Note 1: Background

Balaji Telefilms Limited (‘the Company’) was incorporated on November 10, 1994 under the Companies Act, 1956. The Company has established itself as a leader in television content in India particularly for Hindi language content and has also successfully ventured in the regional television content market and event business. The company is also in the business of production of films. The registered office and principal place of business of the Company is at Andheri (West), Mumbai.

Note 2: Critical Estimates and Judgements

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. This note provides an overview of the areas that involve a higher degree of judgement 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 judgements is included in relevant notes together with information about the basis of calculation for each affected line item in the financial statements.

The areas involving critical estimates or judgements are: Estimated useful life of Tangible Assets:

The Company reviews the useful lives and carrying amount of property, plant and equipment at the end of each reporting period. This reassessment may result in change in depreciation and amortisation expense in future periods.

Estimation of Current Tax Expense and Income Tax Payable / Receivable:

The calculation of Company’s tax charge necessarily involves a degree of estimation and judgement in respect of certain items whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority or, as appropriate, through a formal legal process. The final resolution of some of these items may give rise to material adjustment to taxable profits/losses.

Estimation of Defined Benefit Obligation:

The Company’s obligation on account of gratuity is determined based on actuarial valuations. An actuarial valuation involves making various 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, this liability is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The parameter most subject to change is the discount rate. In determining the appropriate discount rate, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation.

The mortality rate is based on publicly available mortality tables. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases are based on expected future inflation rates.

Estimation of Contingent Liabilities:

The company exercises judgement in measuring and recognising provisions and the exposures to contingent liabilities which is related to pending litigation or other outstanding claims. Judgement is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise, and to quantify the possible range of the financial settlement. Because of the inherent uncertainty in this evaluation process, actual liability may be different from the originally estimated as provision or contingent liability.

Recognition of Deferred Tax Assets:

The recognition of deferred tax assets is based upon whether it is probable that sufficient taxable profits will be available in the future against which the reversal of temporary differences will be offset. To determine the future taxable profits, the management considers the nature of the deferred tax assets, recent operating results, future market growth, forecasted earnings and future taxable income in the jurisdictions in which the company operates.

Impairment of Trade Receivables:

Trade receivables are typically unsecured and are derived from revenue earned from customers. Credit risk has been managed by the Company through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. On account of adoption of Ind AS 109, the Company uses expected credit loss model to assess the impairment loss or gain. The company uses a provision matrix and forward-looking information and an assessment of the credit risk over the expected life of the financial asset to compute the expected credit loss allowance for trade receivables.

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

The average credit period on sales is 75 days. No interest is charged on trade receivables overdue. The Company has generally recognised an allowance for doubtful debts at 100% against receivables from whom recoverability is uncertain.

Trade receivables disclosed above include amounts that are past due at the end of the reporting period for which the Company has not recognised an allowance for doubtful debts because there has not been a significant change in credit quality and the amounts are still considered recoverable.

In determining the recoverability of a trade receivable, the Company considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of the reporting period.

The Company has provided Rs. 345.70 (Previous Year Rs. 232.57) lacs towards doubtful receivables as at March 31, 2018

(iii) Terms and rights attached to equity shares

The company has only one class of equity shares having a par value of Rs. 2 per share. Each shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in ensuing Annual General Meeting except in case of interim dividend. In the event of liquidation of the company, the shareholders will be eligible to receive the remaining assets of the company, after distribution of all preferential amounts, in proportion to their shareholding.

(iv) No shares are issued for consideration other than cash during the 5 years immediately preceding March 31, 2018.

Nature and purpose of reserves :

A. General Reserve : General reserve is created out of transfer from retained earnings and is a free reserve.

B. Securities Premium Account : Security Premium is created to record the premium on issue of shares. The reserve is utilised in accordance with the provisions of the Companies Act, 2013.

C. Capital Reserve : Capital Reserve represents excess of net assets taken over pursuant to the scheme of arrangement sanctioned by National Company Law Tribunal (Refer note 30.12).

