CONTINOUS ASSIGNMENT 2

FINANCIAL ACCOUNTING AND ANALYSIS

Course Code: ACC506

Under the Guidance of

Sukhpreet Kaur

Mittal School of Business

Name : MD UJALE

Registration No. : 12002485

Roll No. : RQ2050A14

Part (A)
1. Analyzing the application of two accounting concepts of the Deepak Fertilizers &
Petrochemicals Corp. Ltd.?

Ans:- The two accounting concepts which is used by the company to prepare its annual
accounts are :

 Going Concern Concept:

 In preparing the standalone financial statements, the Management and Board of

Directors are responsible for assessing the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Board of Directors either intends to
liquidate the Company or to cease operations, or has no realistic alternative but to do
so. The Board of Directors is also responsible for overseeing the Company’s financial
reporting process.

 Conclude on the appropriateness of the Management and Board of Directors use of

the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Company’s ability to continue as a going concern.

 If they conclude that a material uncertainty exists, they are required to draw attention
in our auditor’s report to the related disclosures in the standalone financial statements
or, if such disclosures are inadequate, to modify our opinion. Their conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Company to cease to continue as a going
concern.

 Evaluate the overall presentation, structure and content of the standalone financial
statements, including the disclosures, and whether the standalone financial statements
represent the underlying transactions and events in a manner that achieves fair
presentation.

 Accrual Concept:

 The standalone financial statements of the Company have been prepared in

accordance with Indian Accounting Standards (“Ind AS”) notified under Section 133
of the Companies Act, 2013 (“the Act”) read with the Companies (Indian Accounting
Standards) Rules, 2015 notified, as amended thereafter and other relevant provisions
of the Act.

 The standalone financial statements have been prepared on an Accrual Basis and
under the historical cost convention, except for the following assets and liabilities
which have been measured at fair value:
o Derivative financial instruments;
o Certain financial assets and liabilities measured at fair value (refer accounting policy on
financial instruments); and
 o Employee defined benefits plans – plan assets are measured at fair value

 The standalone financial statements are presented in Indian Rupees (“INR”), which is
also the Company’s functional currency and all values are rounded off to the nearest
Lakhs, except when otherwise indicated. Wherever, an amount is presented as INR
‘0’ (zero) it construes value less than ` 50,000.

 The preparation of the Company’s standalone financial statements requires

management to make estimates and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities, and the accompanying disclosures, and the
disclosure of contingent liabilities. Uncertainty about these assumptions and estimates
could result in outcomes that require a material adjustment to the carrying amount of
assets or liabilities effected in future periods.

2. Appraising the method of depreciation adopted by Deepak Fertilizers &

Petrochemicals Corp. Ltd.?

Ans:- Depreciation on PPE (Property, Plant and Equipment except leasehold improvements)
is calculated using the Straight-Line Method to allocate their cost, net of their residual
values, over their estimated useful lives. However, leasehold improvements are depreciated
on a straight-line method over the shorter of their respective useful lives or the tenure of the
lease arrangement. Freehold land is not depreciated. Schedule II to the Act prescribes the
useful lives for various class of assets. For certain class of assets, based on technical
evaluation and assessment, Management believes that the useful lives adopted by it reflect the
periods over which these assets are expected to be used. Accordingly, for those assets, the
useful lives estimated by the management are different from those prescribed in the Schedule.

The lease liability is measured at amortized cost using the effective interest method. The
Company has elected not to recognize right of use assets and lease liabilities for short-term
leases that have a lease term of 12 months or less and leases of low-value assets. The
Company recognizes the lease payments associated with these leases as an expense on a
straight-line basis over the lease term.

Mature plantations are stated at acquisition cost less accumulated depreciation and
impairment. Mature plantations are depreciated on a straight-line basis and over its estimated
useful life of 6 years, upon commencement of commercial production.

3. Identifying the inventory valuation model adopted by the Deepak Fertilizers &
Petrochemicals Corp. Ltd. And reason for the adoption?

Ans:- As per annual report, Deepak Fertilizers and Petrochemicals Corporation Limited
values its inventories as follows:

 Raw materials, packing materials and stores and spares are valued at the lower of
cost and net realizable value. Cost is determined on the basis of moving weighted
average method. The aforesaid items are valued below cost if the finished products in
which they are to be incorporated are expected to be sold at a loss.
  Finished goods and by-products including those held for captive consumption are
valued at the lower of cost and net realizable value. Cost is determined on actual cost
basis. Cost of finished goods includes taxes and duties, as applicable. Variances,
exclusive of abnormally low volume and operating performance, are adjusted to
inventory.

 Stock-in-trade is also valued at lower of cost and net realizable value.

 Net realizable value is the estimated selling price in the ordinary course of business,
less estimated costs of completion and the estimated costs necessary to make the sale.

Reason for adoption of Valuation Method

 In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessment of
the time value of money and the risk specific to the asset.

 In determining fair value less cost of disposal, recent market transactions are taken in
account. If no such transactions can be identified, an appropriate valuation model is
used.

 These calculations are corroborated by valuation multiples, quoted share price for
publicly traded entities or other available fair value indicators.

 For assets excluding goodwill, an assessment is made at each reporting date to

determine whether there is an indication that previously recognized impairment loss
no longer exist or has decreased.

Part (B)
Q. Addressing the impact of Covid–19 on the financial results and position of the
Deepak Fertilizers & Petrochemicals Corp. Ltd. in past three quarters. (Quarter, April-
June) for FY 2020-21 is to be compared with corresponding Quarter for FY 2019-20
(Quarter, April-June) and FY 2018-19 Quarter, April-June).

