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Notes to Accounts of Akzo Nobel India Ltd.

Mar 31, 2017

Note 1 : Critical estimates and judgments

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results.

Management also needs to exercise judgment in applying the Company''s accounting policy.

This note provides an overview of the areas that involved a high degree of judgment or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgments is included in relevant notes together with information about the basis of calculation for each affected line item in the standalone financial statements.

Critical estimates and judgments

- Estimation of useful life of Fixed Assets (Refer note 3)

- Estimation of useful life of Intangible Assets (Refer note 4)

- Estimation for Government Grant (Refer note 8.6)

- Customer Loyalty Programme (Refer note 19(a))

- Estimation for contingencies (Refer note 27(a))

- Estimation for fair value measurement of financial assets and liabilities (Refer note 31)

- Impairment of Financial assets (Refer note 31)

- Estimation of Employee benefit obligations (Refer note 35)

Estimates and judgments are continuously evaluated. They are based on historical experience and other factors including expectation of future events that may have a financial impact on the Company and that are believed to be reasonable under the circumstances.

(a) The Company had received the final possession of leasehold land at Mysore from Karnataka Industrial Area Development Board (KIADB) in March 2016 and accordingly had capitalized the same with effect from 30 March 2016. The lease deed in respect of the said land is under finalization with the authorities.

(b) Leasehold land represents land taken on finance lease under long term multi-decade lease term, capitalized at the present value of the aggregate future minimum lease payments (which include annual lease rentals in addition to the initial payment made at the inception of the lease). There are no contingent payments. Also refer, note 12.1 and 16.2 for further disclosures.

(c) The Company has possession of a portion of leasehold land situated in Mahad which is yet to be registered in the name of the Company.

(d) The Company had acquired revaluation reserve attributable to certain land as part of amalgamation done with various companies in the previous periods.

(e) Freehold land and Building amounting to H 65 has been reclassified to leasehold land as on 1 April 2015.

(f) Capital Work in Progress constitutes certain plant and machinery which is pending installation at customer premises, certain project related expenditure for setting up a factory etc.

(g) There are no exchange differences capitalized during the year.

Significant Estimates: The estimated useful lives of property, plant and equipment are based on a number of factors including the effects of obsolescence, demand, competition, internal assessment of user experience and other economic factors (such as the stability of the industry, and known technological advances) and the level of maintenance expenditure required to obtain the expected future cash flows from the asset. The Company reviews the useful life of property, plant and equipment at the end of each reporting period.

(a) The Company had received the final possession of the land at Mysore from Karnataka Industrial Area Development Board (KIADB) in March 2016 and accordingly had capitalized the same with effect from 30 March 2016. The lease deed in respect of the said land is under finalization with the authorities.

(b) Leasehold land represents land taken on finance lease under long term multi-decade lease term, capitalized at the present value of the aggregate future minimum lease payments (which include annual lease rentals in addition to the initial payment made at the inception of the lease). There are no contingent payments. Also refer, note 12.1 and 16.2 for further disclosures.

(c) The Company has possession of a portion of leasehold land situated in Mahad which is yet to be registered in the name of the Company.

(d) The Company had acquired revaluation reserve attributable to certain land as part of amalgamation done with various companies in the previous periods.

(e) Freehold land and Building amounting to H 65 has been reclassified to leasehold land as on 1 April 2015.

(f) Capital Work in Progress constitutes certain plant and machinery which is pending installation at customer premises, certain project related expenditure for setting up a factory etc.

(g) There are no exchange differences capitalized during the year.

Significant Estimates: The estimated useful lives of property, plant and equipment are based on a number of factors including the effects of obsolescence, demand, competition, internal assessment of user experience and other economic factors (such as the stability of the industry, and known technological advances) and the level of maintenance expenditure required to obtain the expected future cash flows from the asset. The Company reviews the useful life of property, plant and equipment at the end of each reporting period.

Significant estimates: Useful life of Intangible assets - Customer relationships:

Pursuant to business transfer agreement with BASF India Private Limited, the Company has acquired Intangible assets with respect to customer relationships and non-compete fees in the current year. The estimate for the useful life of the customer relationships is based on the expected economic benefits from such assets. However, the actual useful life may be shorter or longer than 10 years, depending upon the customer attrition rate and competition. If it were only 5 years, the carrying amount would be H 104 as at 31 March 2017. If the useful life were estimated to be 15 years, the carrying amount would be H 108.

No investments measured at FVOCI were disposed off during the year and there were no transfers of any cumulative gain or loss within equity relating to such investments.

(b). The non-convertible redeemable bonds carry a maturity face value of H 30,000 per bond with a zero coupon. The related income based on implicit yield to maturity has been accrued and included in the value of investments. These have been considered as quoted based on their readily available resale prices.

(c). Fixed maturity plans of mutual funds wherever considered quoted are so considered based on readily available net asset values.

(d). Information about the Company’s exposure to credit and market risk and fair value measurement is included in note 31.

* amount is below rounding off norms

(a) Loan given to employees include dues from a key managerial person H 0.75 (31 March 2016 - H 0.79, 1 April 2015 - H 0.84).

(b) Loan given to employees include housing loan against which the employees have submitted property title papers or other assets/ documents as envisaged under the housing loan scheme.

b. Terms and rights attached to equity shares

The Company has only one class of equity shares, having a par value of H 10 per share. Each shareholder is eligible to one vote per share held. The Company declares and pays dividend in Indian Rupees. The dividend proposed, if any, by the Board of Directors is subject to approval of shareholders in the ensuing Annual General Meeting. The repayment of equity share capital in the event of liquidation and buy back of shares are possible subject to prevalent regulations. In the event of liquidation, normally, the equity shareholders are eligible to receive the remaining assets of the Company, after distribution of all preferential amounts, if any, in proportion to their shareholding.

c. Shares of the company held by holding/ultimate holding company or their subsidiary/ associates

The ultimate holding company is Akzo Nobel N.V., Netherlands, which does not hold any shares directly in the Company. The following are the shareholding details of wholly owned subsidiaries of the ultimate holding company.

Note 2. Finance cost

Interest and finance charges on financial liabilities not at FVTPL Unwinding of interest on security deposit and finance lease obligations Others

Note 3. Other expenses

Stores and spare parts consumed Repairs and maintenance

- Plant and Machinery

- Others Power and fuel****

Travelling

Rates and taxes1

Rent

Insurance

Freight and transport Advertisement and publicity2

Royalty

Consultancy charges

Payments to the auditor (Refer note ''a'' below)

Corporate Social responsibility expenditure (Refer note ''b'' below)

IT Support & Maintenance

External service charges

Provision for doubtful debts and advances3

Loss on write off/disposal of fixed assets Miscellaneous expenses

(a). Details of payments to auditors @

Statutory audit Tax audit

Limited review for quarterly results Other services Reimbursement of expenses

@ excluding service tax

(b). Corporate social responsibility expenditure

Amount required to be spent as per section 135 of the Act Amount spent during the year on

i) Construction/acquisition of an asset

ii) On purposes other than (i) above

* The Income tax assessments for the Company have been completed up to the financial year ended 31 March 2012 and demands aggregating from such assessments and appellate orders amount to H 854 (31 March 2016 - H 1,300, 1 April 2015- H 1,145). The Company as well as the Income tax department have filed appeals on various matters arising from these assessments. Based on the available documentation and tax experts view, the Company has created provisions wherever required and for the balance matters, it is believed that the amount more likely than not, these disputes would not result in additional outflow of resources.

The Company is contesting certain claims raised by authorities towards excise, service tax and sales tax/VAT dues at various forums. Based on the available documentation and expert view, the Company has created provisions wherever required and for the balance matters, it believes that the amount more likely than not, these disputes would not result in additional outflow of resources.

The Company is contesting certain claims filed against the Company by past employees and external parties in various forums. Based on the available documentation and expert view, the Company has created provisions wherever required and for the balance matters, it believes that the amount more likely than not, these disputes would not result in additional outflow of resources.

Significant Estimates: The assessment undertaken in recognizing provisions and contingencies have been made in accordance with Ind AS 37, ‘Provisions, Contingent Liabilities and Contingent Assets''. The evaluation of the likelihood of the contingent events requires best judgment by management considering the probability of exposure to potential loss. Judgment includes consideration of experts opinion, facts of the matter , underlying documentation and historical experience. Changes in assumptions about these factors could affect the reported value of contingencies and provisions.

Note 4(b)

There are no contingent assets as at 31 March 2017 (31 March 2016 - Nil; 1 April 2015 - Nil)

b) Fair value measurement hierarchy for assets and liabilities

The following explains the judgments and estimates made in determining the fair values of the financial instruments that are recognized and measured at fair value. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard.

Notes:

Level 1 hierarchy includes financial instruments measured using quoted prices. This includes mutual funds that have quoted price and are valued using the closing NAV.

Level 2 hierarchy includes the fair value of financial instruments that are not traded in an active market (for example, over-the counter derivatives) is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. This includes foreign exchange forward contracts.

Level 3 - If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities included in level 3. There are no transfers between levels 1 and 2 during the year. The Company’s policy is to recognize transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.

c) Valuation techniques used to determine fair value

The fair value of the financial assets and liabilities are included at the amount that would be received to sell an asset and paid to transfer a liability in an orderly transaction between market participants. The following methods were used to estimate the fair values:

106 Financial Statements I Annual Report 2016-17

- Unquoted equity shares - The valuation model is based on market multiples derived from quoted prices and PE Multiples of Companies comparable to the investee and the NAV and PE multiple of the investee. The estimate is adjusted for the effect of the nonmarket ability of the relevant equity securities.

- Other non-current financial assets and liabilities: Fair value

is calculated using a discounted cash flow model with market assumptions, unless the carrying value is considered to approximate to fair value.

- Derivative financial assets/liabilities: The Company enters into derivative contracts with various counterparties, principally financial institutions with investment grade credit ratings. Forward foreign currency contracts are determined using forward exchange rates at the balance sheet date.

- Trade receivables, cash and cash equivalents, other bank balances, loans, other current financial assets, current borrowings, trade payables and other current financial liabilities: Approximate their carrying amounts largely due to the short-term maturities of these instruments.

d) Valuation processes

External value’s are involved for valuation of significant assets. The finance department of the Company assists the external valuers in the valuations of financial assets and liabilities required for financial reporting purposes, including level 3 fair values.

The valuation processes and results are reviewed by CFO and finance team once every three months, in line with the Company’s quarterly reporting periods.