Notes:

(a) Micro, Small and Medium Enterprises :

The balances above includes Rs. Nil (Previous Year Rs. Nil) due to Micro and Small Enterprises registered under the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act).

No interest is paid / payable during the year to any Micro / Small Enterprise registered under the MSME. There were no delayed payments during the year to any Micro or Small Enterprise registered under the MSME Act.

The above information has been determined to the extent such parties could be identified on the basis of the information available with the Management regarding the status of suppliers under the MSME Act.

Pursuant to the notices issued to Balaji Motion Pictures Limited (BMPL), pertaining to the films division acquired by company under scheme of merger (Refer Note 30.12), under Section 153A of Income-tax Act, 1961 (in respect of proceedings initiated under section 132) the assessments for all the relevant assessment years were completed by the Department during the quarter ended June 30, 2015. During the year ended March 31, 2017, the BMPL has filed appeals with the Income-tax Appellate Tribunal (ITAT), against the Orders passed by the Commissioner of Income-tax (Appeals) confirming the penalty imposed by the assessing officer. During the year ended March 31, 2018, ITAT deleted the penalty for Assessment year 2010-11 and order is awaited for AY 2013-14.

3.1 Pursuant to action under Section 132 of the Income-tax Act, 1961 during the financial year 2013-14, the Company filed Return of Income u/s 153A for the respective years from FY 2006-07 to FY 2013-14. Income Tax Department completed the assessment thereof u/s 143(3) read with Section 153A in the financial year 2015-16. However, since there were differences in the original returns filed u/s 139(1) and those filed u/s 153A for the respective years, orders levying penalty were passed. The Company succeeded in cancelling the penalty for one of the year Penalty procedings for other years is still pending for disposal before the Income-tax Appellate Tribunal, Mumbai. The Order u/s 132B dated September 27, 2017 is received by the Company. The Company, as a matter of abundant precaution, has adjusted the net penalty amount against the advance tax balance appearing in the books and the resultant charge (net of interest on refund due) amounting to Rs. 905.07 lacs is debited to the Statement of Profit and Loss and disclosed under Exceptional Items for the year ended March 31, 2018.

3.2 The Company has investments in subsidiaries/body corporates namely Balaji Motion Pictures Limited (BMPL), ALT Digital Media Entertainment Limited (ALT), Chhayabani Balaji Entertainment Private Limited (CBEPL) and Marinating Films Private Limited (MFPL) aggregating to Rs. 31,419.69 lacs (Previous year Rs. 15,834.47 lacs including investment in Event Media LLP (EMLLP)). Further, the Company has also given loans and advances aggregating to Rs. 886.38 lacs to BMPL (Previous year Rs. 282.53 lacs given to BMPL, ALT and EMLLP). As per the latest audited balance sheet of BmPl and MFPL for the year ended March 31, 2018, the accumulated losses have fully eroded the net-worth of the respective companies. However, no provision for diminution in the value of the investments is considered necessary as the investments are strategic longterm investments and the diminution in the value of investments is temporary in nature. As per the latest audited balance sheet of CBEPL the investment is substantially eroded and in ALT the investment is partially eroded as at March 31, 2018, these investments have been recently made and the diminution in the value is temporary in nature. The company is committed to provide financial support to BMPL, ALT, CBEPL and MFPL for a period of atleast 12 months from the date of signature of these financial statements, in such case if assistance is needed.

Note

(i) There are no provision for doubtful debts, amounts written off or written back during the year in respect of debts due from or due to related parties.

(ii) Figures in bracket relate to the previous year.

(iii) The company provides long term benefits in the form of gratuity to its key managerial person along with all employees, cost of the same is not identifiable seperately and hence not disclosed.

