Project Report

On
Significant accounting policies

Prepared By
Krishna Gagiya

En. No. 91900458010

A Report Submitted to
Marwadi University in Partial Fulfillment of the Requirements for the
B.Com (H) in Faculty of Liberal Studies

November, 2020

MARWADI UNIVERSITY
Rajkot-Morbi Road, At & Po. Gauridad,
Rajkot-360003, Gujarat, India.
 project Report on

Hindustan unilever limited’s

Accounting policies

Analysis
Prepared by Krishna Gagiya

Marwadi University, Rajkot Page - 2

 Content of the project

1. Introduction of the Company

1) Brief Introduction

2) Profile of the Company

2. Recent accounting developments

3. Significant accounting Policies

4. Conclusion

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 Introduction Of the Company
1. Introduction :

Hindustan Unilever Limited (HUL) is an Indian consumer goods company headquartered

in Mumbai, India. It is a subsidiary of Unilever, a British-Dutch company. Its products include
foods, beverages, cleaning agents, personal care products, water purifiers and other fast-moving
consumer goods.

HUL was established in 1931 as Hindustan Vanaspati Manufacturing Co. and following a
merger of constituent groups in 1956, it was renamed Hindustan Lever Limited. The company was
renamed in June 2007 as Hindustan Unilever Limited.

As of 2019 Hindustan Unilever's portfolio had 35 product brands in 20 categories. The

company has 18,000 employees and clocked sales of ₹34,619 crores in FY2017–18.

In December 2018, HUL announced its acquisition of GlaxoSmithkline's India business for
$3.8 billion in an all equity merger deal with a 1:4.39 ratio. However the integration of GSK's 3,800
employees remained uncertain as HUL stated there was no clause for retention of employees in the
deal. In April 2020, HUL completed its merger with GlaxoSmithKline Consumer Healthcare
(GSKCH India) after completing all legal procedures.

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 2. Profile of the Company :

Type Public

BSE: 500696
Traded as
NSE: HINDUNILVR
BSE SENSEX Constituent
NSE NIFTY 50 Constituent
ISIN INE030A01027
Industry Fast-moving consumer goods
Predecessor Hindustan Vanaspati Manufacturing
Company (1931–1956)
Lever Brothers India Limited (1933–1956)
United Traders Limited (1935–1956)
Hindustan Lever Limited (1956–2007)
Founded 1933; 87 years ago
Headquarters Mumbai
,
India
Key people Sanjiv Mehta (CEO)
Products Foods, cleaning agents personal care
products and water purifiers
Revenue ₹38,785 crore (US$5.4 billion) (2019-20)
Operating income ₹6,743 crore (US$950 million)(2019-20)
Net income ₹6,738 crore (US$940 million) (2019-20)
Number of employees 18,000 (2018)
Parent Unilever plc (61.90%)
Website hul.co.in

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 Recent Accounting Developments

IND AS 115: Revenue from Contracts with Customers In March 2018, the Ministry of
Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules,
2017, notifying Ind AS 115, Revenue from Contracts with Customers''. The Standard is applicable
to the Company with effect from 1st April, 2018.

Revenue from Contracts with Customers Ind AS 115 establishes a single comprehensive
model for entities to use in accounting for revenue arising from contracts with customers. Ind AS
115 will supersede the current revenue recognition standard Ind AS 18 Revenue, Ind AS 11
Construction Contracts when it becomes effective.

The core principle of Ind AS 115 is that an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. Specifically, the standard
introduces a 5-step approach to revenue recognition: -

Step 1: Identify the contract(s) with a customer

Step 2: Identify the performance obligation in contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

Under Ind AS 115, an entity recognizes revenue when (or as) a performance obligation is
satisfied, i.e. when â control of the goods or services underlying the particular performance
obligation is transferred to the customer. The Company has completed its evaluation of the possible
impact of Ind AS 115 and will adopt the standard from 1st April, 2018.

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 Significant accounting Policies

1) Property, Plant and Equipment:

Property, plant and equipment is stated at acquisition cost net of accumulated

depreciation and accumulated impairment losses, if any. Property, plant and equipment
acquired in a business combination are recognised at fair value at the acquisition date.
Subsequent costs are included in the assets carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that future economic benefits associated with the item
will flow to the Company and the cost of the item can be measured reliably. All other repairs
and maintenance cost are charged to the Statement of Profit and Loss during the period in
which they are incurred.

