incurred during the year have been adjusted against the same as per the Scheme :
(i) Impairment of fixed assets amounting Rs.66.80 crores, net of deferred tax of Rs.34.40 crores (refer Note no. 24 in this schedule).
(ii) Certain costs amounting to Rs.0.18 crores in connection with the Scheme.
(b) Had the Scheme not prescribed aforesaid treatment, the impact would have been as under:
(i) in the Profit and Loss Account
From Auditors’ Report:
6. Without qualifying our opinion, attention is drawn to the following:
b) As per Scheme of Arrangement u/ s.391 to 394 of the Companies Act 1956 approved by the Honourable High Court of Mumbai vide its Order dated 29th June, 2009 the company has been allowed to create Business Reconstruction Reserve by transferring balance standing to the credit of Securities Premium Account for adjusting certain expenses as defined in the scheme. Accordingly, the management of the Company, during the year has identified and adjusted Impairment of Fixed Assets amounting to Rs.66.80 crores (Net of Tax) and certain expenses amounting to Rs.0.18 crores against Business Reconstruction Reserve. This has resulted in the profit before tax and profit after tax for the year being higher by Rs.101.38 crores and Rs.66.98 crores respectively and deferred tax asset being lower by Rs.34.40 crores. Refer Note No. 22 in Schedule 19.
From Directors’ Report:
Scheme of arrangement:
The Company has formulated a scheme of financial restructuring to deal with various costs associated with its organic and inorganic growth plan. The recent economic downturn particularly in the commodity space is also expected to result in impairment/diminution in value of certain assets/investments. The Board of Directors of the Company at its meeting held on 14th February, 2009 had approved said Scheme of Arrangement. Accordingly, as per the Scheme of Arrangement under Sections 391 to 394 of the Companies Act 1956 (‘the Scheme’) between the Company and its equity shareholders approved by the High Court of Judicature of Bombay, a separate reserve account titled as Business Reconstruction Reserve (‘BRR’) has been created by transferring balance standing to the credit of Securities Premium Account of the Company for adjustment of certain expenses as prescribed therein. Accordingly, Rs.8,647 crares has been transferred to BRR and Rs.67 crores in standalone accounts and Rs.4,617 crores in Consolidated accounts have been adjusted against the same as per the Scheme during the year.
HINDALCO INDUSTRIES LTD. – (31-3-2009) (consolidated)
From Notes to Accounts:
8.(a) The Company has formulated a scheme of financial restructuring to deal with various cost!’ associated with its organic and inorganic growth plan: The recent economic downturn particularly in the commodity space is also expected to result in impairment/ diminution in value of certain assets Zinvestments, Accordingly, as per a scheme of Arrangement under sections 391 to 394 of the Companies Act 1956 (‘the Scheme’) between the Company and its equity shareholders approved by the High Court of judicature of Bombay, a separate reserve account titled as Business Reconstruction Reserve (‘BRR’) has been created by transferring balance standing to the credit of Securities Premium Account of the Company for adjustment of certain expenses as prescribed therein. Accordingly, Rs.8,647.37 crores has been transferred to BRR and following expenses incurred during the year have been adjusted against the same as per the Scheme:
i) Impairment of goodwill amounting Rs.3,597.30 crores arises on consolidation of Novelis Inc. while preparing consolidated accounts of the Company.
ii) Impairment of fixed assets amounting Rs.111.30 crores (net of deferred tax of Rs.34.40 crares).
iii) Interest and Finance Charges amounting Rs.544.47 crores on loan taken by A. V. Minerals (Netherlands) B. V., subsidiary of the Company, for acquisition of Novelis Inc. by the Company.
iv) Costs amounting to Rs.363.62 crores in connection with exiting business.
v) Certain costs amounting to Rs.0.18 crores in connection with the Scheme.
b) Had the Scheme not prescribed aforesaid treatment, the impact would have been as under:
i) in the Profit and Loss Account
From Auditors’ Report:
5. Without qualifying our opinion, attention is drawn to the following:
c) As per Scheme of Arrangement u/s.391 to 394 of the Companies Act 1956 approved by the Honourable High Court of Mumbai vide its Order dated 29th June, 2009 the company has been allowed to create Business Reconstruction Reserve by transferring balance standing to the credit of Securities Premium Account for adjusting certain expenses as defined in the scheme. Accordingly, the management of the Company, during the year has identified and adjusted Impairment of Goodwill in a subsidiary amounting to Rs. 3,597.30 crores, Impairment of Fixed Assets amounting to Rs. 111.30 crores (Net of Tax) and certain expenses amounting to Rs. 908.27 crores against Business Reconstruction Reserve. This has resulted in loss for the year before tax being understated by Rs. 4,651.27 crores and profit for the year after tax of Rs.485.31 crores of the group would have been converted in a loss for the year of Rs. 4,165.96 crores. Refer Note No. 8 in Schedule 20.
