Impact of Ind AS 115 on Emami Ltd.

Company

The company acknowledges its revenue upon the transfer of goods’ control to the customer, at a
value aligning with the compensation expected by the company for those items. While
establishing the selling price, the effects of rebates and discounts are taken into account as they
may vary. The specifics of agreements for both domestic and international sales, encompassing
the moment of control transfer, the characteristics of discount and rebate agreements, as well as
delivery specifications involving incoterms, contribute to intricacies and the need for judgment
when calculating sales revenues.

Hence, there exists a potential concern that the recognition of revenue might not align accurately
with the stipulated timeframe as outlined in Ind AS 115 ‘Revenue from contracts with
customers’. As a result, this matter was identified as a significant focus area during the
examination of the standalone financial statements prepared in accordance with Ind AS.

Our audit procedures encompassed the following actions:

 Evaluating the sufficiency of the Company’s revenue recognition policy and its alignment
with Ind AS 115 ‘Revenue from contracts with customers’.
 Analyzing the structure and testing the effectiveness of internal controls pertaining to
revenue recognition.
 Conducting sampling assessments of individual sales transactions and cross-referencing them
with sales invoices and associated records. For the chosen samples, we verified that revenue
recognition followed the guidelines of Ind AS 115 in accordance with the specified
incoterms.
 Selecting a sample of sales transactions occurring both before and after the year-end, and
confirming the alignment of revenue recognition periods with underlying supporting
documentation.
 Assessing the relevant disclosures provided within the standalone financial statements
prepared under Ind AS.
Specific agreements grant customers the privilege of returning damaged goods within a
designated timeframe. To gauge the anticipated volume of goods that will not be returned, the
Company employs the expected value approach. This method was chosen because it offers the
most accurate prediction of the variable consideration the Company is entitled to.

Moreover, the constraints stipulated by Ind AS 115, which pertain to limiting estimates of
variable consideration, are employed to ascertain the portion of variable consideration that can be
integrated into the transactional price. In cases where goods are projected to be returned, the
Company records a provision for rebates and damage returns, which is then offset against
revenue.
Ind AS 115 was issued on March 28, 2018, effectively superseding both Ind AS 11, which deals
with Construction Contracts, and Ind AS 18, which pertains to Revenue. This new standard
applies, with only a few specific exceptions, to all revenue stemming from contracts established
with customers.

Ind AS 115 introduces a structured five-step framework designed for accounting revenue that
emerges from customer contracts. It mandates the recognition of revenue at an amount that
accurately mirrors the compensation an entity anticipates acquiring in exchange for providing
goods or services to a customer. Under Ind AS 115, entities are required to exercise discernment,
considering all pertinent facts and circumstances, when navigating through each of the model’s
steps while dealing with customer contracts.
The Company implemented Ind AS 115 through the modified retrospective method of adoption,
effective from 1 April, 2018. The cumulative impact resulting from the initial application of Ind
AS 115, under the modified retrospective approach, is recognized as an adjustment to the
opening balance of retained earnings on the date of initial application. Consequently, the
comparative data has not been restated and is presented in line with the provisions of both Ind
AS 11 and Ind AS 18.

Adjustments have been made by the Company concerning anticipated claims for volume rebates
and the return of damaged goods from its customers. These adjustments fall within the scope of
variable consideration as defined by Ind AS 115, and are required to be offset against Revenue.
The Company has offset the anticipated cost of such rebates and returns, which are expected to
be incurred in the following year based on actual claims made by end-customers, against the
revenue.

Following impact has been considered in respect of this adjustment:

On April 1, 2018, a provision of ₹ 977.13 lacs for rebates and damage returns was created,
accompanied by a corresponding debit of ₹ 977.13 lacs to retained earnings.