The main level 3 inputs for unlisted equity securities, used by the Company are derived and evaluated as follows:

- the use of quoted market prices / dealer quotes / profit earning (PE) for similar instruments

- Risk adjustments specific to the counterparties (including assumptions about credit default rates) are derived from credit risk grading determined by the Company’s internal credit risk management group.

- Earnings growth factor for unlisted equity securities are estimated based on market information for similar types of companies.

The Company’s exposure to mutual funds prices/NAV risk arises from investments held by the Company and classified in the balance sheet as fair value through profit or loss. To manage its price/NAV risk arising from investments in mutual funds, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Company.

In order to minimize any adverse effects on the financial performance of the Company, derivative financial instruments, such as foreign exchange forward contracts are entered to hedge certain foreign currency risk exposures on account of expenditure in foreign currencies and earnings in foreign exchange (export of goods, service income, etc.). The Company does not enter into any derivative instruments for trading or speculative purposes or for highly probable forecast transactions.

The Company follows a forex Risk Management policy under which all material foreign currency exposures are hedged through forward covers to protect against swings in exchange rates.

The Company’s risk management is carried out by a central treasury department / finance team under policies approved by the board of directors.

i. Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers. The carrying amounts of financial assets represent the maximum credit risk exposure.

A default on a financial asset is when the counterparty fails to make contractual payments as per agreed terms. This definition of default is determined by considering the business environment in which entity operates and other macro-economic factors.

Trade and other receivables

Credit risk refers to the risk of default on its obligation by the counter party resulting in financial loss. The maximum exposure to the credit risk at the reporting date is primarily from Trade Receivable amounting to H 4,121; H 3,522 and H 3,010 as at 31 March 2017, 31 March 2016 and 1 April 2015, respectively. The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer.

The management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry and country in which customers operate.

The Company has a credit risk management policy in place to limit credit losses due to non-performance of financial counterparties and customers. The Company monitors its exposure to credit risk on an ongoing basis at various levels. The Company only deals with financial counterparties that have a sufficiently high credit rating. Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored. The Company closely monitors the acceptable financial counterparty credit ratings and credit limits and revises where required in line with the market circumstances. Due to the geographical spread and the diversity of the Company‘s customers, the Company is not subject to any significant concentration of credit risks at balance sheet date.

An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are companied into homogenous companies and assessed for impairment collectively. The calculation is based on credit losses historical data. The Company has evaluated that the concentration of risk with respect to trade receivables to be low.

Trade and other receivables are written off when there is no reasonable expectation of recovery post identification on case to case basis.

On account of adoption of IndAS 109, the Company uses a simplified approach (lifetime expected credit loss model) for the purpose of computation of expected credit loss for trade receivables.

Significant Estimates: The impairment provisions for financial assets disclosed above are based on assumptions about risk of default and expected loss rates. The Company uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the Company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period. For trade receivables only, the Company applies the simplified approach permitted by Ind AS 109, ‘Financial Instruments’, which requires expected lifetime losses to be recognized from initial recognition of the receivables.

Effects of offsetting on balance sheet

The following table represents financial instruments that are offset, or subject to enforceable netting arrangements and other similar agreements but not offset, as at 31 March 2017, 31 March 2016 and 1 April 2015. The column ‘gross amount set off in balance sheet’ represents rebate accruals which are netted off as per customary business practice. The column ‘net amount’ shows the impact on the company’s balance sheet if all set-off rights were exercised:

Cash and cash equivalents, short term investments and derivatives

For short-term investments, counterparty limits are in place to limit the amount of credit exposure to any one counterparty. For derivative and financial instruments, the Company attempts to limit the credit risk by only dealing with reputable banks and financial institutions having high credit-ratings assigned by international credit-rating agencies.

ii. Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company maintains flexibility in funding by maintaining availability under committed credit lines. Management monitors the Company’s liquidity position (comprising the undrawn borrowing facilities below) and cash and cash equivalents on the basis of expected cash flows.

Sensitivity analysis

A reasonably possible strengthening (weakening) of the Indian Rupee against US dollars at 31 March would have affected the measurement of financial instruments denominated in US dollars /EURO or other currencies and affected profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

iv. Price risk

The Company’s exposure to equity securities price risk arises from investments held by the Company and classified in the balance sheet either as fair value through OCI or at fair value through profit or loss .To manage its price risk arising from investments in equity securities, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Company.

The Company considers factors such as long term credit rating, tenor of investment, minimum assured return ,monetary limits,etc. while investing. Sensitivity analysis

The table below summarizes the impact of increases/decreases of the index on the Company’s profit for the period. The analysis is based on the assumption that the equity index had increased by 10% or decreased by 10% with all other variables held constant, and that all the Company’s equity instruments moved in line with the index.

Profit for the period would increase/decrease as a result of gains/losses on equity securities classified as at fair value through profit or loss.

Note 5. Segment Information

A. General Information

The chief operating decision maker (CODM) (i.e. the Country Leadership Team comprising of Managing Director, Chief Financial Officer, Business Heads, Head HR) examines the Company’s performance from a product perspective and has identified the below mentioned segments of its business, which are the Company’s strategic business units.The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the CODM reviews internal management reports based on profit or loss to assess the performance of the operating segments.

In addition to the above dividend, directors have recommended the payment of dividend of H 22 per equity share (31 Mar 2016- H 70 per equity share). The proposed dividend is subject to the approval of shareholders in the ensuing Annual General Meeting.

For management purposes, the Company is organized into following two reportable segments:

i) Coatings : consisting of decorative, automotive and industrial paints and related activities

ii) Others : consisting of chemicals and polymers.

1. (a ) The Company is controlled by:

Akzo Nobel N.V, Netherlands (Ultimate Holding Company)

(b) The following related party exercises significant influence:

Imperial Chemical Industries Limited, England, which is wholly owned by Akzo Nobel N.V

(c) The Company controls the following related party:

ICI India Research and Technology Centre (refer note 1)

(d) Fellow subsidiaries:

Akzo Nobel Coatings A.E. Akzo Nobel Paints Singapore Pte ltd

Akzo Nobel Car Refinishes Indonesia Akzo Nobel Projects & Engineering B.V

Akzo Nobel Chemicals (Boxing) Co. Ltd. Akzo Nobel Packaging Coatings S.A.

Akzo Nobel Chemicals (Ningbo) Co. Ltd. Akzo Nobel Paints (Asia Pacific) Pte Ltd.

Akzo Nobel Decorative Coatings B.V Akzo Nobel Paints (Malaysia) Sdn. Bhd.

Akzo Nobel Functional Chemicals B.V Akzo Nobel Paints (Thailand) Ltd.

Akzo Nobel Functional Chemicals LLC Akzo Nobel Paints Lanka (Pvt) Ltd.

Akzo Nobel Indl Coatings Akzo Nobel Paints Taiwan Limited

Akzo Nobel Industrial Coating Korea Co. Ltd. Akzo Nobel Paints Vietnam Ltd.

Akzo Nobel Industrial Paints SL Akzo Nobel Polymer Chemicals LLC

Akzo Nobel Middle East FZE Akzo Nobel Powder Coatings (Ningbo) Co. Ltd.

Akzo Nobel Netherlands BV_ Akzo Nobel Powder Coatings B.V,_

Akzo Nobel Pakistan Limited Akzo Nobel Powder Coatings Korea Co. Limited

Akzo Nobel Performance Coatings (Shanghai) Co. Ltd. Akzo Nobel Pty. Limited

Akzo Nobel Powder Coatings (Vietnam) Co. Ltd. Akzo Nobel Surface Chemistry AB

Akzo Nobel Powder Coatings FZE Akzo Nobel Surface Chemistry LLC

Akzo Nobel Powder Coatings GMBH Akzo Nobel UAE Paints L.L.C.

Akzo Nobel Pulp and Performance Chemicals AB ICI Dulux (Pty) Limited

Akzo Nobel Surface Chemistry Pte. Ltd. International Paint - Vietnam

Akzo Nobel Swire Paints (Shanghai) Ltd. International Paint Japan K.K.

Akzo Nobel (Shanghai) Co. Ltd. International Paint Limited

Akzo Nobel Boya Sanayi ve Ticaret A.S. International Farbenwerke GmbH

Akzo Nobel Car Refinishes (Singapore) Pte Ltd. International Maling A/S

Akzo Nobel Car Refinishes B.V International Paint (Akzo Nobel Chile) Ltda

Akzo Nobel Car Refinishes SL International Paint (Hong Kong) Limited

Akzo Nobel Chang Cheng Coatings (Guangdong) Co. Ltd. International Paint (Korea) Ltd.

Akzo Nobel Chemicals AG International Paint (Nederland) B.V.

Akzo Nobel Chemicals International B.V. International Paint (Panama) Inc.

Akzo Nobel Coatings (Dongguan) Co. Ltd. International Paint (Taiwan) Ltd.

Akzo Nobel Coatings (Jiaxing) Co. Ltd._ International Paint LLC_

Akzo Nobel Packaging Coatings GmbH International Paint of Shanghai Co. Ltd.

Akzo Nobel Coatings Inc. International Paint Pazarlama Limited Sirketi

Akzo Nobel Coatings International B.V. International Paint Singapore Pte Ltd.

Akzo Nobel Coatings Ltd. International Peinture S.A.

Akzo Nobel Coatings S.P.A. IP Singapore Pte -Vietnam

Akzo Nobel Cross-Linking Peroxides (Ningbo) Co. Ltd. Keum Jung Akzo Nobel Peroxides Ltd.

Akzo Nobel Ltd. PT ICI Paints Indonesia

Akzo Nobel Packaging Coatings Limited PT International Paint Indonesia

Akzo Nobel Powder Coatings Schramm SSCP Hanoi Company Limited

Akzo Nobel Saudi Arabia LTD. Tianjin Akzo Nobel Peroxides Co. Ltd.

