Strategic Business Reporting

Assignment 1 & 2

IFRS 15 REVENUE

The core principle of IFRS 15 is that an entity will recognise

revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the non-
consideration to which the entity expects to be entitled in
exchange for those goods or services. The core principle is
delivered in a five-step model framework.
 Identify the contract with a customer.
 Identify the performance obligation in the contract.
 Determine the transaction price.
 Allocate the transaction price to the performance
obligations in the contract.
 Recognise revenue when the entity satisfies a
performance obligation.
Application of this guidance will depend on the facts and
circumstances present in a contract with a customer and will
require the exercise of judgment.

Stage 1: Identify the contract with the customer.

A contract with a customer will be within the scope of IFRS
15 if all the following conditions are met:
 the contract has been approved by the parties to the
contract.
 each party’s rights in relation to the goods or services to
be transferred can be identified
 the payment terns for the goods or services to be
transferred can be identified
 the contract has commercial substance and
 it is probable that the consideration to which the entity
us entitled to in exchange for the goods or services will
be collected.
If a contract with a customer does not yet meet all of the
above criteria, the entity will continue to re-assess the
contract going forward to determine whether it subsequently
meets the above criteria. From that point, the entity will
apply IFRS 15 to the contract.

Stage 2: Identify the performance obligation in

the contract
At the inception of the contract, the entity should assess the
goods or services that have been promised to the customer,
and identity as a performance obligation:
 A good or service that is distinct; or
 A series of distinct goods or services that are
substantially the same and that have the same pattern
of transfer to the customer.
A series of distinct goods or services is transferred to the
customer in the same pattern if both of the following criteria
are met:
 Each distinct good or service in the series that the entity
promises to transfer consecutively to the customer
would be performance obligation that is satisfied over
time and
 A single method of measuring progress would be used
to measure the entity’s progress towards complete
satisfaction of the performance obligation to transfer
each distinct good or service in the series to the
customer.
A good or service is distinct if both of the following criteria
are met:
 The customer can benefit from the goods or services on
its own or in conjunction with other readily available
resources and
 The entity’s promise to transfer the good or services to
the customer is separately identifiable from other
promises in the contract.

Stage 3: Determine the transaction price

The transaction price is the amount to which an entity
expects to be entitled in exchange for the transfer of goods
and service. When making this determination, an entity will
consider past customary business practices. Where a contract
contains elements of variable consideration, the entity will
estimate the amount of variable consideration to which it will
be entitled under the contract. Variable consideration can
arise for example, as a result of discounts, rebates, refunds,
credits, price concession, incentives, performance bonuses,
penalties or other similar items. Variable consideration is also
present if an entity’s right to consideration is contingent on
the occurrence of a future event.

Stage 4: Allocate the transaction price to the

performance obligation in the contracts.
Where a contract has multiple performance obligations an
entity will allocate the transaction price to the performance
obligation in the contract by reference to their relative
standalone selling price. If a standalone selling price is not
directly observable, the entity will need to estimate it. IFRS
15 suggests various methods that might be used, including:
 Adjusted market assessment approach
 Expected cost plus a margin approach
 Residual approach
Where consideration is paid in advance or in arrears, the
entity will need to consider whether the contract
includes a significant financing arrangement and, if so,
adjust for the time value of money.

Stage 5: Recognise revenue when (or as) the

entity satisfies a performance obligation.
Revenue is recognised as control is passed, either over time or at a point in time

Revenue is recognised as control is passed, either over time

or at a point in time. Control of an asset is defined as the
ability to direct the use of and obtain substantially all of the
remaining benefits from the asset. This includes the ability to
prevent others from directing the use of and obtaining the
benefits from the asset. The benefits related to the asset are
the potential cash flows that may be obtained directly or
indirectly. These include, but are not limited to:
 using the asset to produce goods or provide services;
 using the asset to enhance the value of other assets;
  using the asset to settle liabilities or to reduce expenses;
 selling or exchanging the asset;
 pledging the asset to secure a loan; and
 holding the asset.
An entity recognises revenue over time if one of the
following criteria is met:
the customer simultaneously receives and consumes all of
the benefits provided by the entity as the entity performs;
 the entity’s performance creates or enhances an asset that
the customer controls as the asset is created; or
 the entity’s performance does not create an asset with an
alternative use to the entity and the entity has an
enforceable right to payment for performance completed to
date.

