Accounting Standards

A Financial Accounting Project

MET-PGDM

Prepared by Nishant Shah PGD12053 Kunal 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 future endeavours.

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INDEX

Introduction

Accounting Standards & Basics..

List of Accounting Standards..

Definition & Meaning

Nestle India

Accounting Policy of Nestle.

Notes to Accounts

Bibliography

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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 possible standards 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 interfirm comparison.

Authority to issue Accounting Standards in India The 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 size Level 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. 1 2 3

Particulars Disclosure of Accounting Policies Valuation of Inventories Cash Flow Statements Contingencies and Events Occurring After the Balance Sheet Date Net Profit or Loss for the period, Prior

Applicability I, II, III I, II, III I

I, II, III

period Items and Changes in Accounting Policies.

I, II, III

6 7

Depreciation Accounting Construction Contracts Accounting for Research and

I, II, III I, II, III

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 10

Revenue recognition Accounting for Fixed Assets The Effect of Changes in Foreign Exchange Rates Accounting for Government Grants

I, II, III I, II, III

11

I, II, III

12

I, II, III

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13 14

Accounting for Investments Accounting for Amalgamations Accounting for Retirement Benefits in the Financial Statements of Employers Borrowing Costs

I, II, III I, II, III

15

I, II, III

16

I, II, III I

17

Segment Reporting

II-with modification III- with modification I

18

Related Party Disclosures

II-with modification III- with modification I

19

Leases

II-with modification III- with modification I

20

Earning Per Share

II-with modification III- with modification

21 22

Consolidated Financial Statements Accounting for Taxes on Income Accounting for Investments in Associates in Consolidated Financial Statements Discontinuing Operations

I I,II,III

23

24

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25 26

Interim Financial Reporting Intangible Assets

I I,II,III I-with II-with clarification clarification

27

Financial Reporting of Interests in Joint Ventures

III-with clarification I

28

Impairment of Assets

II-with modification III-with modification

29

Provisions, Contingent Liabilities and Contingent Asset

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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 in preparation 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 and expenditure 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 of completion 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 share of 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 such information 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 improve the 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 and liabilities 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, tax should 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 financial statements 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 periods of 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 Accounting periods 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 principles for 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 and performance; and

The nature and extent of risks arising from financial instruments to which the entity is exposed 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 finished products 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 dairy farming 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 renders service / 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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Monetary items (i.e. receivables, payables, loans etc.) denominated in foreign currency are reported using the closing exchange rate on each balance sheet date.

The exchange difference arising on the settlement of monetary items or on reporting these items at rates different from rates at which these were initially recorded/reported in previous financial statements are recognised as income/expense in the period in which they arise.

In line with Notification No. G.S.R. 225(E) dated March 31, 2009 (further amended by notification no. G.S.R.378 (E) dated 11.05.2011) issued by the Ministry of Corporate Affairs, Government of India, the Company has opted for adjusting the exchange differences, arising on long term foreign currency monetary items relating to acquisition of depreciable capital asset to the cost of the capital asset and, to depreciate over the balance useful life of the asset.

(Also refer Schedule E on ''Fixed Assets'', Schedule L on ''Interest and Financing Expenses'' and note 20 and 21 of Schedule O)

In case of forward exchange contracts, the premium or discount arising at the inception of such contracts, is amortised as income or expense over the life of contract as well as exchange difference on such contracts i.e. difference between the exchange rate at the reporting/settlement date and the exchange rate on the date of inception/the last reporting date, is recognised as income/expense for the period except those relating to fixed assets in which case they are capitalised with the cost of respective fixed assets.

BORROWING COSTS

Borrowing costs directly attributable to acquisition or construction of those fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalised. Other borrowing
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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 Dongguan Ltd., 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 several applicable 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

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