International Paint (East Russia) Ltd. PT Akzo Nobel Car Refinishes Indonesia International Paint Turkey

(e) Key Management Personnel

Mr. Nihal Kaviratne CBE - Chairman

Mr. Jayakumar Krishnaswamy - Managing Director

Mr. Himanshu Agarwal - Wholetime Director and CFO (upto 18 August 2015)

Mr. Pradip Menon - Wholetime Director and CFO (from 1 February 2016)

Mr. Arabinda Ghosh - Non-Executive Director (from May 2015)

Mr. Amit Jain - Non-Executive Director

Mr. R Gopalakrishnan - Independent Director

Mr. Arvind Uppal - Independent Director

Mr. Raj S Kapur - Independent Director

Ms. Kimsuka Narsimhan - Independent Director

Dr. Sanjiv Misra - Independent Director

(f) Employee benefit trusts Pension trusts

ICI’s Associated Companies in India Employees Pension Fund ICI India Management Staff Pension Fund Akzo Nobel India Employees Pension Scheme Gratuity Trusts

ICI India Limited Employees’ Gratuity Fund ICI India Management Staff Gratuity Fund Akzo Nobel India Employees Gratuity Trust 2016 Provident Fund Trusts

The Alkali and Chemical Corporation of India Limited Provident Fund ICI India Staff Provident Fund

ICI’s Associated Companies in India Staff Provident Fund

Note 6: As per Ind AS 110, the Company exercises ‘control’ on ICI India Research and Technology Centre under the definition of a ‘Control’ as it has exposure/right to variable returns from its involvement with the Research and Technology Centre.

Note 7. Employee benefits

Other long-term employee benefit obligations

The liabilities for annual leave, pension scheme for certain employees and long term service awards are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. They are therefore accrued using actuarial valuations and are measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Refer point (I) below.

Defined benefit plans

The Company makes specified monthly contributions towards employees’ provident fund to trusts administered by the Company for certain employees. The minimum interest payable by the provident fund trusts to the beneficiaries every year is notified by the Government. The Company has an obligation to make good the shortfall of contribution and interest (basis the actuarial valuation), if any, as at the date of the Balance Sheet.

The liability or asset recognized in the balance sheet in respect of defined benefit pension, provident fund and gratuity plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by actuary using the projected unit credit method. The Gratuity Plan provides a lump sum payment to vested employees as per payment of Gratuity Act, 1972 at retirement, disability or termination of employment being an amount based on the respective employee’s last drawn salary and the number of years of employment with the Company.

Post-employment medical benefits

The Company provides post-retirement healthcare benefits to their employees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit plans. Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited in other comprehensive income in the period in which they arise.

Defined contribution plans

Defined contribution plans are provident fund scheme, superannuation scheme and part of the pension fund scheme for eligible employees. The Company recognizes contribution payable to the respective employee benefit fund scheme as an expenditure, as an when they are due. The Company has no further payment obligations once the contributions have been made.

Employee benefit obligations

Significant Estimates: These are determined using actuarial valuations. An actuarial valuation involves making appropriate assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The above sensitivity analysis are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognized in the balance sheet. The method and type of assumptions used in preparing the sensitivity analysis did not change as compared to previous year.

(L) Risk exposure

Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which are detailed below:

Asset Volatility:- The plan liabilities are calculated using a discount rate set with reference to bond yields; if plan assets underperform this yield, this will create a return lesser than the yield. Most of the plan asset investments is in fixed income securities with high grades and in government securities. These are subject to interest rate risk and the fund manages interest rate risk to minimize risk to an acceptable level.

Changes in bond yields:- The defined benefit obligation calculated uses a discount rate based on government bonds. If bond yields fall, the defined benefit obligation will tend to increase

Inflation risks:- In the pension plans, the pensions in payment are not linked to inflation, so this is a less material risk.

Life expectancy:- The pension and medical plan obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the plans’ liabilities. This is particularly significant where inflationary conditions result in higher sensitivity to changes in life expectancy.

The Company ensures that the investment positions are managed within an asset-liability matching (ALM) framework that has been developed to achieve long-term investments that are in line with the obligations under the employee benefit plans. Within this framework, the company’s ALM objective is to match assets to the pension obligations by investing in long-term fixed interest securities with maturities that match the benefit payments as they fall due.

These are the Company’s first financial statements prepared in accordance with Ind AS. The accounting policies set out in note 2 have been applied in preparing the financial statements for the year ended 31 March 2017, the comparative information presented in these financial statements for the year ended 31 March 2016 and in the preparation of an opening Ind AS balance sheet as at 1 April 2015 (the Company’s date of transition). In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (‘previous GAAP’ or ‘Indian GAAP’). An explanation of how the transition from previous GAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows is set out in the following tables and notes.

Exemptions and exceptions availed

Set out below are the applicable Ind AS 101 ‘First time adoption’ optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.

a) Ind AS optional exemptions a.1 Deemed cost Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognized in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities.

Accordingly, the Company has elected to measure all of its property, plant and equipment at their previous GAAP carrying value.

a.2 Designation of previously recognized financial instruments Ind AS 101 allows an entity to designate investments in equity instruments at FVOCI on the basis of the facts and circumstances at the date of transition to Ind AS.

The Company has elected to apply this exemption for its investment in equity instruments.

a.3 Leases

Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease.

In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. Ind AS 101 provides an option to make this assessment on the basis of facts and circumstances existing at the date of transition to Ind AS, except where the effect is expected to be not material.

The Company has elected to apply this exemption for such contracts/arrangements.

a.4 Business combination

Ind AS 101 provides the option to apply Ind AS 103 prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date.

The Company elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Business combinations occurring prior to the transition date have not been restated. The group has applied same exemption for investment in associates and joint ventures

a.5 Prospective application of Ind AS 21 to business combination Ind AS 101 allows a first-time adopter not to apply Ind AS 21 Effects of changes in Foreign Exchange Rates retrospectively for business combinations that occurred before the date of transition to Ind AS. In such cases, where the entity does not apply Ind AS 21 retrospectively to fair value adjustments and goodwill, the entity treats them as assets and liabilities of the acquirer entity and not as the acquire.

b) Ind AS mandatory exceptions

b.1 Estimates

An entity’s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

Ind AS estimates as at 1 April 2015 are consistent with the estimates as at the same date made in conformity with previous GAAP The Company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:

- Investment in equity instruments carried at FVOCI

- Impairment of financial assets based on expected credit loss model.

- Asset retirement obligations (decommissioning liabilities).

b.2 De-recognition of financial assets and liabilities

Ind AS 101 requires a first-time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101 allows a first-time adopter to apply the de-recognition requirements in Ind AS 109 retrospectively from a date of the entity’s choosing, provided that the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognized as a result of past transactions was obtained at the time of initially accounting for those transactions.

The Company has elected to apply the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS.

b.3 Classification and measurement of financial assets Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis of the facts and circumstances that exist at the date of transition to Ind AS.

c) Reconciliations between previous GAAP and Ind AS Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for prior periods. The following tables represent the reconciliations from previous GAAP to Ind AS.

d) Notes to first-time adoption:

d.1 Fair valuation of investments

Under the previous GAAP, investments in equity instruments and mutual funds were classified as long-term investments or current investments based on the intended holding period and reliability. Long-term investments were carried at cost less provision for other than temporary decline in the value of such investments. Current investments were carried at lower of cost and fair value. Under Ind AS, these investments are required to be measured at fair value.

The resulting fair value changes of these investments (other than equity instruments designated as at FVOCI) have been recognized in retained earnings as at the date of transition and subsequently in the profit or loss for the year ended 31 March 2016. This increased the retained earnings by Rs, 333 as at 31 March 2016 (1 April 2015 - Rs, 214).

Fair value changes with respect to investments in equity instruments designated as at FVOCI have been recognized in FVOCI - Equity investments reserve as at the date of transition and subsequently in the other comprehensive income for the year ended 31 March 2016. This increased other reserves by Rs, 4 as at 31 March 2016 (1 April 2015 - Rs, 3) with corresponding increase in non current investments.

Consequent to the above, the total equity as at 31 March 2016 increased by Rs, 337 (1 April 2015

- Rs, 217) and other comprehensive income for the year ended 31 March 2016 increased by Rs, 120.

d.2 Proposed dividend

Under the previous GAAP, dividends proposed by the board of directors after the balance sheet date but before the approval of the financial statements were considered as adjusting events. Accordingly, provision for proposed dividend was recognized as a liability. Under Ind AS, such dividends are recognized when the same is approved by the shareholders in the general meeting. Accordingly, the liability for proposed dividend and dividend tax thereon of H 3,931 as at 31 March 2016 (1 April 2015 - H 1,120) included under provisions has been reversed with corresponding adjustment to retained earnings. Consequently, the total equity increased by an equivalent amount.

d.3 Recognition of government grants

Under the previous GAAP, Government Grant was recognized to the extent it met criteria of reasonable certainty of ultimate collection of outstanding amount.

As per Ind AS, since the eligibility of VAT incentive is linked to capital investment, therefore grant is considered to be of capital nature and hence recognized on a straight line basis over the useful life of the fixed assets.

As a result, grant receivable has been recognized (under other current financial assets) at Rs, 39 as on 31 March 2016 (1 April 2015- Rs, 31) with a corresponding credit of Rs, 8 to statement of profit and loss for the year ended 31 March 2016 and Rs, 31 to retained earnings as at 1 April 2015.

d.4 Reversal of lease equalization reserve

Under Ind AS lease payments under an operating lease shall be recognized as an expense on a straight-line basis over the lease term unless the payments to the less or are structured to increase in line with expected general inflation to compensate for the less or’s expected inflationary cost. The company has determined that increases in lease rent payments are inflationary only. Accordingly, the Company has reversed the balance of the lease rent equalization reserve outstanding in the previous GAAP financial statements by credit of Rs, 14 to the retained earnings as at the transition date and H 1 to statement of profit and loss for the year ended 31 March 2016.

d.5 Impairment loss on trade receivables

As per Ind AS 109, the Company is required to apply expected credit loss model for recognizing the allowance for doubtful debts. As a result, the allowance for doubtful debts decreased by Rs, 25 as at 31 March 2016 (1 April 2015 - Rs, 34).

d.6 Deferred tax

Under previous GAAP, deferred tax was computed on timing differences (profit and loss approach). Under Ind AS deferred tax is computed on temporary differences using a balance sheet approach. Temporary differences are differences between the carrying amount of an asset or liability in the balance sheet and its corresponding tax base.

The increase in deferred tax liability represents deferred tax recognized on the adjustments made on transition to Ind AS. Accordingly, profit for the year ended 31 March 2016 has reduced by Rs, 47 and retained earnings as at 1 April 2015 has decreased by Rs, 37.

d.7 Others

Other adjustments include adjustment in respect of fair valuation of interest free loans to employees, asset retirement obligations, finance lease of land, fair valuation of derivative forward contracts, security deposits etc, which have not been disclosed separately considering the materiality of the amounts involved.

Note 7.(B) Recent accounting pronouncements

Standards issued but not yet effective

In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendment) Rules, 2017, notifying amendments to Ind AS 7, ‘Statements of cash flows'' and Ind AS 102, ‘share-based payments''. The amendments are applicable to the Company from April 1, 2017.