3.3 Employee Benefits

a) Defined Contribution Plans

Both the employees and the Company make pre-determined contributions to the provident fund. Amount recognized as expense amounts to Rs. 88.19 lacs (Previous Year Rs. 81.21 lacs)

b) Defined Benefit Plans Gratuity

The Company operates a gratuity plan covering qualifying employees. The benefit payable is as per the Payment of Gratuity Act, 1972. The benefit vests upon completion of five years of continuous service and once vested it is payable to employees on retirement or on termination of employment. In case of death while in service, the gratuity is payable irrespective of vesting. The Company makes annual contribution to the group gratuity scheme administered by the Life Insurance Corporation of India through its Gratuity Trust Fund.

The above sensitivity analyses 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 recognised in the Balance sheet.

The methods and types of assumptions used in preparing the sensitivity analyses did not change compared to previous period.

The Company’s policy is driven by considerations of maximizing returns while ensuring credit quality of the debt instruments. The asset allocation for plan assets is determined based on investment criteria prescribed under the Indian Income Tax Act, 1961, and is also subject to other exposure limitations. The Company evaluates the risks, transaction costs and liquidity for potential investments. To measure plan asset performance, the Company compares actual returns for each asset category with published benchmarks.

The expected rate of return on plan assets is based on the average long term rate of return expected on investments of the fund during the estimated term of obligation.

The estimate of future salary increases, considered in actuarial valuation, takes account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

Note: Where required by Ind AS 24 an entity discloses information about: (a) related party transactions with post-employment benefit plans; and (b) post-employment benefits for key management personnel.

Note: Where required by Ind AS 37 an entity discloses information about contingent liabilities arising from post employment benefit obligations.

3.4 Lease Transactions

Amount of lease rentals charged to the Statement of profit and loss in respect of operating leases is Rs. 1,768.50 Lacs (Previous Year Rs.1,782.06 Lacs)

3.5 Segment Information

The company has presented data relating to it’s segments in it’s Consolidated Financial Statements. Accordingly, in term of paragraph 4 of the Indian Accounting Standard (Ind AS 108) “Operating Segments”, no disclosure related to it’s segments are presented in the Standalone Financial Statements.

3.6 The company is in arbitration/ litigation in respect of certain advances recoverable from vendors out standing as at March 31, 2018. On the basis of the evaluation carried out by the company, in consultation with the lawyers, the amounts are considered recoverable.

3.7 The composite Scheme of Arrangement and Amalgamation (the ‘Scheme’) between the Company and two of its subsidiaries viz. Balaji Motion Pictures Limited (‘BMPL’) and Bolt Media Limited (‘Bolt’), for the merger of Bolt and the film production undertaking of BMPL with the Company and the consequent capital reduction in the books of BMPL has been approved by the National Company Law Tribunal (Mumbai bench) (‘NCLT’) and subsequently filed with the Registrar of Companies, Securities and Exchange Board of India and Stock Exchanges by December 15, 2017 (the ‘Effective date’). Pursuant to the Scheme becoming effective, the same has been accounted for in accordance with ‘Pooling of Interest’ method specified in Appendix C of Ind-AS 103 Business Combinations.

* For the purpose of this clause, the term ‘Specified Bank Notes’ shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic affairs member S.O. 3407(E), dated the November 8, 2016.

(b) The reporting or disclosure related to SBNs is not applicable to the Company for the year ended March 31, 2018

3.8 The Company has adopted the employee stock option plan by the name of Balaji Telefilms ESOP, 2017. The members of the company have approved the scheme by passing Special Resolution by way of Postal Ballot on December 30, 2017. The Nomination and Remuneration Committee made note of the approved scheme and recommended the same to the Board for signing at its meeting held on February 13, 2018. The scheme has received In principal-approval from BSE and NSE on April 13, 2018 and April 26, 2018 respectively.

3.9 Fair Value Measurements

‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk. The best evidence of the fair value of a financial instrument on initial recognition is normally the transaction price - i.e. the fair value of the consideration given or received.

(i) Fair Value hierarchy

This section explains the judgements and estimates made in determining the fair value of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. 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 the accounting standard. An explanation of each level follows underneath the table.

The carrying value of trade receivables, cash and cash equivalents, loans, trade payables and other financial assets and liabilities are considered to be the same as their fair values due to their short term nature.

