Oceanic Textiles Ltd. (OTL) is a 100% Export Oriented Unit located in Mumbai, India and listed on National Stock Exchange. Established in 2012, the…

Oceanic Textiles Ltd. (OTL) is a 100% Export Oriented Unit located in Mumbai, India and listed on National Stock Exchange. Established in 2012, the company specializes in the manufacture and export of organic cotton garments to markets in Europe and North America and net foreign exchange earner. Profitability is highly exposed to foreign exchange (FX) risk. In 2024, Company reported strong sales growth in the U.S., and European countries. However, despite rising sales volumes, the company faced a profitability squeeze. One of the major contributing factors was currency volatility, particularly the depreciation of key currencies against the INR. This resulted in lower reported revenue and profit margins from those markets despite constant or increasing unit sales. It follows a B2B model for bulk export order and is gradually exploring D2C e-commerce channels globally. It is known for managing and distributing both homegrown and international brands. OTL has established R&D facilities in India to develop new designs and manufacturing processes. Company has five subsidiaries (all unlisted) dealing in yarn and cotton ginning. None of the independent director of OTL are on the board of any of the subsidiary. Accounts of all five subsidiaries are consolidated with OTL and placed before shareholders at the general meeting. For the F.Y ended 31.03.2025, the Company has made the following information available in respect of some of its purchase and sale transactions: (i) Goods Purchased from A Ltd.:10 Crores (GST Rate applicable is 12%) (ii) OTL received an order from B Ltd. (holder of advanced authorization) to supply goods to be used as inputs by B Ltd. The supply will be made against advance release order. (iii) OTL has sent goods worth 5 Crores for some jobwork process to C Ltd. However no bank guarantee has been furnished for the same. (iv) OTL has imported one new machine during the year. Machinery will be used in manufacturing of goods to be exported only and also there is no specific notification making countervailing duty applicable. Legal department is of the view that machinery import is exempt from Basic Customs duty and IGST but not from countervailing duty. One of the subsidiaries Pluto Private Limited which contributes over 25% of the consolidated revenue and net worth of the Group entered into a related party transaction with a group company, ABC Services Ltd., for subcontracting yarn dyeing work worth 25 Crores (19.5% of total expenses of previous accounting year). However the said transaction has been put up but not approved by the board of OTL. Besides Pluto Private Limited, two other subsidiaries constitute 25% of the consolidated revenue and net worth of the Group. OTL is preparing its financial forecasts for the next fiscal year. As part of its strategic planning, the CFO must forecast the INR/USD exchange rate to manage foreign exchange exposure for a $10 million payment due in 6 months. CFO wants to use such technique which uses time series models. One of his team members is of the view that the method suggested by CFO suffers from one limitation i.e. changes in the sensitivity of currency movements to each factor over time. Also the method proposed by CFO takes into consideration the current spot/forward rates. OTL owns machine that was acquired on 1st April 2016 for 50 lakhs. The useful life of the machine is 20 years and is depreciated on SLM basis. The company uses the revaluation model for subsequent measurement as per Ind AS 16. On 1st April 2020, the fair value of the machinery is determined to be 65 lakhs. There is no change in useful life. OTL has been charging depreciation on a straight-line basis and had charged depreciation up to 31st March 2020. On 31st March 2024, the machinery is sold for 18 lakhs in order to upgrade technology. OTL imported high-precision equipment (TECH M) from Germany for its manufacturing facility. The following facts are available: The equipment was purchased on 1st September 2024 at a price of EUR 5,00,000 on deferred credit (payment to be made in September 2026). The exchange rate on the date of purchase was - 88/EUR. TECH M was capitalized on the same date and put to use on 15th October 2024. As on 31st March 2025, the exchange rate was - 92/EUR. The company prepares books on mercantile basis and follows ICDS for income computation. OTL claims depreciation@15% under the Income-tax Act, 1961. The company prepares full financial statements annually, which are audited. While preparing financial statements, company has not disclosed capitalization policy for repair or upgrades as in the opinion of the management, the same is immaterial. In addition, for public dissemination through brochures and press releases, it prepares summary financial statements. The Board of OTL engages C S & Co., a Chartered Accountancy firm, to audit the summary financial statements for FY 2024-25 citing the increasing importance of transparency and alignment with international best practices. These summary financial statements are to be included in the company's annual brochure and shared with investor during earnings calls. The summary financial statements were derived from the audited full financial statements and include: Summarized Statement of Profit and LossSummarized Statement of Financial PositionSummarized Notes on material accounting policies and key disclosures Auditor firm has already issued an unmodified audit opinion on the company's full financial statements prepared in accordance with Ind AS. While drafting the audit report on the summary financial statements, the following opinion paragraph is proposed: "In our opinion, the summary financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. " Management is thinking of hiring you as a consultant to provide some inputs on various parameters to identify the currency risk which is squeezing the profitability of the company. Multiple Choice Questions: [Provide the correct option to the following questions]