Amendments to Ind AS 7:

The amendments to Ind AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.

Amendments to Ind AS 102:

The amendments to Ind AS 102 provides specific guidance to measurement of cash-settled awards, modification of cash-settled awards and awards that in a net settlement feature in respect of withholding taxes.

The company is evaluating the requirements of the above amendments and their effect on the financial statements.

Note 8.

‘Managerial remuneration paid by erstwhile Akzo Nobel Coatings India Private Limited (‘AN Coatings''), since amalgamated with the Company, for the years ended 31 March 1999 and 31 March 2000 was in excess of limits prescribed under the Companies Act,1956 by an amount of H 10 million. AN Coatings had, therefore, made applications with the Central Government for approval of the excess remuneration paid, for which response is awaited.

Note 9.

The disclosure requirement as envisaged in Notification G.S.R 308(E) dated 30 March 2017 is not applicable to the Company.

Note 10.

The financial statements of the Company for the year ended 31 March 2016 and 31 March 2015 prepared in accordance with the Companies (Accounting Standards) Rules, 2006 (as amended) were audited by another firm of Chartered Accountants who expressed an unmodified opinion vide reports dated 13 May 2016 and 28 May 2015 respectively.

Note 11.

The Company has established a comprehensive system of maintenance of information and documents as required by the transfer pricing legislation under section 92-92F of The Income Tax Act, 1961. Since the law requires such information and documentation to be contemporaneous in nature, the Company is in process of updating the documentation of international transactions with the Associated Enterprises during the financial year and expects such records to be in existence latest by the due date of filing the return of income. The management is of the opinion that its international transactions are at arm’s length so that aforesaid legislation will not have any material impact on the financial statements, particulars on the amount of tax expense and that of provision for taxation.

Note 12.

Previous year figures has been regrouped and reclassified where ever necessary to conform with the current year classifications.


Mar 31, 2015

Note 1.1 Contingent liabilities

As at As at 31 March 2015 31 March 2014

(a) Claims against the Company not acknowledged as debts 91 50

(b) Sales tax matters under appeal 227 188

(c) Excise matters in dispute / under appeal 88 88

(d) Industrial relations and other matters under dispute 2 2

(e) Income tax matters in dispute / under appeal *

" The Income tax assessments for the Company have been completed up to the financial year ended 31 March 2010. Arising from such assessments and appellate orders, the demands aggregate Rs 1,145 million (2013-14 : Rs 1,309 million). The Company as well as the Income tax department have filed appeals on these matters. Pending decisions in the appeals, neither the refunds nor the liabilities for the demands have been recognised in the accounts. The Company, based on its assessment of such cases, is of the view that the final outcome is not likely to have significant adverse impact on the financial statements.

(b) Title in certain immovable properties, taken over pursuant to the Scheme of Amalgamation is to be transferred in the name of the Company.

(a) The Company uses forward exchange contracts to hedge against its foreign currency exposures relating to the underlying transactions. The Company has not entered into any derivative instruments for trading or speculative purposes or for highly probable forecast transactions. The forward exchange contracts outstanding (all 'buy' contracts) are as under:

(b) The Company's Foreign currency exposures that are not hedged by derivative instruments as on 31 March 2015 amount to Rs 852 million (31 March 2014: Rs 753 million)

Note 5.10 Operating lease

(a) The Company has given colour solution machines under operating leases to various dealers and customers. These have been disclosed under

'Plant and machinery -given under operating lease' in note 3.8 (Fixed assets). The future lease rentals receivable in respect of these assets, based on the agreements in place, are as under :

(b) Obligation on long term non-cancellable operating leases.

The Company has taken office space on operating. The lease rentals charged during the year and maximum obligations on long term non-cancellable operating leases payable as per the rentals stated in the respective agreements are as follows:

Note 1.1

Managerial remuneration paid by the erstwhile Akzo Nobel Coatings India Private Limited ("AN Coatings"), since amalgamated with the Company was in excess of limits prescribed under the Companies Act,1956 by an amount of Rs 8 million and Rs 3 million for the years ended 31 March 1999 and 31 March 2000 respectively. AN Coatings had, therefore, made applications with the Central Government for approval of the excess remuneration paid, for which response is awaited.

Note 1.2

During the quarter ended 30 June 2014, the Company had paid Commission amounting to Rs 3.6 million to its Non-Executive Directors for the year ended 31 March 2014, which has been approved by the shareholders at the Annual General Meeting held on 11 August 2014.

Note 1.3

As per Section 135 of the Companies Act. 2013, a corporate social responsibility (CSR) committee has been formed by the Company. The areas for CSR activities include promoting education including vocational training and skills development, ensuring environmental sustainability, promoting road safety, promoting preventive health care and sanitation, contribution to Prime Minister's national relief fund or any other fund set up by the Government for relief and welfare and any other area the Board may find appropriate. Gross amount required to be spent by the Company during the year was Rs 32.3 million.

(c) Estimates of future salary increases take account of inflation, seniority, promotion, and other relevant factors, such as supply and demand in the employment market.

(d) 'In case of actuarial valuation of post retirement medical benefit, the following medical inflation rates have been considered: Nil for 2015-16 and 8% thereafter. A one percentage point change in assumed healthcare cost trend rates would have the following effects on the aggregate of service cost and interest cost and defined benefit obligation:

$ Shown as an expense/gain netted under 'Contribution to provident and other funds' in Note 4.6

* Discount rate is based on market yields available on Government bonds as at 31 March 2015 with a term that matches that of the liabilities

* Excludes inter segment assets Foot notes:

i) The business segments have been identified in line with the Accounting Standard 17, taking into account the nature of products, risks and returns, organisation structure and internal reporting system.

ii) Inter segment prices are normally negotiated amongst the segments with reference to the costs, market prices and business risks, within the overall optimisation objectives of the Company.

iii) Segment revenue, results and assets and liabilities include the respective amounts identifiable to each of the segments. Other un-allocable items in segment results include income from investment of surplus funds of the Company and corporate expenses. Unallocable assets include un-allocable fixed assets and other assets. Unallocable liabilities include un-allocable current liabilities and net deferred tax liability.

1. (a) List of related parties where control exists:

- Imperial Chemical Industries Limited, England (holding company upto 3 June 2012 and related party having significant influence thereafter)

- Ultimate Holding Company : Akzo Nobel N.V, Netherlands

(b) Other related parties with whom transactions have taken place during the year:

Fellow subsidiaries:

Akzo Nobel Amides Co., Limited Akzo Nobel Paints Lanka (Pvt) Ltd

Akzo Nobel Automotive & Aerospace Coatings Mexico S A De C V Akzo Nobel Paints Taiwan Limited

Akzo Nobel Car Refinishes Indonesia Akzo Nobel Paints Vietnam Ltd

Akzo Nobel Chang Cheng Ltd Akzo Nobel Polymer Chemicals (Ningbo) Co., Ltd.

Akzo Nobel China Investment Co. Ltd. Akzo Nobel Polymer Chemicals B.V

Akzo Nobel Decorative Coatings B.V. Akzo Nobel Polymer Chemicals LLC

Akzo Nobel Functional Chemicals bv Akzo Nobel Powder Coatings (Ningbo) Co., Ltd.

Akzo Nobel Ltda- Divisao Titas EM PO Akzo Nobel Powder Coatings B.V.

Akzo Nobel Powder Coatings SAS Akzo Nobel Powder Coatings Korea Co., Limited

Akzo Nobel Pulp and Perfromance Chemicals AB Akzo Nobel Powder Coatings S.A.E.

Akzo Nobel REP Off BV Akzo Nobel Powder Coatings South Africa (Proprietary) Limited

Akzo Nobel (China) Investment Co., Ltd. Akzo Nobel Projects & Engineering B.V.

Akzo Nobel (Shanghai) Co. Ltd. Akzo Nobel Pty. Limited

Akzo Nobel Amides Co. Ltd. Akzo Nobel Surface Chemistry AB

Akzo Nobel Argentina S.A. Akzo Nobel Surface Chemistry LLC

Akzo Nobel Asia Pte. Ltd. Akzo Nobel UAE Paints L.L.C.

Akzo Nobel Boya Sanayi ve Ticaret A.S. AkzoNobel Paints Singapore Pte ltd

Akzo Nobel Car Refinishes (Singapore) Pte Ltd EKA Chemicals AB

Akzo Nobel Car Refinishes (Suzhou) Company Limited ICI (Malaysia) Holdings Sdn Bhd

Note 1.3 Related Party Disclosures (contd.)

Akzo Nobel Car Refinishes Australia Pty Ltd Akzo Nobel Car Refinishes B.V.

Akzo Nobel Car Refinishes SL

Akzo Nobel Chang Cheng Coatings (Guangdong) Co., Ltd.

Akzo Nobel Chemicals AG

Akzo Nobel Chemicals International B.V.

Akzo Nobel Coatings (Dongguan) Co. Ltd.

Akzo Nobel Coatings (Jiaxing) Co. Ltd.

Akzo Nobel Coatings (Tianjin) Co., Ltd.

Akzo Nobel Coatings CZ, a.s.

Akzo Nobel Coatings GmbH Akzo Nobel Coatings Inc.

Akzo Nobel Coatings International B.V.

Akzo Nobel Coatings Ltd Akzo Nobel Coatings S.P.A.

Akzo Nobel Coatings Sdn Bhd

Akzo Nobel Cross-Linking Peroxides (Ningbo) Co. Ltd

Akzo Nobel Decorative Coatings B.V.

Akzo Nobel Decorative Paints France S.A.

Akzo Nobel Functional Chemicals AB Akzo Nobel Functional Chemicals B.V.

Akzo Nobel Industrial Finishes (Hong Kong) Limited Akzo Nobel Industrial Paints, S.L.

Akzo Nobel International Paint (Suzhou) Co. Ltd.

Akzo Nobel Ltda

Akzo Nobel N.V.

Akzo Nobel Packaging Coatings GmbH Akzo Nobel Packaging Coatings Limited Akzo Nobel Packaging Coatings S.A.

Akzo Nobel Packaging Coatings S.A.S Akzo Nobel Paints (Asia Pacific) Pte Ltd Akzo Nobel Paints (Malaysia) Sdn. Bhd.

Akzo Nobel Paints (Thailand) Ltd.

ICI Dulux (Pty) Limited ICI India Research & Technology Centre

International Paint - Finland International Paint - Vietnam

International Paint Japan K.K.