Presentation
When either party to a contract has performed, an entity
shall present the contract in the statement of financial
position as a contract asset, a contract liability or a receivable
Contract asset - the entity have a right to consideration in
exchange for goods or services that the entity has transferred
to a customer.
Receivable - the entity have a right to consideration that is
unconditional, i.e. is only the passage of time is required
before payment of that consideration is due.
Contract liability - the entity have an obligation to transfer
goods or services to a customer for which the entity has
received consideration (or an amount of consideration is
due) from the customer.
Contract assets and receivables are subject to impairment
review in accordance with IFRS 9/IAS 39. Revenue from
contracts with customers is required to be presented
separately from other sources of revenue.
Disclosure
To enable users to understand the nature, amount, timing
and uncertainty of revenue and cash flows arising from
contracts with customers
Qualitative and quantitative information about:
 Contracts with customers
 Significant judgements and changes in judgements
made when applying the standard to those contracts
 Assets recognised from costs to obtain or fulfil a
contract
Other sources of new disclosures:
 Use of practical expedients
 Transition disclosures

Company 1
Hindustan Unilever Limited
Hindustan Unilever Limited (HUL) is India's largest Fast
Moving Consumer Goods company with a heritage of over 80
years in India. On any given day, nine out of ten Indian
households use our products to feel good, look good and get
more out of life – giving us a unique opportunity to build a
brighter future.

HUL works to create a better future every day and helps

people feel good, look good and get more out of life with
brands and services that are good for them and good for
others.

With over 35 brands spanning 20 distinct categories such as

soaps, detergents, shampoos, skin care, toothpastes,
deodorants, cosmetics, tea, coffee, packaged foods, ice
cream, and water purifiers, the Company is a part of the
everyday life of millions of consumers across India. Its
portfolio includes leading household brands such as Lux,
Lifebuoy, Surf Excel, Rin, Wheel, Glow & Lovely, Pond’s,
Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent,
Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s
and Pureit.

The Company has about 21,000 employees and has sales of

INR 38,273 crores (the financial year 2019-20). HUL is a
subsidiary of Unilever, one of the world’s leading suppliers of
Food, Home Care, Personal Care and Refreshment products
with sales in over 190 countries and an annual sales turnover
of €52 billion in 2019. Unilever has over 67% shareholding in
HUL. 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. In 1931, Unilever set up its first Indian subsidiary,
Hindustan Vanaspati Manufacturing Company, followed by
Lever Brothers India Limited (1933) and United Traders
Limited (1935). These three companies merged to form HUL
in November 1956; HUL offered 10% of its equity to the
Indian public, being the first among the foreign subsidiaries
to do so. Unilever now holds 52.10% equity in the company.
The rest of the shareholding is distributed among about
360,675 individual shareholders and financial institutions.
HUL has traditionally been a company, which incorporates
latest technology in all its operations. The Hindustan Unilever
Research Centre (HURC) was set up in 1958, and now has
facilities in Mumbai and Bangalore. HURC and the Global
Technology Centres in India have over 200 highly qualified
scientists and technologists, many with post–doctoral
experience acquired in the US and Europe.

Accounting Policies used by the company

These Consolidated Financial statements have been prepared
in accordance with the Indian Accounting Standards
(hereinafter referred to as the ‘Ind AS’) as notified by
Ministry of Corporate Affairs pursuant to Section 133 of the
Companies Act, 2013 read with Rule 3 of the Companies
(Indian Accounting Standards) Rules, 2015 as amended from
time to time.
The Consolidated financial statements have been prepared
on accrual and going concern basis. The accounting policies
are applied consistently to all the periods presented in the
Consolidated financial statements. All assets and liabilities
have been classified as current or non-current as per the
Group normal operating cycle and other criteria as set out in
the Division II of Schedule III to the Companies Act, 2013.
Based on the nature of products and the time between
acquisition of assets for processing and their realisation in
cash and cash equivalents, the Group has ascertained its
operating cycle as 12 months for the purpose of current or
non-current classification of assets and liabilities. using
uniform accounting policies for like transactions and other
events in similar circumstances. The accounting policies
adopted in the preparation of consolidated financial
statements are consistent with those of previous year. These
Consolidated Financial statements are prepared under the
historical cost convention unless otherwise indicated.