The fair value of financial instruments as referred to in note above have been classified into three categories depending on the inputs used in valuation technique. The hierarchy gives highest priority to quoted prices in active market for identical assets or liabilities (Level 1 measurement) and lowest priority to unobservable inputs (Level 3 measurement). The categories used are as follows:

Level-1 Hierarchy includes financial instruments measured using quoted price.

Level-2 The fair value of financial instruments that are not traded in an active market is determined using valuation technique which maximise 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.

Level -3 If one or more of the significant inputs is not based on observable market data, the instrument is include in Level 3.

(ii) Valuation technique used to determine fair value

Specific valuation technique used to value financial instruments include:

1) The mutual funds are valued using closing NAV available in the market.

2) The fair value of the remaining financial instruments is determined using discounted cash flow analysis.

(iii) Fair value measurements using significant unobservable inputs (level 3)

The following table presents the changes in level 3 items for the year ended March 31, 2018

(iv) Valuation input and sensitivity assessment

Expected growth rate is the significant unobservable input which has been used in the level 3 fair valuation mesurements. The sensitivity to changes in the expected growth rate to the valuation as at March 31, 2018 is as follows:

- Investment in Indus Balaji Investor Trust (growth rate considered - 5%): Increasing/Decreasing the expected growth rate by 1% would change the fair value by Rs. 285.94 lacs and (Rs. 226.06) lacs respectively.

- Investment in preference shares of Marinating Films Private Limited (growth rate considered - 5%): Increasing/Decreasing the expected growth rate by 1% would change the fair value by Rs. 29.01 lacs and (Rs. 27.99) lacs respectively.

- Investment in preference shares of Chhayabani Balaji Entertainment Private limited (growth rate considered - 5%):

Increasing/Decreasing the expected growth rate by 1% would change the fair value by Rs. 4.80 lacs and (Rs. 4.20) lacs respectively.

(v) Valuation process

The valuation of financial assets required for financial reporting purposes is done by an independent valuer appointed by the management. Assumptions used for the valuation are provided by the finance department of the Company after discussion with the chief financial officer (CFO) and business unit heads.

3.10 Financial Risk Management Risk management framework

The Company’s activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Company’s primary risk management focus is to minimize potential adverse effects of market risk on its financial performance. The Company’s risk management assessment and policies and processes are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Board of Directors and the management is responsible for overseeing the Company’s risk assessment and management policies and processes.

(A) Credit Risk

Credit risk arises when a counterparty defaults on its contractual obligations to pay resulting in financial loss to the Company. The Company deals with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Company uses publicly available financial information and its own trading records to rate its major customers. The Company’s exposure and credit ratings of its counterparties are regularly monitored and the aggregate value of transactions concluded is spread amongst counterparties.

(i) Credit Risk Management

Financial instruments and cash deposits

The Company maintains exposure in cash and cash equivalents, term deposits with banks and investments in mutual funds. The Company has diversified portfolio of investment with various number of counter-parties which have good credit ratings and hence the risk is reduced. The credit worthiness of such banks and financial institutions is evaluated by the management on an ongoing basis and is considered to be good. As a practice, the company only invests with high rated banks/institutions. The Company’s maximum exposure to credit risk as at March 31, 2018 and March 31, 2017 is the carrying value of each class of financial assets as disclosed in note 30.15.

Security deposits given to lessors

The Company has given security deposit to lessors for premises leased by it as at March 31, 2018 and March 31, 2017. The credit worthiness of such lessors is evaluated by the management on an ongoing basis and is considered to be good.

Trade receivables

Trade receivables are typically unsecured and are derived from revenue earned from customers. Credit risk has been managed by the Company through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. Exposures to customers outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses. Historical trends of impairment of trade receivables do not reflect any significant credit losses. Given that the macro economic indicators affecting customers of the Company have not undergone any substantial change, the Company expects the historical trend of minimal credit losses to continue.

