1 General Information

Taneja Aerospace & Aviation Limited (TAAL) is a public limited company incorporated in India under the Companies Act, 1956. TAAL is engaged in the business of manufacture and sale of various parts and components to aviation industry, providing services related to Airfield & MRO and allied services.

2 Significant accounting judgments, estimates and assumptions

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future years.

2.1 Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the year end date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

(a) Defined benefits and other long-term benefits

The cost of the defined benefit plans such as gratuity and leave encashment are determined using 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, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each year end.

The principal assumptions are the discount and salary growth rate. The discount rate is based upon the market yields available on government bonds at the accounting date with a term that matches that of liabilities. Salary increase rate takes into account inflation, seniority, promotion and other relevant factors on long-term basis.

3 Standards (including amendments) issued but not yet effective

The standards and interpretations that are issued, but not yet effective upto the date of issuance of the financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.

(a) Appendix B to Ind AS 21, Foreign currency transactions and advance consideration

On March 28, 2018, Ministry of Corporate Affairs (“MCA”) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency. The amendment will come into force from April 1, 2018. The Company is currently evaluating the requirements of amendments.

(b) Ind AS 115- Revenue from Contract with Customers

On March 28, 2018, Ministry of Corporate Affairs (“MCA”) has notified the Ind AS 115, Revenue from Contract with Customers. The core principle of the new standard is that an entity should recognise 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. Further, the new standard requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers.

The standard permits two possible methods of transition:

(i) Retrospective approach - Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8-Accounting Policies, Changes in Accounting Estimates and Errors.

(ii) Retrospectively with cumulative effect of initially applying the standard recognised at the date of initial application (Cumulative catch - up approach). The effective date for adoption of Ind AS 115 is financial periods beginning on or after April 1, 2018.

The Company is currently evaluating the requirements of amendments.

4 First-time adoption of Ind-AS

These financial statements are the first set of Ind AS financial statements prepared by the Company. Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for the year ending on March 31, 2018, together with the comparative year data as at and for the year ended March 31, 2017, as described in the significant accounting policies. In preparing these financial statements, the Company’s opening Balance Sheet was prepared as at April 1, 2016, being the Company’s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the Balance Sheet as at April 1, 2016 and the financial statements as at and for the year ended March 31, 2017.

4.1 Exemptions availed on first time adoption of Ind AS

Ind AS 101, First-time Adoption of Indian Accounting Standards, allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has accordingly applied the following exemptions:

(a) Deemed cost

Since there is no change in the functional currency, the Company has elected to continue with carrying value for all of its property, plant and equipment as recognised in its Indian GAAP financial statements as its deemed cost at the date of transition after making adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38. Accordingly, the management has elected to measure all of its property, plant and equipment and intangible assets at their Indian GAAP carrying value.

(b) Investment in subsidiaries

Option to measure investments in subsidiaries, joint ventures and associate at cost as per Ind AS 27 or deemed cost is available. The deemed cost shall be its fair value on transition date or carrying amount as per previous GAAP. This exemption is availed by the Company.

(c) Business combination

Company has elected not to apply IndAS 103 retrospectively to past business combinations (business combinations that occurred before the date of transition to Ind ASs).

4.2 Mandatory Exemption on first-time adoption of Ind AS

(a) 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 Indian 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 April 1, 2016 are consistent with the estimates as at the same date made in conformity with Indian GAAP. The Company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under Indian GAAP:

(i) Impairment of financial assets based on expected credit loss model;

(ii) Effective interest rate used in calculation of security deposit.

(b) De-recognition of financial assets and financial liabilities

A first-time adopter should apply the de-recognition requirements in Ind AS 109, Financial Instruments, prospectively to transactions occurring on or after the date of transition. Therefore, if a first-time adopter de-recognised non-derivative financial assets or nonderivative financial liabilities under its Indian GAAP as a result of a transaction that occurred before the date of transition, it should not recognise those financial assets and liabilities under Ind AS (unless they qualify for recognition as a result of a later transaction or event).A first-time adopter that wants to apply the de-recognition requirements in Ind AS 109, Financial Instruments, retrospectively from a date of the entity’s choosing may only do so, provided that the information needed to apply Ind AS 109, Financial Instruments, to financial assets and financial liabilities de-recognised 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-recognise provisions of Ind AS 109 prospectively from the date of transition to Ind AS.