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 is measured net of any trade discounts
and volume rebates. Material estimation by the Group is
involved in recognition and measurement of rebates and
discounts. This includes establishing an accrual at year end,
particularly in arrangements with varying terms which are
based on annual contracts or shorter-term arrangements.
In addition, the value and timing of promotions for products
varies from period to period, and the activity can span
beyond the year end. There is a risk of revenue being
overstated due to fraud, including through manipulation of
rebates and discounts, resulting from pressure the Group
may feel to achieve performance targets at the reporting
period end. Inspecting on a sample basis, key customer
contracts. Based on the terms and conditions relating to
rebates and discounts, we assessed the Group’s revenue
recognition policies with reference to the requirements of
the applicable accounting standards;

Revenue from sale of goods is recognised when control of

the products being sold is transferred to the customer and
when there are no longer any unfulfilled obligations. The
Performance Obligations in their contracts are fulfilled at the
time of dispatch, delivery or upon formal customer
acceptance depending on customer terms.
Revenue is measured on the basis of contracted price, 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.
The 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 recognised using the effective interest rate
(EIR) method.
Dividend income on investments is recognised when the right
to receive dividend is established.
The Group is subject to the risk that changes in foreign
currency values impact the Group exports revenue and
imports of raw material and property, plant and equipment.
Inspecting on a sample basis, key customer contracts. Based
on the terms and conditions relating to rebates and
discounts, we assessed the Company’s revenue recognition
policies with reference to the requirements of the applicable
accounting standards;
 Company 2
Tata Consumer products
Tata Consumer Products is a focused consumer products
company uniting the food and beverage interests of the Tata
Group under one umbrella. It is home to key brands such as
Tata Tea, Tetley, Tata Salt and Tata Sampann. With a
combined reach of over 200 million households in India, it
has an unparalleled ability to leverage the Tata brand in
consumer products.
We are on a mission to create a premier diversified consumer
products company. Our strengths lie in our deep
understanding of our consumers in India and in international
markets, iconic market leading brands and wide consumer
reach. We are committed to delivering high-quality,
innovative, tasty and convenient products with goodness at
its core. Our portfolio of products ranges from tea, coffee,
water and ready-to-drink to salt, pulses, spices, ready-to-eat
and more.
In the Beverages business, Tata Consumer Products is the
2nd largest player in branded tea in the world with over 330
million servings everyday across the world. Our brands
include Tata Tea, Tetley, Vitax, Eight O’Clock Coffee,
Himalayan Natural Mineral Water, Tata Coffee Grand and
Joekels.
Beginning with the iconic Tata Salt that pioneered the
crusade for iodisation in India, our Foods business is one of
the most trusted food brands in India and we have extended
our portfolio to include salt variants and nourishing food
items. With Tata Sampann we bring the traditional wisdom of
Indian food in a contemporary package to deliver the best of
taste, nutrition and convenience.
Tata Consumer Products has grown through innovation,
strategic alliances and acquisitions, and organic growth. The
Company has a joint venture with Starbucks called Tata
Starbucks Limited, to own and operate Starbucks cafés in
India. Since the inauguration of the flagship store in Mumbai
in October 2012, this 50:50 JV has expanded to 11 cities, with
many more Starbucks stores planned across the country.
The Company’s subsidiary NourishCo, produces non-
carbonated ready-to-drink beverages that focus on health
and enhanced wellness. NourishCo produces and markets
Tata Water Plus — India’s first nutrient water, and Tata Gluco
Plus — an energizing, glucose-based flavoured drink.
Himalayan water is also marketed and distributed through
NourishCo.
Sustainability is at the heart of our plans for long-term
success. As industry leaders, it is important for us to build a
future-ready business that will continue to meaningfully
touch the lives of millions of people. Sustainable sourcing,
waste management and climate change are some of the key
focus areas and through our various environment and
community focussed initiatives, we intend to be the
consumer’s first choice in sustainable foods and beverages.

