Atul Ltd 2011-12

Atul Ltd | Annual Report 2011-12 c) Exchange differences: All exchange differences arising on settlement and conversion of foreign currency transactions are included in the Statement of Profit and Loss. The Company has opted to avail the choice provided under paragraph 46A of Accounting Standard-11 ‘The effects of changes in foreign exchange rates’ inserted vide Notification dated December 29, 2011 issued by the Ministry of Corporate Affairs. Consequently, foreign exchange difference on account of a depreciable asset acquired out of long-term borrowings is adjusted in the cost of the depreciable asset, which will be depreciated over the balance life of the asset. d) Forward exchange contracts not intended for trading or speculation purposes: The premium or discount arising at the inception of forward exchange contract is amortised as expense or income over the life of the contract. Exchange differences on such contract are being recognised in the Statement of Profit and Loss for the year. Any profit or loss arising on cancellation or renewal of forward exchange contract is recognised as income or expense for the year. e) Derivatives: Where the Company has entered into derivative contracts such as Interest Rate Swaps, Currency Swaps, Forward Contracts and Currency Options, to hedge risk associated with interest and foreign currency fluctuations relating to firm commitments and forecasted transactions, hedging instruments are initially measured at fair value, and are remeasured at subsequent reporting dates. Changes in the fair value of these derivatives that are designated and effective as hedges of future cash flows are recognised directly in shareholders’ funds, under ‘Hedging Reserve’ and the ineffective portion is recognised immediately in the Statement of Profit and Loss. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the Statement of Profit and Loss as they arise. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, for forecasted transactions, any cumulative gain or loss on the hedging instrument recognised in Shareholders’ funds is retained there until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in shareholders’ funds is transferred to the Statement of Profit and Loss for the period. 10 Revenue Recognition: a) Sale of goods: Revenue is recognised when the significant risks and rewards of ownership of goods have passed to the buyer, which generally coincides with delivery. It includes excise duty but excludes value added tax and sales tax. b) Export sales are accounted on the basis of dates of on board Bill of Lading and | or Air Way Bill. c) Service income is recognised, net of service tax, when the related services are provided. d) Eligible export incentives are recognised in the year of export. e) Lease rental income is recognised on accrual basis. f) Dividend income is accounted for in the year in which the right to receive the same is established. g) Interest income is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable. 11 Provisions, Contingent Liabilities and Contingent Assets: Provisions involving a substantial degree of estimation in measurement are recognised when there is a present obligation as a result of past events and it is probable that there will be an outflow of resources. Provision is not discounted to its present value and is determined based on the best estimate required to settle an obligation at the year end. These are reviewed every year end and adjusted to reflect the best current estimate. Contingent liabilities are not recognised but are disclosed in the financial statements. Contingent assets are neither recognised nor disclosed in the financial statements. Notes to financial statements NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (contd)