(c) Classification and measurement of financial assets

Ind AS 101, First-time Adoption of Indian Accounting Standards, 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.

4.3 Reconciliations

The following reconciliations provides the effect of transition to Ind AS from Indian GAAP in accordance with Ind AS 101, First-time Adoption of Indian Accounting Standards:

(a) Reconciliation of equity as at date of transition April 1, 2016

(f) Notes to first-time adoption

(i) Investment in subsidiary

The Company has opted to measure investment in subsidiary at deemed cost, defined as previous GAAP carrying amount as at the Ind AS transition date. Long-term loan advance to subsidiary is in nature of equity contribution for subsdiary, hence same is considered as investment in subsidiary.

(ii) Borrowing cost amortisation

Ind AS 109 requires transaction cost incurred towards origination of borrowings to be deducted from the carrying amount of borrowings on initial recognition. These costs are recognised in the Statement of Profit and Loss over the tenure ofthe borrowing as part of the interest expense by applying the EIR method, corresponding effect being in long-term borrowings and to the extent attributable to current maturity of long-term debts. Under the previous GAAP, these transaction costs were charged to the Statement of Profit and Loss as and when incurred.

The initial transaction cost incurred is recognised in term loan with effect in the opening balance of retained earnings of INR 13.49 lakhs. During financial year 2016-17, transaction cost amounting to INR 4.46 lakhs amortised to profit and loss.

(iii) Deposit from lessee

Under Indian GAAP, interest-free deposits (which needs to be refunded in cash on completion of the lease term) are recorded at their transaction value. Under Ind AS, all financial liabilities are required to be recognised at fair value. Accordingly, the Company has fair valued these deposits under Ind AS. Difference between the fair value and transaction value of the deposit from lessee has been recognised as deferred rent income amounting to INR 598.15 lakhs as at April 1 , 2016.

Interest expense to be recognised from the date of deposits upto April 1, 2016 amounting to INR 47.89 lakhs and deferred rent income to be amortised from the date of deposit upto April 1, 2016 amounting to INR 200.67 lakhs. The net amount of INR 152.78 lakhs has been increased in the retained earnings as at April 1, 2016.

Interest expense to be recognised amounting to INR 13.21 lakhs and deferred rent income to be amortised amounting to INR 35.74 lakhs has been adjusted with the profit and loss for the year ended March 31,2017. Thus, profit and loss is increased by INR 22.53 lakhs during year ended March 31, 2017.

(iv) Financial guarantee

Corporate financial guarantee issued should be measured at their fair value on initial recognition. Subsequently, these contracts are measured at the higher of: amount of impairment loss allowance as per Ind AS 109, and amount initially recognised less, where appropriate, cumulative amortisation recognised.

The Company has assessed the fair value of the guarantee and it is amortised over the tenure of the guarantee. The fair value of guarantee of INR 3.28 lakhs has been recognised as a liability with a corresponding effect charged to retained earnings as at April 1, 2016.

(v) Excise duty

Under previous GAAP, excise duty was netted off against sale of goods. However, under Ind AS, excise duty is included in sale of goods and is separately presented as an expense on the face of the Statement of Profit and Loss. Thus, sale of goods under Ind AS has increased with a corresponding increase in expenses by INR 6.97 lakhs for the financial year ended March 31, 2017.

(vi) Reclassification adjustment

Under Indian GAAP, MAT credit entitlement was shown under non-current assets. Same is being re-classified under deferred tax under Ind AS amounting to INR 146.38 lakhs.

(vii) Reclassification adjustment

Both under Indian GAAP and Ind AS, the Company recognised costs related to its post-employment defined benefit plan on an actuarial basis. Under Indian GAAP, the entire cost, including actuarial gains and losses, are charged to the Statement of Profit and Loss. Under Ind AS, re-measurements comprising of actuarial gains and losses are recognised immediately in the Balance Sheet with a corresponding debit or credit to retained earnings through OCI. Thus, the employee benefits cost for the year ended March 31, 2017 is reduced by INR 4.65 lakhs and re-measurement gains/ (losses) on defined benefit plans of the corresponding amounts has been recognised in the OCI.