Gains or losses arising on retirement or disposal of property, plant and equipment are
recognised in the Statement of Profit and Loss. Property, plant and equipment which are not
ready for intended use as on the date of Balance Sheet are disclosed as Capital work-in-
progress. Advances paid towards the acquisition of property, plant and equipment outstanding
at each balance sheet date is classified as capital advances under or other Non-Current Assets.

Depreciation is provided on a pro-rata basis on the straight-line method based on

estimated useful life prescribed under Schedule II to the Companies Act, 2013 with the
exception of the following: -

Plant and equipment is depreciated over 3 to 21 years based on the technical evaluation
of useful life done by the management. –

Assets costing Rs. 5,000 or less are fully depreciated in the year of purchase. Freehold
land is not depreciated.

The residual values, useful lives and method of depreciation of property, plant and
equipment is reviewed at each financial year end and adjusted prospectively, if appropriate.

2) Intangible Assets:

Intangible assets purchased are initially measured at cost. Intangible assets acquired
in a business combination are recognised at fair value at the acquisition date. Subsequently,
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 intangible assets are carried at cost less any accumulated amortization and accumulated
impairment losses, if any. The useful lives of intangible assets are assessed as either finite
or indefinite. Finite-life intangible assets are amortized on a straight-line basis over the
period of their estimated useful lives. Estimated useful lives by major class of finite-life
intangible assets are as follows:

Design - 10 years
Know-how - 10 years
Computer software - 5 years
Trademarks - 5 years

The amortisation period and the amortisation method for finite-life intangible assets
is reviewed at each financial year end and adjusted prospectively, if appropriate. For
indefinite life intangible assets, the assessment of indefinite life is reviewed annually to
determine whether it continues, if not, it is impaired or changed prospectively basis revised
estimates. Goodwill is initially recognised based on the accounting policy for business
combinations and is tested for impairment annually.

3) Investments in Subsidiaries, Associates and Joint Ventures:

Investments in Subsidiaries, Associates and Joint Ventures are carried at cost less
accumulated impairment losses, if any. Where an indication of impairment exists, the
carrying amount of the investment is assessed and written down immediately to its
recoverable amount. On disposal of investments in subsidiaries, associates and joint
venture, the difference between net disposal proceeds and the carrying amounts are
recognized in the Statement of Profit and Loss.

4) Inventories:

Inventories are valued at the lower of cost and net realisable value. Cost is computed
on a weighted average basis. Cost of finished goods and work-in-progress include all costs
of purchases, conversion costs and other costs incurred in bringing the inventories to their
present location and condition. The net realisable value is the estimated selling price in the
ordinary course of business less the estimated costs of completion and estimated costs
necessary to make the sale.

5) Cash and Cash Equivalents:

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 Cash and cash equivalents are cash, balances with bank and short-term (three
months or less from the date of acquisition), highly liquid investments that are readily
convertible into cash and which are subject to an insignificant risk of changes in value.

6) Assets Held for Sale:

Non-current assets or disposal groups comprising of assets and liabilities are

classified as held for sales when all the following criteria are met:

(i) Decision has been made to sell.

(ii) The assets are available for immediate sale in its present condition.

(iii) the assets are being actively marketed and

(iv) Sale has been agreed or is expected to be concluded within 12 months of the
Balance Sheet date.

Subsequently, such non-current assets and disposal groups classified as held

for sales are measured at the lower of its carrying value and fair value less costs to
sell. Non-current assets held for sale are not depreciated or amortised.

7) Financial Instruments:
1. Financial Assets:
Financial assets are recognised when the Company becomes a party to
the contractual provisions of the instrument. On initial recognition, a financial
asset is recognised at fair value. In case of Financial assets which are
recognised at fair value through profit and loss (FVTPL), its transaction cost
is recognised in the statement of profit and loss. In other cases, the transaction
cost is attributed to the acquisition value of the financial asset. Financial assets
are subsequently classified and measured at –

Amortised cost –

Fair value through profit and loss (FVTPL) –

Fair value through other comprehensive income (FVOCI).