International Paint Limited International Paint Ltda International

Paint -Ukraine International Farbenwerke GmbH International Farg AB

International Maling A/S International Paint (Akzo Nobel Chile) Ltda

International Paint (Hong Kong) Limited International Paint (Korea) Ltd

International Paint (Nederland) B.V.

International Paint (Panama) Inc.

International Paint (Taiwan) Ltd International Paint Limited

International Paint LLC International Paint of Shanghai Co Ltd

International Paint Pazarlama Limited Sirketi International Paint Sdn

Bhd International Paint Singapore Pte Ltd International Peinture S.A.

IP Singapore Pte -Vietnam

Keum Jung Akzo Nobel Peroxides Ltd.

Pinturas Inca S.A.

PT Akzo Nobel Car Refinishes Indonesia

PT International Paint Indonesia

PT ICI Paints Indonesia

Shanghai ICI Research & Development & Management Co. Ltd Tianjin Akzo Nobel Peroxides Co. Ltd

Key managerial persons

Mr. Nihal Kaviratne CBE Chairman

Mr. Jayakumar Krishnaswamy Managing Director

Mr. Himanshu Agarwal Wholetime Director and CFO

Mr. Amit Jain Managing Director (upto 31 December 2013)

Mr. Partha Sarathi Basu Wholetime Director (upto 31 August 2013)

Note 1.4

The Company has established a comprehensive system of maintenance of information and documents as required by the transfer pricing legislation under section 92-92F of the Income Tax Act, 1961. Since the law requires such information and documentation contemporaneous in nature, the Company is in process of updating the documentation of international transactions with the associated enterprises during the financial year and expects such records to be in existence latest by the due date of filing the return of income. The management is of the opinion that its international transactions are at arms length so that aforesaid legislation will not have any material impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.


Mar 31, 2014

Note 1: Scheme of Amalgamation

(a) A Scheme of Amalgamation of Akzo Nobel Car Refnishes India Private Limited (AN Car); Akzo Nobel Chemicals (India) Limited (AN Chemicals); Akzo Nobel Coatings India Private Limited (AN Coatings) (collectively referred to as "Transferor companies"); and Akzo Nobel India Limited (the Company) and their respective shareholders, under sections 391 to 394 of the Companies Act, 1956 ("the Scheme") was approved by the shareholders of the respective companies and sanctioned by the Honourable High Court of Karnataka (vide its Orders dated 18 April 2012), Calcutta (vide its Order dated 24 April 2012) and Bombay (vide its Order dated 11 May 2012).

(b) The Scheme became effective on 18 May 2012 ("Effective Date") on fling of the last of the certified copies of the Orders with the Registrar of Companies. The Appointed Date from which the Scheme became operative was 1 April 2011 (the "Appointed Date").

(c) Upon the Scheme becoming effective, the Company has issued and allotted 11,125,983 equity shares of Rs. 10 each, credited as fully paid-up, to the members of the Transferor Companies in the previous year.

Note 1.1: Contingent liabilities

As at 31 March 2014 As at 31 March 2013

(a) Claims against the Company not acknowledged as debts 50 50

(b) Sales tax matters under appeal 188 215

(c) Excise matters in dispute / under appeal 88 88

(d) Industrial relations and other matters under dispute 2 2

(e) Bank guarantees ( third parties, etc.) - -

(f) Income tax matters in dispute / under appeal *

* The Income tax assessments for the Company have been completed upto the finanicial year ended 31 March 2010. Arising from such assessments and appellate orders, the demands aggregate Rs. 1,309 million (2012-13 : Rs. 1,166 million), and the refunds aggregate Rs. NIL (2012-13 : Rs. 1,186 million). The Company as well as the Income tax department have fled appeals on these matters. Pending decisions in the appeals, neither the refunds nor the liabilities for the demands have been recognised in the accounts. The Company, based on its assessment of such cases, is of the view that the final outcome is not likely to have significant adverse impact on the finanicial statements.

Note 1.2: Capital and other commitments

(b) Post amalgamation in 2011-12 (refer to note 2), the Company has transferred the land, building and assets of the transferor companies in Bangalore to its name (refer note 2). The stamp duty thereon has been assessed and amount has been remitted to the relevant authority. The amount so remitted has been capitalised under respective asset classes. The assets of the transferor company in Mahad are pending transfer.

Note 1.3

Managerial remuneration paid by the erstwhile Akzo Nobel Coatings India Private Limited ("AN Coatings"), since amalgamated with the Company (Refer to note 2), was in excess of limits prescribed under the Companies Act,1956 by an amount of Rs. 8 million and Rs. 3 million for the years ended 31 March 1999 and 31 March 2000 respectively. AN Coatings had, therefore, made applications with the Central Government for approval of the excess remuneration paid, for which response is awaited

Disclosures made in accordance with Accounting Standard

(AS 15) pertaining to ''Defined benefit'' plans

(i) The actuarial valuation of Defined benefit plans was carried out as on 31 March 2014. The net actuarial gain on account of post retirement benefits scheme amounting to Rs. 21 million (2012-13: actuarial gain of Rs. 10 million) relating to medical insurance costs have been provided for and included in ''Other retirement benefit charges'' (Note 4.6: Employee benefits expense). Actuarial gains/losses (net) relating to other schemes have been included in ''Contribution to provident and other funds''.

(ii) During the year, the Company has purchased annuities for management staff pensioners for an amount of Rs. 1 million.(2012-13: Rs. 6 million for Management Staff pensioners).

(iii) The Company has separate pension schemes for management staff and non-management staff. The former scheme is in the nature of ''final salary'' plan and the latter scheme is in the nature of ''fat salary'' plan. The Company also has separate gratuity schemes for management and non-management staff. The benefits paid are as per the scheme rules or as per Payment of Gratuity Act, 1972, whichever are more beneficial.

(iv) The guidance on implementing AS-15 (Revised) issued by Accounting Standards Board of the Institute of Chartered Accountants of India states that benefits involving employer established provident funds, which requires interest shortfall to be recompensated, are to be considered as Defined benefit plans. On the basis of actuarial valuations carried out by the actuary no shortfall has been identified in the trusts managed by the Company. The amount of contribution during the year of Rs. 35 million (2012-13: Rs. 32 million) has been included in ''Contributions to provident and other funds'' in Note 4.6.

Note 1.14: Previous year figures have been regrouped/reclassified to make them comparable to the current year figures.


Mar 31, 2013

Note 1.1: Change in accounting estimates for depreciation of fixed assets

In the previous year, post amalgamation of the transferor companies (Refer to Note 2), management reviewed the expected period of utilisation of assets across the entities and revised the estimated useful life of certain categories of assets, viz., furniture and fixtures and office equipment. Accordingly, as per Accounting Standard (AS) 6 ''Depreciation Accounting'', depreciation charge was computed by amortising the balance depreciable amount of such fixed assets as at 1 April 2011 over their revised remaining useful life. However, the impact of the above was not significant.

Note 1.2: Forward exchange contracts

(a) The Company uses forward exchange contracts to hedge against its foreign currency exposures relating to the underlying transactions. The Company has not entered into any derivative instruments for trading or speculative purposes or for highly probable forecast transactions.

The forward exchange contracts outstanding (all ''buy'' contracts) are as under:

Note 1.3

Managerial remuneration paid by the erstwhile Akzo Nobel Coatings India Private Limited ("AN Coatings"), since amalgamated with the Company (Refer to Note 2), was in excess of limits prescribed under the Companies Act,1956 by an amount of Rs 8 million and Rs 3 million for the years ended 31 March 1999 and 31 March 2000 respectively. AN Coatings had, therefore, made applications with the Central Government for approval of the excess remuneration paid, for which response is awaited.

Disclosures made in accordance with Accounting Standard (AS 15) pertaining to ''defined benefit'' plans:

(i) The actuarial valuation of Defined Benefit plans was carried out as on 31 March 2013. The net actuarial gain on account of post retirement benefits scheme amounting to Rs 10 million (2011-12: actuarial gain of Rs 14 million) relating to medical insurance costs have been provided for and included in ''Other retirement benefit charges'' (Note 4.6: Employee benefits expense). Actuarial gains/losses (net) relating to other schemes have been included in ''Contribution to provident and other funds''.

(ii) During the year, the Company has purchased annuities for management staff pensioners for an amount of Rs 6 million (2011-12: Rs. 9 million for Management Staff pensioners).

(iii) The Company has separate pension schemes for management staff and non-management staff. The former scheme is in the nature of ''final salary'' plan and the latter scheme is in the nature of ''flat salary'' plan. The Company also has separate gratuity schemes for management and non-management staff. The benefits paid are as per the scheme rules or as per Payment of Gratuity Act, 1972, whichever are more beneficial.

(iv) The guidance on implementing AS-15 (Revised) issued by Accounting Standards Board of the Institute of Chartered Accountants of India states that benefits involving employer established provident funds, which requires interest shortfall to be recompensated, are to be considered as defined benefit plans. On the basis of actuarial valuations/assessments carried out by the actuary no shortfall has been identified in the trusts managed by the Company. The amount of contribution during the year of Rs 32 million (2011-12: Rs 23 million) has been included in ''Contributions to provident and other funds'' in Note 4.6.

Note 1.4: Segment Information

(A) Information about primary business segments

(1) The Company''s business segments comprise of:

Coatings: consisting of decorative, automotive, industrial paints and related activities. Others: consisting of chemical and polymers.

Note 1.5: Related Party Disclosures

1. (a ) List of related parties where control exists

- Imperial Chemical Industries Limited, England (holding company up to 3 June 2012 and related party having significant influence thereafter)

- Ultimate Holding Company: Akzo Nobel N.V, The Netherlands

(b) Other related parties with whom transactions have taken place during the year

- Fellow subsidiaries

Akzo Nobel Amides Co., Limited

Akzo Nobel Car Refinishes Indonesia

Akzo Nobel Chang Cheng Ltd

Akzo Nobel China Investment Co. Ltd

Akzo Nobel Decorative Coatings B.V.

Akzo Nobel Functional Chemicals bv

Akzo Nobel Ltda-Divisao Titas EM PO

Akzo Nobel Powder Coatings SAS

Akzo Nobel Pulp and Performance Chemicals AB

Akzo Nobel REP Off BV

Akzo Nobel (China) Investment Co., Ltd

Akzo Nobel (Shanghai) Co. Ltd

Akzo Nobel Amides Co. Ltd

Akzo Nobel Argentina S.A.