Accounting policies used by the company

The consolidated financial statements are prepared in
accordance with and in compliance, in all material aspects
with Indian Accounting Standards (Ind AS) notified under
Section 133 of the Companies Act, 2013 (the Act) read along
with Companies (Indian Accounting Standards) Rules, as
amended and other relevant provisions of the Act. The
presentation of the Consolidated Financial Statements is
based on Ind AS Schedule III of the Companies Act, 2013. The
consolidated financial statements have been prepared on an
accrual basis and in accordance with the historical cost
convention, unless otherwise stated. All assets and liabilities
are classified into current and non-current generally based on
the criteria of realisation/settlement within a twelve-month
period from the balance sheet date.

Revenue Recognition
Revenue from contracts with customers is
recognised when the Company satisfies
performance obligation by transferring promised
goods and services to the customer. Performance
obligations maybe satisfied at a point of time or
over a period of time. Performance obligations
satisfied over a period of time are recognised as
per the terms of relevant contractual
agreements/arrangements. Performance
obligations are said to be satisfied at a point of
time when the customer obtains controls of the
asset or when services are rendered. Revenue is
measured based on transaction price, which is the
fair value of the consideration received or
receivable, stated net of discounts, returns and
value added tax. Transaction price is recognised
based on the price specified in the contract, net of
the estimated sales incentives/
discounts. Accumulated experience is used to
estimate and provide for the discounts/ right of
return, using the expected value method. A
refund liability is recognised for expected returns
in relation to sales made and corresponding
assets are recognised for the products expected
to be returned. The Company recognises as an
asset, the incremental costs of obtaining a
contract with a customer, if the Company expects
to recover those costs. The said asset is amortised
on a systematic basis consistent with the transfer
to goods or services to the customer.

Generally, in the International markets, products

are often sold with sales related discounts, rebate,
trade support etc. Sales are recorded based on
the price specified in the sales contract, however
simultaneously amount of sales promotions
expenditure that would need to be incurred are
also estimated and netted off from sales.
Judgement is required to be exercised in
determining the level of provisions that would
need to be accrued. Accumulated experience is
used for estimating and providing for such
expenditure. The acquired business contributed
revenue of Rs 2063.74 Crores and profit before
tax of Rs 263.81 Crores. Profit before tax is after
deducting amortisation expenses relating to
intangible assets acquired of Rs 43.32 Crores.
Expenses incurred on the transaction and on
business integration initiatives of Rs 51.30 Crores
are reported under Exceptional Items in the
Statement of Profit and Loss Account.

Comparative Differences
Nearly three decades after it exited the space, the Tata
Group plans to once again come face-to-face with Hindustan
Unilever (HUL) as competitors in the personal and home care
categories. Group company Tata Global Beverages is
transforming itself to become a broad-based consumer
products enterprise. It is looking to enter personal care,
home care, dairy and nutri-supplements in addition to its
existing categories of beverages, spices, staples and packaged
foods. This will make Tata Global a formidable rival to HUL
and ITC, which have multi-category FMCG products. TCP will
be the vehicle for the group’s longer term and broader.  Tata
Global said that it is considering an entry into high-growth,
high-margin categories such as home care, personal care and
dairy organically or inorganically. TCP is expected to
piggyback on the vast distribution reach of Tata Chem. It
plans to double its reach to 2.5 million retail outlets and 200
million households in the country. A billion Tata Salt packs
were sold in fiscal 2019 — similar to the size of the Indian
population. In 1993, the erstwhile Tata Oil Mill
Company (TOMCO) was acquired by HUL (then Hindustan
Lever). Prior to that, it was the second-largest soap maker in
the country. Now, the group wants to expand its consumer-
facing business, increase revenue share from branded play as
against the commodity business. Tata Group company Titan
already has a fragrance called ‘Skinn’. Some years ago, Titan
had expanded its object clause to include cosmetics. Another
group company Trent sells its own range of make-up
products at its Westside departmental stores.
Observation and Findings
Underlying domestic consumer business sales impacted by
COVID disruptions declined by 7 per cent in the quarter. In a
challenging context of COVID-19 disrupting markets and
operations, HUL delivered a resilient performance with
reported turnover growth of 4 per cent and Profit after tax
and before exceptional items growing by 7 per cent. While
constraints continue due to restrictions in several parts of the
country and the near-term demand outlook remains
uncertain, the company remain well positioned to drive
competitive, profitable, and responsible growth. The long-
term structural opportunity of FMCG in India also remains
intact.