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 Financial assets are not reclassified subsequent to their recognition,
except during the period the Company changes its business model for
managing financial assets.

8) Provisions and Contingent Liabilities:

Provisions are recognised when the Company has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Provisions are measured at the best
estimate of the expenditure required to settle the present obligation at the Balance Sheet
date.
If the effect of the time value of money is material, provisions are discounted to reflect
its present value using a current pre-tax rate that reflects the current market assessments of
the time value of money and the risks specific to the obligation. When discounting is used,
the increase in the provision due to the passage of time is recognised as a finance cost.
Contingent liabilities are disclosed when there is a possible obligation arising from
past events, the existence of which will be confirmed only by the occurrence or
nonoccurrence of one or more uncertain future events not wholly within the control of the
Company or a present obligation that arises from past events where it is either not probable
that an outflow of resources will be required to settle the obligation or a reliable estimate
of the amount cannot be made.

9) Revenue Recognition :
Effective April 1, 2018, the Company has applied Ind AS 115: Revenue from
Contracts with Customers which establishes a comprehensive framework for determining
whether, how much and when revenue is to be recognised. Ind AS 115 replaces Ind AS 18
Revenue. The impact of the adoption of the standard on the financial statements of the
Company is insignificant.

Revenue from sale of goods is recognised when control of the products being sold is
transferred to our customer and when there are no longer any unfulfilled obligations.

The Performance Obligations in our contracts are fulfilled at the time of dispatch,
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 delivery or upon formal customer acceptance depending on customer terms.

Revenue is measured at fair value of the consideration received or receivable, after

deduction of any trade discounts, volume rebates and any taxes or duties collected on
behalf of the government such as goods and services tax, etc. Accumulated experience is
used to estimate the provision for such discounts and rebates. Revenue is only recognised
to the extent that it is highly probable a significant reversal will not occur.

Our customers have the contractual right to return goods only when authorised by the
Company. An estimate is made of goods that will be returned and a liability is recognised
for this amount using a best estimate based on accumulated experience.

Income from services rendered is recognised based on agreements/arrangements with

the customers as the service is performed and there are no unfulfilled obligations.

Interest income is recognized using the effective interest rate (EIR) method. Dividend
income on investments is recognised when the right to receive dividend is established.

10) Government Grant:

The Company is entitled to Scheme of budgetary support under Goods and Service
Tax Regime in respect of eligible manufacturing units located in specified regions. Such
grants are measured at amount receivable from the government and are recognised as other
operating revenue when there is a reasonable assurance that the Company will comply with
all necessary conditions attached to that.

Income from such grants is recognised on a systematic basis over the periods to which
they relate.

11) Expenditure:
Expenses are accounted on accrual basis.

12) Employee Benefits:

Defined contribution plans Contributions to defined contribution schemes such as
employees state insurance, labor welfare fund, superannuation scheme, employee pension
scheme etc. are charged as an expense based on the amount of contribution required to be
made as and when services are rendered by the employees. Company’s provident fund
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 contribution, in respect of certain employees, is made to a government administered fund
and charged as an expense to the Statement of Profit and Loss. The above benefits are
classified as Defined Contribution Schemes as the Company has no further defined
obligations beyond the monthly contributions.

Defined benefit plans In respect of certain employees, provident fund contributions

are made to a trust administered by the Company. The interest rate payable to the members
of the trust shall not be lower than the statutory rate of interest declared by the Central
Government under the Employees Provident Funds and Miscellaneous Provisions Act,
1952 and shortfall, if any, shall be made good by the Company. The liability in respect of
the shortfall of interest earnings of the Fund is determined on the basis of an actuarial
valuation. The Company also provides for retirement/ post-retirement benefits in the form
of gratuity, pensions (in respect of certain employees), compensated absences (in respect
of certain employees) and medical benefits (in respect of certain employees) including to
the employees of group companies.