Investment properties is leased out under operating leases. Disclosure on future rent receivable is included in note 39.

The Company has no restrictions on the realisability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements.

The fair value of investment properties as at March 31, 2018 is INR 5600.32 lakhs (March 31, 2017 - INR 5286.30 lakhs). Fair value has been determined by an in-house expert and the valuation is classified as a level 3 valuation.

(b) Rights, preferences and restrictions attached to shares

The Company has only one class of equity shares of INR 5/- each. Each shareholder is entitled to one vote per share held. Dividend if any, declared is payable in Indian Rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

(c) Details of shares held by shareholders holding more than 5% of the aggregate shares in the Company

(d) As at March 31, 2018, the Company has Nil (March 31, 2017 : Nil, April 1, 2016 : 13,145) Global Depository Receipt’s (GDR’s) outstanding for conversion into Equity Shares [equivalent to Nil (March 31, 2017: Nil, April 1, 2016 : 26,290) Equity Shares].

(e) No class of shares have been issued as bonus shares or for consideration other than cash by the Company during the period of five years immediately preceding the current year end.

(f) No class of shares have been bought back by the Company during the period of five years immediately preceding the current year end.

5 Earnings/ (Loss) per share

Basic earnings / (loss) per share amounts are calculated by dividing the profit / loss for the year attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the year.

The following table reflects the income and share data used in the basic and diluted EPS computations:

6 Leases

Operating leases where Company is a lessor:

The Company has entered into lease transactions mainly for leasing of Hangars for a period of 25 years. The terms of lease include terms of renewal, increase in rents in future periods, which are inline with general inflation and terms of cancellation. The operating lease payments recognised in the Statement of Profit and Loss amounts to INR 11.96 crores (March 31, 2017: INR 11.28 crores) is included in note 29.

Future minimum rentals receivable under non-cancellable operating leases are, as follows:

# Excludes contribution to gratuity fund and provision for leave encashment as separate figures are not ascertainable for the managerial personnel. Further, the Company has not paid any commission to the managerial personnel.

Note: Amount of INR Nil (March 31, 2017 - INR 40 lakhs) pertaining to related parties have been provided for as doubtful debts during the current year. Provision for doubtful debts amounting to INR 20 lakhs (March 31, 2017 - INR Nil) have been reversed during the year.

7 Segment reporting

The chief operating decision maker regularly monitors and reviews the operating results separately according to the nature of products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. Segments are identified having regard to the dominant source and nature of risks and returns and internal organisation and management structure. The Company has considered business segments as the primary segments for disclosure. The business segments are ‘Aviation’ and ‘Trading of Goods’. The Company does not have any geographical segment. The accounting principles used in the preparation of the financial statements are consistently applied to record revenue and expenditure in individual segments, and are as set out in the significant accounting policies.

As per Ind AS 108, the Company has two segments viz., “Aviation and Trading of Goods”.

(i) Revenue and expenses have been identified to a segment on the basis of relationship to operating activities of the segment. Revenue and expenses which relate to enterprise as a whole and are not allocable to a segment on reasonable basis have been disclosed as unallocable.

(ii) Segment assets and segment liabilities represent assets and liabilities in respective segments. Investments, tax related assets and other assets and liabilities which cannot be allocated to a segment on a reasonable basis have been included under unallocable assets and liabilities.

Major customers

Revenue from following customers of the Company’s aviation segment is more than 10% of the Company’s total revenue :

1. Customer 1 - INR 1237.65 lakhs ( FY 16-17 - INR 1151.74 lakhs).

2. Customer 2 - INR 73.08 lakhs ( FY 16-17 - INR 894.92 lakhs).

3. Customer 3 - INR 449.41 lakhs ( FY 16-17 - INR 717.96 lakhs).

8 Fair values of financial assets and financial liabilities

The fair value of other current financial assets, cash and cash equivalents, trade receivables, investments, trade payables, short-term borrowings and other financial liabilities approximate the carrying amounts because of the short-term nature of these financial instruments.

The amortised cost using Effective Interest Rate (EIR) of non-current financial liabilities consisting of security and term deposits are not significantly different from the carrying amount.

Financial assets that are neither past due nor impaired include cash and cash equivalents, security deposits, term deposits, and other financial assets.