The impact is to be analyzed using 5 dimensions.

a) Revenue from operations
b) Profit after tax (PAT)
c) Employee cost
d) Equity and reserves
e) Current assets

Ans:-
 June 2020 June 2019 June 2018
Revenue from 48,912 53,601 1,29,919
Operations
Profit After Tax (PAT) 8,908 (-662) 846
Employee Cost 2,399 1,754 1,612
Equity and Reserves 8,928 8,820 8,820

 Revenue from Operations:

Revenue from Operations June June 2019 Absolute Percentage

(in Rs. Cr.) 2020 Change change
48,912 53,601 (-4689) -8.75%
 The comparative analysis of revenue from operations of two quarters June 2019 and

Revenue from Operations June June 2018 Absolute Percentage

(in Rs. Cr.) 2019 Change change
53,601 1,29,919 (-76318) -58.74%

June 2020 reveals that there has been 8.75% decrease in the sales of company
whereas the comparative analysis of revenue from operations of past two quarters
June 2018 and June 2019 reveals that there has been 58.74% decrease in the sales of
company.

 After seeing the above data it is clear that company has endured decrease in sales year
after year. Covid-19 is also the reason for decreasing in sales in year 2020 and it
affected the growth rate of the sales

 The net profit of the industrial chemicals and fertilizer company stood at Rs 11 crore
during the corresponding quarter of 2019-20.

 Profit After Tax (PAT):

Profit After Tax (PAT) June June 2019 Absolute Percentage

(in Rs. Cr.) 2020 Change change
8,908 (-662) 9570 1445.62%
 According to the analysis, we can say that the company suffered 178.25% loss in the

Profit After Tax (PAT) June June 2018 Absolute Percentage

(in Rs. Cr.) 2019 Change change
(-662) 846 (-1508) -178.25%
year 2018-19 but in 2019-20 he gained 1445.62% PAT which is huge growth for the
company than 2018-19 loss.
 DFPCL also forayed into IPA-based 'Hand Sanitizer' space to combat COVID-19
pandemic in April. It also played a vital role to make profit during the covid period.

 The company has made its pilot run of multiple hygiene products based on isopropyl
alcohol (IPA) in the B2C markets and going forward.

 Employee Cost:

Employee Cost (in Rs. Cr.) June June 2019 Absolute Percentage
2020 Change change
2,399 1,754 645 36.77%
 Employee cost increased 27.96% in FY2019-20 than 2018-19. Its 2018-19

Employee Cost (in Rs. Cr.) June June 2018 Absolute Percentage
2019 Change change
1,754 1,612 142 8.81%
percentage was 8.81% in the other hands it increased to 36.77% in 2019-20 1st
quarter.

 If we see the company expenses it is going up year by year and the revenue of the
company are going down.

 DFPCL believes that human rights are fundamental, inherent, universal, indivisible
and interdependent in nature and hence, continuously strive to balance the employees’
basic human rights as a part of its holistic concern for all its stakeholders.

 Equity and Reserves:

 As per the report, we can see that there was no increase and no decrease in quarterly
year 2018-19 but in 2019-20 it growth and increased to 1.22%.

Equity and Reserves June June 2019 Absolute Percentage

(in Rs. Cr.) 2020 Change change
8,928 8,820 108 1.22%
 The Company has only one class of equity shares having par value of Rs.10 per share.

Equity and Reserves June June 2018 Absolute Percentage

(in Rs. Cr.) 2019 Change change
8,820 8,820 0 0%
Holder of each equity share is entitled to one vote per share.
 All equity investments in scope of Ind AS 109 are measured at fair value. Equity
instruments which are held for trading and contingent consideration recognized by an
acquirer in a business combination to which Ind AS 103 applies are classified as at
FVPL.

 The Company reserves the right to restrict the number of speakers depending on the
availability of time for the e-AGM.

 Amount received in excess of face value of the equity shares is recognized in

Securities Premium. The reserve is eligible for utilization in accordance with the
provisions of the Companies Act, 2013.

 Current Assets:

 The company does not face significant liquidity risk with regard to its lease liabilities
as the current assets are sufficient to meet the obligations related to lease liabilities as
and when they fall due.

 The incremental borrowing rate of 9.65% p.a. has been applied to lease liabilities
recognized in the Balance Sheet.

 The term loan availed from State Bank of India, Sydney is secured by pari passu first
charge on the movable and immovable property, plant and equipment of the
subsidiary, second charge on current assets of subsidiary. This loan is in foreign
currency.

 Basis of Preparation of Financial Result:

 The above unaudited results of Deepak Fertilizers and Petrochemicals Corporation

Limited (the "Company"), its subsidiaries (collectively referred to as "the Group"), its
associates and its joint operations were reviewed by the Audit Committee and the
Board of Directors at its meeting held on 31 July 2020, approved and adopted the
same.

 The unaudited standalone and consolidated financial results of the Company

(including its subsidiaries and associates and joint operations) are prepared in
accordance with applicable accounting standards i.e. Ind AS, as prescribed under
section 133 of the Companies Act, 2013 read with relevant rules the render and in
terms of Regulation 33 of the SEBI (Listing Obligation and Disclosure Requirements)
Regulation, 2015.

 Figures for standalone financial results for the quarter ended 31st March 2020 as
reported in these financial results, are the balancing figures between the audited
 figures in respect of the full financial year and published year to date figures for nine
months period ended 31st December 2019. The figures up to 31st December 2019 had
only been reviewed and were not subjected to audit.

 Ministry of Chemical and Fertilizers has issued an official memorandum on 15.05.20,

stating that the issue of recovery of undue profit from P&K fertilizers companies has
been settled finally in DoF and accordingly nothing is recoverable presently towards
undue gain.

Thank You