Atul Ltd 2011-12

107 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. 3.10 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. 3.11 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. 3.12 Research & Development Expenditure: Research & Development expenditure is charged to revenue under the natural heads of account in the year in which it is incurred. Research & Development expenditure on fixed assets is treated in the same way as expenditure on other fixed assets. 3.13 Employee Benefits: a) Defined contribution plan: Contribution paid | payable by the Company during the period to Provident Fund, Super Annuation Fund, Employees’ State Insurance Corporation, and Labour Welfare Fund are recognised in the Statement of Profit and Loss. Notes to Consolidated financial statements NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (contd)