9 Fair value hierarchy

The following is the hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

- Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;

- Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);

- Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

No financial assets / liabilities have been valued using level 1 fair value measurements.

The following table presents fair value hierarchy of assets and liabilities measured at fair value on a recurring basis:

The fair values of deposits from lessee were calculated based on cash flows discounted using a current lending rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including own and counterparty credit risk.

The carrying amount of cash and cash equivalents, trade receivables, margin money, trade payables, other payables and short-term borrowings are considered to be the same as their fair values.

10 Financial risk management objectives and policies

The Company is exposed to various financial risks. These risks are categorised into market risk, credit risk and liquidity risk. The Company’s risk management is co-ordinated by the Board of Directors and focuses on securing long-term and short-term cash flows. The Company does not engage in trading of financial assets for speculative purposes.

(A) Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include borrowings and derivative financial instruments.

(i) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s long-term debt obligations with floating interest rates.

The Company manages its interest rate risk by having a balanced portfolio of fixed and floating rate loans and borrowings. Interest rate sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings. With all other variables held constant, the Company’s profit before tax is affected through the impact on floating rate borrowings, as follows:

(ii) Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities (when revenue or expense is denominated in a different currency from the Company’s functional currency).

Foreign currency sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate (or any other material currency), with all other variables held constant, of the Company’s profit before tax (due to changes in the fair value of monetary assets and liabilities). The Company’s exposure to foreign currency changes for all other currencies is not material.

(B) 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. Credit risk arises principally from the Company’s receivables from deposits with landlords and other statutory deposits with regulatory agencies and also arises from cash held with banks and financial institutions. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.

The Company limits its exposure to credit risk of cash held with banks by dealing with highly rated banks and institutions and retaining sufficient balances in bank accounts required to meet a month’s operational costs. The management reviews the bank accounts on regular basis and fund drawdowns are planned to ensure that there is minimal surplus cash in bank accounts. The

Company does a proper financial and credibility check on the landlords before taking any property on lease and hasn’t had a single instance of non-refund of security deposit on vacating the leased property. The Company also in some cases ensure that the notice period rentals are adjusted against the security deposits and only differential, if any, is paid out thereby further mitigating the non-realisation risk. The Company does not foresee any credit risks on deposits with regulatory authorities.

(C) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due.

The table below summarises the maturity profile of the Company’s financial liabilities:

11 Capital management

For the purpose of the Company’s capital management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity shareholders. The primary objective of the Company’s capital management is to maximise the shareholder value and to ensure the Company’s ability to continue as a going concern.

The Company has not distributed any dividend to its shareholders. The Company monitors gearing ratio i.e. total debt in proportion to its overall financing structure, i.e. equity and debt. Total debt comprises of non-current and current borrowings from banks. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

Future cash outflows in respect of the above, if any, is determined only on receipt of judgement / decisions pending with relevant authorities. The Company does not expect the outcome of matters stated above to have a material adverse effect on the Company’s financial condition, result of operations or cash flows.

12 As per Clause 9.2 of the Scheme of Arrangement approved by honourable High Court, Taneja Aerospace and Aviation Limited (TAAL) will carry on the business and activities relating to the demerged charter business for and on account of and in trust for TAAL Enterprises Limited (TEL) until the time TEL obtains the requisite statutory licences required for carrying on the demerged charter business. The said licences are yet to be obtained and accordingly the demerged charter business has continued to be operated by TAAL in trust for and on behalf of TEL including banking transactions, statutory compliances and all other commercial activities.

13 The Company considers its investment in and loan to subsidiary as strategic and long-term in nature and accordingly, in the view of the management, any decline in the value of such long-term investment in subsidiary is considered as temporary in nature and hence no provision for dimunition in value is considered necessary.

14 Deferred tax calculation results into working of deferred tax assets as at March 31, 2018, March 31, 2017 as well as at April 1, 2016. However, as a matter of prudence, the Company has not recognised deferred tax asset other than the MAT credit available to the extent that it is probable that the Company will pay normal income tax during the specified period, i.e., the period for which MAT credit is allowed to be carried forward.

15 Previous year figures have been regrouped/ reclassified to confirm presentation as per Ind AS as required by Schedule III of the Act.