For defined benefit plans, the amount recognised as Employee benefit expenses in the
Statement of Profit and Loss is the cost of accruing employee benefits promised to
employees over the year and the costs of individual events such as past/future service
benefit changes and settlements (such events are recognised immediately in the Statement
of Profit and Loss). The amount of net interest expense calculated by applying the liability
discount rate to the net defined benefit liability or asset is charged or credited to Finance
costs in the Statement of Profit and Loss. Any differences between the expected interest
income on plan assets and the return actually achieved, and any changes in the liabilities
over the year due to changes in actuarial assumptions or experience adjustments within the
plans, are recognised immediately in other comprehensive incomes and subsequently not
reclassified to the Statement of Profit and Loss.

The defined benefit plan surplus or deficit on the Balance Sheet date comprises fair
value of plan assets less the present value of the defined benefit liabilities using a discount
rate by reference to market yields on government bonds at the end of the reporting period.
All defined benefit plans obligations are determined based on valuations, as at the Balance
Sheet date, made by independent actuary using the projected unit credit method.

The classification of the company’s net obligation into current and non-current is as
per the actuarial valuation report. Termination benefits Termination benefits, in the nature
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 of voluntary retirement benefits or termination benefits arising from restructuring, are
recognised in the Statement of Profit and Loss.

The Company recognizes termination benefits at the earlier of the following dates:

(a) when the Company can no longer withdraw the offer of those or

(b) when the Company recognizes costs for a restructuring that is within the scope of Ind
AS 37: Provisions, Contingent Liabilities and Contingent Assets and involves the
payment of termination benefits.

Benefits falling due more than 12 months after the end of the reporting period are
discounted to their present value.

Share-Based Payments Employees of the Company receive remuneration in the form

of share-based payments in consideration of the services rendered. Under the equity settled
share based payment, the fair value on the grant date of the awards given to employees is
recognised as employee benefit expenses with a corresponding increase in equity over the
vesting period. The fair value of the options at the grant date is calculated by an
independent value basis Black Scholes model. At the end of each reporting period, apart
from the non-market vesting condition, the expense is reviewed and adjusted to reflect
changes to the level of options expected to vest. When the options are exercised, the
Company issues fresh equity shares.

For cash-settled share-based payments, the fair value of the amount payable to
employees is recognised as employee benefit expenses with a corresponding increase in
liabilities, over the period of non-market vesting conditions getting fulfilled. The liability
is premeasured at each reporting period up to, and including the settlement date, with
changes in fair value recognised in employee benefits expenses.

13) Impairment of Non-Financial Assets:

Assessment for impairment is done at each Balance Sheet date as to whether there is
any indication that a non-financial asset may be impaired. Indefinite life intangible assets
are subject to a review for impairment annually or more frequently if events or
circumstances indicate that it is necessary. For the purpose of assessing impairment, the
smallest identifiable group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows from other assets or groups of assets is
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 considered as a cash generating unit. Goodwill acquired in a business combination is, from
the acquisition date, allocated to each of the company’s cash-generating units that are
expected to benefit from the synergies of the combination, irrespective of whether other
assets or liabilities of the acquire are assigned to those units.

If any indication of impairment exists, an estimate of the recoverable amount of the

individual asset/cash generating unit is made. Asset/cash generating unit whose carrying
value exceeds their recoverable amount are written down to the recoverable amount by
recognizing the impairment loss as an expense in the Statement of Profit and Loss. The
impairment loss is allocated first to reduce the carrying amount of any goodwill (if any)
allocated to the cash generating unit and then to the other assets of the unit, pro rata based
on the carrying amount of each asset in the unit. Recoverable amount is higher of an assets
or cash generating units fair value less cost of disposal and its value in use.

Value in use is the present value of estimated future cash flows expected to arise from
the continuing use of an asset or cash generating unit and from its disposal at the end of its
useful life. Assessment is also done at each Balance Sheet date as to whether there is any
indication that an impairment loss recognised for an asset in prior accounting periods may
no longer exist or may have decreased. Basis the assessment a reversal of an impairment
loss for an asset other than goodwill is recognised in the Statement of Profit and Loss
account.

14) Income Taxes:

Income tax expense for the year comprises of current tax and deferred tax. It is
recognised in the Statement of Profit and Loss except to the extent it relates to a business
combination or to an item which is recognised directly in equity or in other comprehensive
income.