Akzo Nobel Asia Pte. Ltd

Akzo Nobel Boya Sanayi ve Ticaret A.S.

Akzo Nobel Car Refinishes (Singapore) Pte Ltd

Akzo Nobel Car Refinishes (Suzhou) Company Limited

Akzo Nobel Car Refinishes Australia Pty Ltd

Akzo Nobel Car Refinishes B.V.

Akzo Nobel Car Refinishes SL

Akzo Nobel Chang Cheng Coatings (Guangdong) Co., Ltd

Akzo Nobel Chemicals AG

Akzo Nobel Chemicals International B.V.

Akzo Nobel Coatings (Dongguan) Co. Ltd

Akzo Nobel Coatings (Jiaxing) Co. Ltd

Akzo Nobel Coatings (Tianjin) Co., Ltd

Akzo Nobel Coatings CZ, a.s.

Akzo Nobel Paints Lanka (Pvt) Ltd

Akzo Nobel Paints Taiwan Limited

Akzo Nobel Paints Vietnam Ltd

Akzo Nobel Polymer Chemicals (Ningbo) Co., Ltd

Akzo Nobel Polymer Chemicals B.V.

Akzo Nobel Polymer Chemicals LLC

Akzo Nobel Powder Coatings (Ningbo) Co., Ltd

Akzo Nobel Powder Coatings B.V.

Akzo Nobel Powder Coatings Korea Co., Limited

Akzo Nobel Powder Coatings S.A.E.

Akzo Nobel Powder Coatings South Africa (Pty) Limited

Akzo Nobel Pty. Limited

Akzo Nobel Surface Chemistry AB

Akzo Nobel Surface Chemistry L.L.C.

Akzo Nobel UAE Paints L.L.C.

AkzoNobel Paints Singapore Pte ltd

EKA Chemicals AB

ICI (Malaysia) Holdings Sdn Bhd

ICI Dulux (Pty) Limited

ICI India Research & Technology Centre

International Paint - Finland

International Paint - Vietnam

International Paint Japan K.K.

International Paint Limited

International Paint Ltda

International Paint - Ukraine

International Farbenwerke GmbH

International Farg AB

Akzo Nobel Coatings GmbH

Akzo Nobel Coatings Inc.

Akzo Nobel Coatings International B.V.

Akzo Nobel Coatings Ltd

Akzo Nobel Coatings S.P.A.

Akzo Nobel Coatings Sdn Bhd

Akzo Nobel Cross-Linking Peroxides (Ningbo) Co. Ltd

Akzo Nobel Decorative Coatings B.V.

Akzo Nobel Decorative Paints France S.A.

Akzo Nobel Functional Chemicals AB

Akzo Nobel Industrial Finishes (Hong Kong) Limited

Akzo Nobel Industrial Paints, S.L.

Akzo Nobel International Paint (Suzhou) Co. Ltd

Akzo Nobel Ltda

Akzo Nobel N.V

Akzo Nobel Packaging Coatings GmbH

Akzo Nobel Packaging Coatings Limited

Akzo Nobel Packaging Coatings S.A.

Akzo Nobel Packaging Coatings S.A.S

Akzo Nobel Paints (Asia Pacific) Pte Ltd

Akzo Nobel Paints (Malaysia) Sdn. Bhd.

Akzo Nobel Paints (Thailand) Ltd

International Maling A/S

International Paint (Akzo Nobel Chile) Ltda

International Paint (Hong Kong) Limited

International Paint (Korea) Ltd

International Paint (Nederland) B.V

International Paint (Panama) Inc.

International Paint (Taiwan) Ltd

International Paint Limited

International Paint LLC

International Paint of Shanghai Co. Ltd

International Paint Pazarlama Limited Sirketi

International Paint Sdn Bhd

International Paint Singapore Pte Ltd

International Peinture S.A.

IP Singapore Pte - Vietnam

Keum Jung Akzo Nobel Peroxides Ltd

Pinturas Inca S.A.

PT Akzo Nobel Car Refinishes Indonesia

PT International Paint Indonesia

Shanghai ICI Research & Development & Management Co. Ltd

Tianjin Akzo Nobel Peroxides Co. Ltd

- Key managerial persons

Mr Nihal Kaviratne CBE Chairman

Mr Amit Jain Managing Director

Mr Partha Sarathi Basu Wholetime Director

Note 1.6: Previous year figures have been regrouped/reclassified to make them comparable to the current year figures.


Mar 31, 2012

(a) A Scheme of Amalgamation of Akzo Nobel Car Refinishes India Private Limited (AN Car), Akzo Nobel Chemicals (India) Limited (AN Chemicals), Akzo Nobel Coatings India Private Limited (AN Coatings) (collectively referred to as "Transferor Companies") and Akzo Nobel India Limited (the Company) and their respective shareholders, under Sections 391 to 394 of the Companies Act, 1956 ("the Scheme") has been approved by the shareholders of the respective companies and sanctioned by the Honourable High Courts of Karnataka (vide its Orders dated 18 April 2012), Calcutta (vide its Order dated 24 April 2012) and Bombay (vide its Order dated 11 May 2012).

(b) The Scheme became effective on 18 May 2012 ("Effective Date") on filing of the last of the certified copies of the Orders with the Registrar of Companies. The Appointed Date from which the Scheme is operative is 1 April 2011 (the "Appointed Date").

(c) AN Car was engaged in the business of marketing automotive paints and related research and development. AN Chemicals was engaged in the business of manufacturing of chemicals. AN Coatings was engaged in the business of manufacturing and marketing industrial paints.

(d) Consequent to the Scheme becoming effective from the Appointed Date, the entire business and undertakings of the Transferor Companies, including all assets, debts, liabilities, duties and obligations have, without further act, instrument or deed, but subject to the charges affecting the same as on the Effective Date, been transferred and vested in the Company. On the Scheme becoming effective, all staff, workmen and employees of the Transferor Companies in service on the Effective Date, are deemed to have become staff, workmen and employees of the Company.

(e) During the period from the Appointed Date to the Effective Date, the Transferor Companies have been deemed to have carried on their respective business and activities for and on account of and in trust for the Company. Accordingly, the revenue from operations and profit before tax of the Transferor Companies for the year ended 31 March 2012, included in the financial statements, amounts to Rs 6,250 million and Rs 241 million respectively.

(f) Upon the Scheme becoming effective and in consideration for the amalgamation of the Transferor Companies, the Company shall issue and allot equity shares, credited as fully paid-up, to the extent indicated below, to the members of the Transferor Companies in the following proportion:

- 403 fully paid-up equity shares of Rs 10 each of the Company for every 100 fully paid-up equity shares of Rs 1,000 each held in AN Car;

- 51 fully paid-up equity shares of Rs 10 each of the Company for every 100 fully paid-up equity shares of Rs 10 each held in AN Chemicals; and

- 970 fully paid-up equity shares of Rs 10 each of the Company for every 100 fully paid-up equity shares of Rs 10 each held in AN Coatings.

The new equity shares to be issued to the members of the Transferor Companies shall be in multiples of 1 and any fractional shares shall be rounded-off to the next higher multiple of 1. The new equity shares to be issued shall rank pari passu with the existing equity shares of the Company. In accordance with the above, 11,125,983 equity shares of Rs 10 each will be issued, which presently have been shown as "Share capital pending allotment" in the Balance Sheet. The record date for issue of shares as above to the shareholders of the Transferor Companies has been determined as 18 May 2012.

(g) In terms of the Scheme, the authorised share capital of the Company stands enhanced to an amount of Rs 1,266.90 million divided into 126,690,000 equity shares of Rs 10 each, without any further act, instrument or deed on the part of the Company, including payment of stamp duty and fees payable to Registrar of Companies.

(h) In terms of the Scheme, the Company has accounted for the amalgamation based on the 'Pooling of Interest' method as under:

- All the assets and liabilities recorded in the books of the Transferor Companies have been recorded by the Company at their respective book values; the amount of inter-company balances have been cancelled.

- The identity of the reserves of the Transferor Companies as on the Appointed Date, if any, has been preserved and they appear in the financial statements of the Company in the same form and manner, in which they appeared in the Financial Statements of the Transferor Companies; and

- The surplus arising between the aggregate values of assets of the Transferor Companies acquired, net of the aggregate of the liabilities of the Transferor Companies, together with the share capital issued, and reserves of the Transferor Companies recorded by the Company (i.e, the difference between the amount recorded as share capital issued and the amount of share capital of the Transferor Companies), has been adjusted to the Capital Reserve Account of the Company as under:

Footnotes

(i) Of the above equity shares, 21,967,644 shares (2010-11: 20,776,213 shares) are held by Imperial Chemical Industries Limited, England, the holding Company. The ultimate holding Company is Akzo Nobel N.V., Netherlands and does not hold any shares in the Company directly.

(ii) During the current year and in the previous year, there has been no movement in the number of equity shares outstanding. This does not consider the shares pending allotment in accordance with the Scheme of Amalgamation (Refer to note 2). In accordance with the terms of the Scheme of Amalgamation, 11,125,983 shares of Rs 10 each, fully paid-up, will be issued and, therefore, presently have been shown as "Share capital pending allotment" in the Balance Sheet.

(iii) The Company has only one class of equity shares, having a par value of Rs 10 per share. Each shareholder is eligible to one vote per share held. The Company declares and pays dividend in Indian Rupees. The dividend proposed, if any, by the Board of Directors is subject to approval of shareholders in the ensuing Annual General Meeting. The repayment of equity share capital in the event of liquidation and buy back of shares are possible subject to prevalent regulations. In the event of liquidation, normally, the equity shareholders are eligible to receive the remaining assets of the Company, after distribution of all preferential amounts in proportion to their shareholding.

(iv) Shares in the Company held by each shareholder holding more than 5% of equity share capital:

(v) Number of equity shares of Rs 10 each bought back in the five years immediately preceeding the Balance Sheet date, aggregates to 4,036,281 (2010-11: 4,036,281).

(b) Provisions relating to indirect taxes are in respect of proceedings of various sales tax, excise duty, customs duty and other indirect tax cases, including those relating to divested businesses. Outflows in all these cases, including their timing and certainty, would depend on the developments/outcome in these cases, though, presently categorised as short term due to uncertainty involved.

