Nestle Project - Accounts

7/27/2019 Nestle Project - Accounts

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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



19 Leases

I

II-with modificationIII- with modification

20 Earning Per Share

I



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


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/

Nestle Project - Accounts

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