Current tax is the expected tax payable/receivable on the taxable income/loss for the
year using applicable tax rates for the relevant period, and any adjustment to taxes in
respect of previous years. Interest expenses and penalties, if any, related to income tax are
included in finance cost and other expenses respectively. Interest Income, if any, related to
Income tax is included in Other Income.

Deferred tax is recognised in respect of temporary differences between the carrying

amount of assets and liabilities for financial reporting purposes and the corresponding
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 amounts used for taxation purposes.

A deferred tax liability is recognised based on the expected manner of realization or

settlement of the carrying amount of assets and liabilities, using tax rates enacted, or
substantively enacted, by the end of the reporting period. Deferred tax assets are recognised
only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilized. Deferred tax assets are reviewed at each reporting date and
reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Current tax assets and current tax liabilities are offset when there is a legally
enforceable right to set off the recognised amounts and there is an intention to settle the
asset and the liability on a net basis. Deferred tax assets and deferred tax liabilities are
offset when there is a legally enforceable right to set off current tax assets against current
tax liabilities; and the deferred tax assets and the deferred tax liabilities relate to income
taxes levied by the same taxation authority.

15) Leases:

Leases in which a substantial portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments and receipts under such
leases are recognised to the Statement of Profit and Loss on a straight-line basis over the
term of the lease unless the lease payments to the lessor are structured to increase in line
with expected general inflation to compensate for the lessors expected inflationary cost
increases, in which case the same are recognised as an expense in line with the contractual
term. Leases are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards incidental to ownership to the lessee.

16) Foreign Currencies:

Foreign currency transactions are translated into the functional currency using
exchange rates at the date of the transaction. Foreign exchange gains and losses from
settlement of these transactions are recognised in the Statement of Profit and Loss. Foreign
currency denominated monetary assets and liabilities are translated into functional
currency at exchange rates in effect at the balance sheet date, the gain or loss arising from
such translations are recognised in the statement of profit & loss.

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 17) Earnings Per Share:

Basic earnings per share is computed by dividing the net profit for the period
attributable to the equity shareholders of the Company by the weighted average number of
equity shares outstanding during the period. The weighted average number of equity shares
outstanding during the period and for all periods presented is adjusted for events, such as
bonus shares, other than the conversion of potential equity shares that have changed the
number of equity shares outstanding, without a corresponding change in resources.

For the purpose of calculating diluted earnings per share, the net profit for the period
attributable to equity shareholders and the weighted average number of shares outstanding
during the period is adjusted for the effects of all dilutive potential equity shares.

18) Business Combination :

Business combinations are accounted for using the acquisition accounting method as
at the date of the acquisition, which is the date at which control is transferred to the
Company. The consideration transferred in the acquisition and the identifiable assets
acquired and liabilities assumed are recognised at fair values on their acquisition date.
Goodwill is initially measured at cost, being the excess of the aggregate of the
consideration transferred and the amount recognised for non-controlling interests, and any
previous interest held, over the net identifiable assets acquired and liabilities assumed.

The Company recognizes any non-controlling interest in the acquired entity on an

acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s
proportionate share of the acquired entity’s net identifiable assets. Consideration
transferred does not include amounts related to settlement of preexisting relationships.
Such amounts are recognized in the Statement of Profit and Loss.

Transaction costs are expensed as incurred, other than those incurred in relation to the
issue of debt or equity securities. Any contingent consideration payable is measured at fair
value at the acquisition date. Subsequent changes in the fair value of contingent
consideration are recognized in the Statement of Profit and Loss.

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 Conclusion

 Accounting Standards followed by HUL :

1. Property, plant and Equipment AS – 10

2. Intangible assets as – 26

3. Accounting for investment as – 13

4. Valuation of inventories as – 2

5. Cash flow statement as 3

6. Revenue recognition as – 9

7. Accounting for amalgamations as- 14

8. Segment reporting as – 17

9. Leases as 19

10. Earning par share as – 20

11. Accounting for taxes on income as – 22

12. Provisions, contingent liabilities and contingent assets as – 29

13. Borrowing costs as – 16

14. Accounting for government grants as – 12

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