(c ) Provisions relating to divested businesses (other than any indirect tax cases relating to such businesses) are in respect of existing/ anticipated costs arising from divestment of businesses (Catalyst, Explosives, Rubber, Chemicals, Uniqema, Paints Advanced Refinish and Adhesives business) and subsidiaries (Quest International India Limited and Polyinks Limited). Outflows in these cases will depend upon settlement of demands/claims. These include a provision of Rs 125 million (as on 31 March 2011: Rs 125 million) carried forward from 2002-03 in respect of continuing obligation of the Company towards probable land cost liability on sale of Catalyst business.

(d) Miscellaneous claims are relating to litigation matters in respect of sale of properties and demand for past arrears in respect of electricity.

(e) The utilisation of the above provisions would depend on the resolution of the related issues, though classified as long term or short term, based on the management's best estimates and information presently available.

*In a prior year, the erstwhile Akzo Nobel Car Refinishes India Private Limited (AN Car), had received an interest free advance of Rs 17 million in the nature of share application money from a fellow subsidiary, under an assignment of dues by Akzo Nobel Coating International B.V. (the non-resident holding company of AN Car). AN Car had not allotted the shares or refunded the amount till 31 March 2011. In the current year, an application has been made to the Reserve Bank of India (RBI) seeking permission to retain the amount as an interest free advance and for condonation of non-compliances, if any, by AN Car under the Foreign Exchange Management Act, 1999. The response of RBI is awaited, though the Company is hopeful of a favourable conclusion.

Footnotes

1. Investment in shares are fully paid-up, except where indicated otherwise.

2. The non-convertible redeemable bonds carry a maturity face value of Rs 30,000 per bond with a zero coupon. The related income based on implicit yield to maturity has been accrued and included in long-term loans and advances.

3. Fixed maturity plans of mutual funds, wherever considered quoted, are so considered based of readily available net asset values.

4. During the year Debentures of Woodlands Research Foundation were converted into equity shares of Woodlands Multi speciality Hospital

Limited.

Note 1.1: Contingent liabilities

As at As at 31 March 2012 31 March 2011

(a) Claims against the Company not acknowledged as debt 50 50

(b) Sales tax matters under appeal 123 129

(c) Excise matters in dispute/under appeal 88 85

(d) Industrial relations and other matters under dispute 2 2

(e) Bank guarantees (third parties, etc) 91 -

(f) Income Tax matters in dispute/under appeal*

*The Income Tax assessments for the Company have been completed up to the financial year ended 31 March 2007. Arising from such assessments and appellate orders, the demands aggregate to Rs 1,675 million (2010-11: Rs 1,545 million) and the refunds aggregate to Rs 1,296 million (2010-11: Rs 1,356 million). The Company as well as the Income Tax department have filed appeals on these matters. Pending decision in the appeals, neither the refunds nor the liability for the demands have been recognised in the accounts. The Company, based on its assessment of such cases, is of the view that the final outcome is not likely to have significant liabilities.

Note 1.2: Change in accounting estimates for depreciation of fixed assets

Post-amalgamation of the Transferee companies (Refer to note 2), the management reviewed the expected period of utilisation of assets across the entities and has revised the estimated useful life of certain categories of assets, viz., furniture and fixtures and office equipment. Accordingly, as per Accounting Standard (AS) 6 'Depreciation Accounting', depreciation charge has been computed by amortising the balance depreciable amount of such fixed assets as at 1 April 2011 over their revised remaining useful life. However, the impact of the above is not significant.

Note 1.3

Managerial remuneration paid by the erstwhile Akzo Nobel Coatings India Private Limited ("AN Coatings"), since amalgamated with the Company (Refer to note 2), was in excess of limits prescribed under the Companies Act,1956 by an amount of Rs 8 million and Rs 3 million for the years ended 31 March 1999 and 31 March 2000, respectively. AN Coatings had, therefore, made an application with the Central Government for approval of the excess remuneration paid, for which no response has been received so far.

Disclosures made in accordance with Accounting Standard (AS 15) pertaining to 'defined benefit' plans

(i) The actuarial valuation of defined benefit plans was carried out as on 31 March 2012. The net actuarial gain on account of post-retirement benefits scheme amounting to Rs 14 million (2010-11: actuarial loss of Rs 30 million) relating to medical insurance costs have been provided for and included in 'Other retirement benefit charges' (Note 4.6: Employee benefits expense ). Actuarial gains/losses (net) relating to other schemes have been included in 'Contribution to provident and other funds'.

(ii) During the year, the Company has purchased annuities for remaining management staff pensioners for an amount of Rs 9 million.(2010-11: Rs 389 million for management staff pensioners and Rs 143 million for some of the non-management staff pensioners).

(iii) The Company has separate pension schemes for management staff and non-management staff. The former scheme is in the nature of 'final salary' plan and the latter scheme is in the nature of 'flat salary' plan. The Company also has separate gratuity schemes for management and non-management staff. The benefits paid are as per the scheme rules or as per Payment of Gratuity Act, 1972, whichever are more beneficial.

(iv) The guidance on implementing AS-15 (Revised) issued by Accounting Standards Board of the Institute of Chartered Accountants of India states that benefits involving employer established provident funds, which requires interest shortfall to be recompensated, are to be considered as defined benefit plans. During the year, the Institute of Actuaries has issued a Guidance Note on Valuation of Interest Guarantees on Exempt Provident Funds under AS 15 (Revised). On the basis of actuarial valuations/assessments carried out by the actuary under this Guidance Note, a shortfall of Rs 0.3 million has been identified in one of the Trusts managed by the Company and the amount has been provided for during the year. In the previous year, in the absence of such guidance, the Company had estimated that there was no shortfall and actuarial valuation was not necessary. The amount of contribution during the year of Rs 23 million (2010-11: Rs 18 million) has been included in 'Contributions to provident and other funds' in Note 4.6.

Notes

i) The business segments have been identified in line with the Accounting Standard 17, taking into account the nature of products, risks and return, organisation structure and internal reporting system.

ii) Inter segment prices are normally negotiated amongst the segments with reference to the costs, market prices and business risks, within an overall optimisation objective for the Company.

iii) Segment revenue, results and assets and liabilities include the respective amounts identifiable to each of the segments. Other unallocable items in segment results include income from investment of surplus funds of the Company and corporate expenses. Unallocable assets include unallocable fixed assets and other assets. Unallocable liabilities include unallocable current liabilities and net deferred tax liability.

Note 1.4: Revision in Schedule VI format

The financial statements for the year ended 31 March 2011 had been prepared as per the then applicable pre-revised Schedule VI to the Companies Act, 1956. Consequent to the notification of revised Schedule VI under the Companies Act, 1956, the financial statements for the year have been prepared as per the revised Schedule VI. Accordingly, the previous year figures have also been reclassified to conform to this year's classification. The adoption of revised Schedule VI for the previous year figures does not impact recognition and measurement principles followed for preparation of financial statements. The following is a broad summary of significant effects that revised Schedule VI has, primarily on the presentation of the Balance Sheet of the Company as at 31 March 2011:


Mar 31, 2011

1 contingent liabilities not provided for:

As at 31 March As at 31 March 2011 2010 (Rs million) (Rs million) (a) Claims not acknowledged as debt 50 50

(b) Sales tax matters under appeal 129 109

(c) Excise matters in dispute / under appeal 85 50

(d) Industrial relations and other matters under dispute 2 2

(e) Income tax matters in dispute / under appeal

(f) Any other matter - 128

* The Income tax assessments for the Company have been completed up to the financial year ended 31 March 2007. Arising from the completed assessments and appellate orders, the demands aggregate Rs 1545 million (2009-10 : Rs 1378 million), and the total refunds aggregate Rs 1356 million (2009-10 : Rs 1105 million). The Company as well as the Income tax department have fled appeals on these matters. Pending decision in the appeals, neither the refunds nor the liability for the demands have been recognised in the accounts.

2 Sale of National Starch business

(i) The Company sold its National Starch (Specialty Starches) business on a slump sale basis, on 30 December 2010, to C P Ingredients India Private Limited for a consideration of Rs 133 million, inclusive of working capital transferred and other adjustments as per the Business Transfer agreement concluded between the two parties.

(ii) Profit on sale of the business of Rs.113 million, after adjusting the assets transferred of Rs. 17 million and related transaction cost of Rs. 3 million, has been shown as Exceptional item in Profit and Loss Account.

(iii) The National Starch business was not treated as a separate reportable segment, being classified as Others in Segment Information (Note 17 of Schedule 18). Since the business did not represent a major line of business, the disposal has not been treated as a discontinuing operation under Accounting Standard AS 24 for the purpose of disclosure requirements under the Standard.

(iv) The Company received Rs. 171 million as advance in respect of the sale of the above business from the buyer. Excess consideration received amounting to Rs. 38 million has been included under Current Liabilities as creditors.

3 Income from investments, interest and others are stated at gross amounts. The amount of income tax deducted aggregates Rs 2 million (2009-10 : Rs 4 million).

4 Loss on account of foreign exchange fluctuations for the year is Rs 11 million, included in Sundries in schedule 14 (2009-10 : Gain of Rs 8 million included in Miscellaneous receipts in schedule 12)

Footnotes :

1. N. A. - Not Applicable.

2. Production meant for sale is after adjustment of shortages, handling losses, quantity internally consumed.

3. Licensed and installed capacity in respect of intermediates, used entirely for captive consumption, have not been furnished.

4. All items are delicensed.

5. Installed capacities are as certified by the management.

6. Installed capacity of Catalysts is utilised for toll conversion operations undertaken on behalf of Johnson Matthey Chemicals India Private Limited and, therefore, quantity processed has not been included in actual production.

*Notes

(a) Provisions relating to indirect taxes are in respect of proceedings of various sales tax, excise duty, customs duty and other indirect tax cases, including those relating to discontinued businesses. Outflows in all these cases, including their timing and certainty, would depend on the developments/outcome in these cases.

(b) Provisions relating to divested businesses (other than any indirect tax cases relating to such businesses) are in respect of existing / anticipated costs arising from divestment of businesses (Catalyst, Explosives, Rubber Chemicals, Uniqema, Paints Advanced Refinish and Adhesive business) and subsidiaries (Quest International India Limited and Polyinks Limited). Outflows in these cases will depend upon settlement of demands/claims. This includes a provision of Rs 125 million (as on 31 March 2010: Rs 125 million) carried forward from 2002-03 in respect of continuing obligation of the Company towards probable land cost liability on sale of Catalyst business.

(c) Other provisions are relating to litigation matters in respect of sale of properties and demand for past arrears in respect of electricity .

(d) The utilisation of the provisions under (b) and (c) would depend on the resolution of the related issues which are expected in the next two to three years.

