Papadamali restatement revises profit for omitted gratuity

Papadamali Agro Foods Limited restated its financial statements after identifying that gratuity expense had not been provided in every covered period. The correction reduced FY25 profit after tax by Rs 9.22 lakh to Rs 472.44 lakh, but increased FY24 profit after tax by Rs 15.66 lakh to Rs 210.76 lakh after deferred-tax effects.

Why did Papadamali restate profit for omitted gratuity?

Papadamali restated profit because it had not provided gratuity expenses for all periods under restatement. The company’s explanation note states that the previously unprovided gratuity expense has now been charged during the restatement process. Gratuity is a defined employment benefit available to eligible Indian employees under the Payment of Gratuity Act, 1972.

Papadamali states that employees with more than five years of continuous service are eligible for gratuity. The disclosed benefit formula uses the employee’s last drawn monthly basic salary, calculated proportionately as 15 days’ salary for each year of service. This creates an obligation based on employee service and salary, rather than only when a payment is made.

The restated employee-benefit statement recorded gratuity expense of Rs 2.48 lakh in FY25, a gain of Rs 79,000 in FY24, and expense of Rs 2.50 lakh in FY23. Those annual charges measure gratuity recognised in employee expenses, while the restatement-adjustment schedule measures the correction against the previously audited financial statements. The two disclosures therefore address different accounting presentations.

Papadamali measured the defined-benefit obligation using actuarial assumptions. Its annual discount rate was 6.60% for the period ended 30 June 2025 and FY25, compared with 7.10% in FY24 and 7.20% in FY23; the salary-growth assumption was 7.00% in all four periods. The assumptions also used a retirement age of 60 years and withdrawal rates of 15% for accounts and administration employees aged 55 and above and 30% for labour and wages employees in that age group.

How did the Papadamali restatement change reported profit?

Papadamali’s restatement reduced FY25 profit after tax to Rs 472.44 lakh from audited profit after tax of Rs 481.65 lakh. The direct gratuity adjustment in the profit and loss account was negative Rs 12.32 lakh, partly offset by a Rs 3.10 lakh deferred-tax impact. Deferred tax reflects the accounting effect of timing differences between financial reporting and tax treatment.

The FY24 result moved in the opposite direction. Papadamali reported audited FY24 profit after tax of Rs 195.10 lakh and restated FY24 profit after tax of Rs 210.76 lakh. The Rs 20.93 lakh gratuity adjustment in the profit and loss account was partly offset by a negative Rs 5.27 lakh deferred-tax impact, producing a net Rs 15.66 lakh increase.

FY23 was also restated downward, to Rs 25.41 lakh from audited profit after tax of Rs 27.28 lakh. The schedule attributes the change to a negative Rs 2.50 lakh gratuity adjustment and a Rs 63,000 deferred-tax impact. For the period ended 30 June 2025, both audited and restated profit after tax were Rs 180.60 lakh, with no restatement adjustment shown in the schedule.

What was Papadamali’s gratuity obligation after restatement?

Papadamali’s gratuity obligation was Rs 12.89 lakh at 30 June 2025, compared with Rs 10.31 lakh at 31 March 2025. The company reported no fair value of plan assets on either date, so the present value of the defined-benefit obligation equalled the reported net liability. The disclosure therefore identifies no separately held plan assets to offset the obligation.

The obligation was Rs 7.83 lakh at 31 March 2024 and Rs 8.62 lakh at 31 March 2023. The increase from Rs 7.83 lakh in FY24 to Rs 10.31 lakh in FY25 included Rs 2.49 lakh of current service cost, Rs 56,000 of interest cost, benefits paid of Rs 57,000 and an actuarial loss of Rs 31,000. An actuarial gain or loss is the change in an estimated obligation arising from experience or changes in assumptions.

Papadamali classified Rs 2.59 lakh of the Rs 12.89 lakh obligation as current at 30 June 2025 and Rs 10.29 lakh as non-current. At 31 March 2025, the company classified Rs 2.59 lakh as current and Rs 7.72 lakh as non-current. This split distinguishes the portion expected to be settled in the near term from the longer-dated employee-benefit liability.

How did the correction affect Papadamali reserves and net worth?

Papadamali reported restated reserves and surplus of Rs 544.71 lakh at 31 March 2024, compared with Rs 535.50 lakh in the audited financial statements. The restated balance was therefore Rs 9.21 lakh higher. At 31 March 2023, reserves and surplus were restated to Rs 333.96 lakh from audited reserves and surplus of Rs 340.41 lakh, a Rs 6.45 lakh reduction.

The reserve-and-surplus reconciliation lists gratuity, income-tax and deferred-tax items for FY24 and FY23. However, the individual adjustments displayed in that table do not arithmetically reproduce the restated balances shown, so the reported restated totals are the direct disclosed comparison. For FY25 and the period ended 30 June 2025, the table showed the same audited and restated reserves and surplus of Rs 1,017.16 lakh and Rs 1,197.75 lakh, respectively.

Papadamali reported restated net worth of Rs 620.49 lakh at 31 March 2024, compared with audited net worth of Rs 611.28 lakh. Its restated net worth at 31 March 2023 was Rs 409.73 lakh, compared with Rs 416.18 lakh audited. Net worth is defined in the company’s ratio disclosure as equity share capital plus reserves and surplus, including securities premium, general reserve and profit-and-loss surplus.

At 31 March 2025, Papadamali’s reported restated net worth was Rs 1,092.93 lakh, and at 30 June 2025 it was Rs 1,273.53 lakh. The net-worth reconciliation showed no restatement adjustment for either of those two dates. The FY24 and FY23 adjustments therefore changed the historical comparison of equity and accumulated reserves, while the two later reported balances were unchanged by the schedule.

Conclusion

Papadamali’s restatement revised its historical earnings by recognising gratuity costs omitted from every covered period and recording related deferred-tax effects. The largest disclosed net profit movement was the Rs 15.66 lakh increase in FY24 profit after tax, while FY25 profit after tax fell by Rs 9.22 lakh, demonstrating that retrospective employee-benefit accounting did not affect each year in the same direction.

What to watch next is the disclosed gratuity obligation and the assumptions used to measure it. Papadamali reported an unfunded defined-benefit liability of Rs 12.89 lakh at 30 June 2025, no plan assets and a 7.00% salary-growth assumption; subsequent service costs, benefit payments, discount-rate changes and actuarial gains or losses can affect future expense and liability recognition.