(B) Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The responsibility for liquidity risk management rests with the Board of directors, which has an appropriate liquidity risk management framework for the management of the Company’s short-, medium- and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities by regularly monitoring forecast and actual cash flows.

(C ) Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk such as equity price risk. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

(a) Foreign currency risk exposure:

The Company does not have any exposure to foreign currency risk as at March 31, 2018 (Previous year Rs. Nil).

(b) Interest rate risk

The Company does not have any borrowings and is thus not exposed to interest rate risk as at March 31, 2018 (Previous year Rs. Nil).

(c) Price risk

(i) Exposure

The company’s exposure to investments arises from investment held by the company in mutual funds and classified in the balance sheet as fair value through profit or loss.

To manage its price 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. Preference investments in subsidiaries are held for strategic purpose and are not trading in nature.

3.11 Capital Management

The company considers the following components of its Balance Sheet to be managed capital:

Total equity as shown in the balance sheet including reserves, retained earnigs and share capital.

The company aim is to manages its capital efficiently so as to safeguard its ability to continue as a going concern and to optimize returns to our shareholders.

The company’s policy is to maintain a stable and strong capital structure with a focus on total equity so as to maintain investor, creditors and market confidence and to sustain future development and growth of its business. The company will take appropriate steps in order to maintain, or if necessary adjust, its capital structure.

3.12 Recent accounting pronouncements - Standards issued but not yet effective :

The Ministry of Corporate Affairs (“MCA”) notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 (the ‘Rules’) on March 28, 2018. The rules notify the new revenue standard Ind AS 115, Revenue from contracts with customers and also bring in amendments to existing Ind AS. The rules shall be effective from reporting periods beginning on or after April 1, 2018 and cannot be early adopted.

a. Ind AS 115, Revenue from contracts with customers

Ind AS 115, Revenue from contracts with customers deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a promised good or service and thus has the ability to direct the use and obtain the benefits from the good or service in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The standard replaces Ind AS 18 Revenue and Ind AS 11 Construction contracts and related appendices.

The new standard is mandatory for financial years commencing on or after April 1, 2018 and early application is not permitted. The standard permits either a full retrospective or a modified retrospective approach for the adoption.

The Company is evaluating the requirements of the new revenue standard (Ind AS 115) and the effect on the financial statements, if any.

b. Appendix B to Ind AS 21 Foreign currency transactions and advance consideration

The MCA has notified Appendix B to Ind AS 21, Foreign currency transactions and advance consideration. The appendix clarifies how to determine the date of transaction for the exchange rate to be used on initial recognition of a related asset, expense or income where an entity pays or receives consideration in advance for foreign currency-denominated contracts.

The Company is evaluating the requirements of the amendment and the effect on the financial statements, if any.

c. Amendments to Ind AS 12 Income taxes regarding recognition of deferred tax assets on unrealised losses

The amendments clarify the accounting for deferred taxes where an asset is measured at fair value and that fair value is below the asset’s tax base. They also clarify certain other aspects of accounting for deferred tax assets set out below:

- A temporary difference exists whenever the carrying amount of an asset is less than its tax base at the end of the reporting period.

- the estimate of future taxable profit may include the recovery of some of an entity’s assets for more than its carrying amount if it is probable that the entity will achieve this. for example, when A fixed-rate debt instrument is measured at fair value, however, the entity expects to hold and collect the contractual cash flows and it is probable that the asset will be recovered for more than its carrying amount.

- Where the tax law restricts the source of taxable profits against which particular types of deferred tax assets can be recovered, the recoverability of the deferred tax assets can only be assessed in combination with other deferred tax assets of the same type.

- Tax deductions resulting from the reversal of deferred tax assets are excluded from the estimated future taxable profit that is used to evaluate the recoverability of those assets. This is to avoid double counting the deductible temporary differences in such assessment.

An entity shall apply the amendments to Ind AS 12 retrospectively in accordance with Ind AS 8. However, on initial application of the amendment, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity.

The Company is evaluating the requirements of the amendment and the effect on the financial statements, if any.