5 Employee Benefits

(F) Actuarial assumptions

(c) Estimates of future salary increases take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

(d) In case of actuarial valuation of post retirement medical benefit, the following medical inflation rates have been considered: actual rate for 2011-12, 8% for 2012-13 and 6% for 2013-14 onwards. A one percentage point change in assumed healthcare cost trend rates would have the following effects on the aggregate of service cost and interest cost and defined benefit obligation:

$ Included as an expense in Contribution to provident and other funds in Schedule 14.

* Discount rate is based on market yields available on Government bonds as at 31 March 2011 with a term that matches that of the obligation.

(ii) The actuarial valuation of Defined Benefit plans was carried out as on 31 March 2011. The net actuarial loss on account of post retirement benefits scheme amounting to Rs. 30 million (2009-10: Rs. 95 million) relating to medical insurance costs have been provided for and included in Other retirement benefit charges (Schedule 14: Other Expenditure). Actuarial gains/losses (net) relating to other schemes have been included in Contribution to provident and other funds.

(iii) During the year, the Company has purchased annuities for all management staff pensioners and some of the non- management staff pensioners for an amount of Rs. 389 million and Rs. 143 million respectively.

(iv) The management staff pension trust (defined benefit trust) has an unrecognized surplus (fair value of plan assets over obligations) of Rs 71 million as this amount is in excess of contributions towards future service cost of defined benefit members. The Company also has a defined contribution scheme for employees in the same trust and has adjusted this surplus against future contributions in respect of such employees. Accordingly the above surplus, after adjusting employer cost for the year, amounting to Rs 53 million has been recognised in the Profit and Loss Account in Schedule 12 and considered as an advance under Loans and Advances, Schedule 8.

(v) The Company has separate pension schemes for management staff and non-management staff. The former scheme is in the nature of fnal salary plan and the latter scheme is in the nature of fat salary plan. The Company also has separate gratuity schemes for management and non-management staff. The benefits paid are as per the scheme rules or as per Payment of Gratuity Act, 1972, whichever are more beneficial.

(vi) The guidance on implementing AS-15 (Revised) issued by Accounting Standards Board of the Institute of Chartered Accountants of India states that benefit involving employer established provident funds, which requires interest shortfall to be recompensated, are to be considered as defined benefit plans. As confirmed by the Actuary, there is no formal guidance from Acturial Society of India in this regard,and the Company believes that actuarial valuation at present is not necessary. The amount of contribution during the year of Rs 18 million (2008-09: Rs 18 million) has been included in Contributions to provident and other funds in Schedule 14.

6 Segment Information

(A) Information about primary business segments :

(1) The Companys business segments comprise of:

Paints : consisting of decorative and refinish paints.

Others : consisting of specialty starch and polymers (Specialty Starch business sold during the year refer note 3, schedule 18).

* Excludes inter segment assets

Notes:-

i) The business segments have been identified in line with the Accounting Standard 17, taking into account the nature of products, risks and return, organisation structure and internal reporting system.

ii) Segment revenue, results and assets and liabilities include the respective amounts identifiable to each of the segments. Other un-allocable items in segment results include income from investment of surplus funds of the Company and corporate expenses. Unallocable assets include un-allocable fixed assets and current assets. Unallocable liabilities include un-allocable current liabilities and net deferred tax liability.

7 Related Party Disclosures

1. (a) list of related parties where control exists:

- Holding Company : Imperial Chemical Industries Limited, England.

- Ultimate Holding Company : Akzo Nobel N.V., Netherlands

(b) Other related parties with whom transactions during the year have taken place :

- Fellow subsidiaries:

Akzo Nobel Car Refinishes India Pvt Ltd. ICI Swire Paints (Shanghai) Ltd

Akzo Nobel Car Refinishes Singapore National Starch - Singapore

Akzo Noble Chemicals (India) Ltd. National Starch & Chemical Ltd. London

Akzo Nobel Coatings India Pvt Ltd. National Starch & Chemical Ltd. Thailand

Akzo Nobel Decorative Coatings BV (IM) National Starch & Chemical - USA (Bridgewater)

Akzo Nobel Lanka (Pvt.) Limited National Starch & Chemical (Singapore) Pte Ltd.

Akzo Nobel Ltd - Brazil Pinturas INCA

Akzo Nobel Paints (Asia Pacific) Pte Ltd Quest International Egypt SAE

Akzo Nobel Paints Taiwan Ltd. Shanghai ICI R&D

Akzo Nobel Surface Chemistry AB The Glidden Co.

Akzo Nobel Surface Chemistry LLC USA Vietnam Holdings

Akzo Nobel Surface Chemistry Pte Ltd.

Akzo Nobel (Shanghai) Co. Ltd.

Akzo Nobel Paints Singapore Pte ltd

Eka Chemicals (Thailand) Ltd

ICI ( Paints) Vietnam Ltd.

ICI Paints Indonesia

ICI Paints (Malaysia) Sdn Bhd

ICI Paints (Thailand) Ltd

ICI India Research & Technology Centre

- Key managerial persons

Mr. A Narayan Chairman (up to 30 Sep 2010)

Mr. N Kaviratne CBE Chairman (from 01 Oct 2010 )

Mr. R L Jain Managing Director (upto 31 May 2009)

Mr. A Jain Managing Director (from 1 Jun 2009)

Mr. P S Basu Wholetime Director (from 01 Nov 2010)

8 (a) The Company uses forward exchange contracts to hedge against its foreign currency exposures relating to the underlying transactions

The Company has not entered into any derivative instruments for trading or speculative purposes or for highly probable forecast transaction.

(b) The Companys net foreign currency exposure [receivable/(payable)] that are not hedged by a derivative instrument or otherwise as on 2010-11: nil (2009-10: nil)

9 The figures relating to previous year have been regrouped, wherever necessary, to conform with the current years classification.


Mar 31, 2010

1. Contingent liabilities not provided for:

(a) Claims not acknowledged as debt 50 59 (b) Sales tax matters under appeal 109 102 (c) Excise matters in dispute / under appeal 50 50 (d) Industrial relations and other matters under dispute 2 2 (e) Income tax matters in dispute / under appeal * (f) Any other matter 128 -

* The Income tax assessments for the Company have been completed up to the financial year ended 31 March 2006. Arising from the completed assessments and appellate orders, the total demand / liability is Rs 1378 million (2008-09 : Rs 1319 million), and the total refund is Rs 1105 million (2008-09 : Rs 1072 million). The Company as well as the Income tax department have gone on further appeal on these matters. Pending decision in the appeals, neither the refunds nor the liability for the demands have been recognised in the accounts.

2. Share buyback

During the year 1,235,195 shares (2008-09 : 310,424 shares) were bought back at a consideration of Rs 696 million, (including related expense of Rs. 3 million) [2008-09: Rs.154 million (including related expense of Rs. 4 million)], in terms of the share buy back scheme open between 19 December 2008 and 18 December 2009.

This has been accounted as below:

- The nominal value of shares purchased i.e. Rs. 12 million has been adjusted against the share capital (2008-09: Rs. 3 million). An equal amount has been reduced from General Reserve and credited to Capital Redemption Reserve, as per the provisions of the Companies Act, 1956.

- The difference between consideration paid and nominal value of shares aggregating Rs. 684 million has been adjusted against General Reserve.(2008-09: Rs. 151 million)

All shares bought back were extinguished during the year. (2008-09: Out of the 310,424 shares bought back, 173,472 shares were extinguished till 31 March 2009 and 136,952 shares were extinguished on 8 April 2009.) Following the above share buyback, the holding of Imperial Chemical Industries Limited in the Company as on 31 March 2010 is 56.40% (as on 31 March 2009: 54.57%).

3. As on 31 March 2010, there are no amounts due to be deposited with the Investor Education and Protection Fund, in respect of deposits and unclaimed dividends. (2008-09: Nil)

4. Income from investments, interest and others are stated at gross amounts. The amount of income tax deducted thereon is Rs 4 million (2008-09 : Rs 14 million)

5. Gain on account of foreign exchange fluctuations for the year of Rs 8 million is included in Miscellaneous receipts in schedule 11 (2008-09 : Loss of Rs 11 million included in Sundries in schedule 13)

6. Sales exclude sale of equipment at cost amounting to Rs. 6 million (2008-09: Rs 6 million).

7. The Board of Directors had proposed dividend of Rs 16.00 per share for the year 2008-09, at the Board Meeting held on 15 May 2009. Subsequent to the Board Meeting, the Company bought back 37,549 shares, as per the buyback scheme approved by the shareholders. Therefore, these shares were not entitled to dividend at the date of book closure and the excess dividend provision of Rs 0.6 million and excess dividend tax of Rs. 0.1 million have been written back during the year.

8. Related Party Disclosures

1. List of related parties:

a) Holding Company : Imperial Chemical Industries Limited, England.

b) Ultimate Holding Company : Akzo Nobel N.V., Netherlands

c) Other related parties (fellow subsidiaries) where common control exists and with whom transactions during the year have taken place :

Akzo Nobel Car Retinishes BV Akzo Nobel Car Refinishes India Pvt Ltd Akzo Nobel Coatings India Pvt Ltd Akzo Nobel Decorative Coatings BV Akzo Nobel Ltda - Brazil Akzo Nobel Paints (Asia Pacific) Pte Ltd Akzo Nobel Surface Chemistry LLC USA Akzo Nobel Surface Chemistry Personal C Elotex AG Akzo Nobel Surface Chemistry Pte Ltd Akzo Nobel Chemicals (India) Ltd Akzo Nobel Lanka (Pvt.) Ltd Eka Chemicals (Thailand) Ltd ICI ( Paints) Vietnam Ltd ICI Paints Indonesia ICI Paints (Malaysia) Sdn Bhd ICI Paints (Thailand) Ltd ICI Swire Paints (Shanghai) Ltd Inter - National Starch, Inc National Starch and Chemical (Singapore) Pte Ltd National Starch and Chemical Ltd, London National Starch and Chemical - Trading Co Ltd (Thailand) National Starch and Chemical - USA (Bridgewater) National Starch and Chemical (Singapore) Pte Ltd National Starch and Chemical (Shanghai) Ltd National Starch Specialties (Shanghai) Ltd Pinturas INCA The Glidden Co. Vietnam Holdings

d) Key managerial personnel Mr. A. Narayan Chairman Mr. R. L. Jain Managing Director (up to 31 May 2009) Mr. A. Jain Managing Director (with effect from 1 June 2009)

9. The figures relating to previous year have been regrouped wherever necessary to conform with the current years classification.

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