Atul Ltd 2014-15

131 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (continued) 4.10 Foreign currency transactions: a) Initial recognition: T ransactions denominated in foreign currencies are recorded at the rate prevailing on the date of the transaction. b) Conversion: A t the year end, monetary items denominated in foreign currencies remaining unsettled are converted into Indian rupee equivalents at the year end exchange rates. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction. c) Exchange differences: A ll exchange differences arising on settlement and conversion of foreign currency transactions are included in the Consolidated Statement of Profit and Loss. The Company has opted to avail the option 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, Government of India. Consequently, foreign exchange difference on account of long-term foreign currency borrowings utilised to acquire a depreciable asset, 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: T he premium or discount arising at the inception of forward exchange contracts intended to hedge existing exposures is amortised as expenses or income over the life of the contracts. Exchange differences on such contracts 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 contracts is recognised as income or expense for the year. e) Derivatives: W here the Company has entered into derivative contracts such as interest rate swaps, currency swaps and currency options, to hedge risk associated with interest and foreign currency fluctuations relating to firm commitments where these exposures exist at the Balance Sheet date the hedging instruments are initially measured at fair value, and are remeasured at subsequent reporting dates. The revalorisation gain or loss on Mark-to-Market (MTM) is generally recognised in the Consolidated Statement of Profit and Loss each year. However on account of option exercised as per (c) above MTM gains and losses on instruments intended to hedge long-term foreign currency borrowings utilised to acquire depreciable assets are recognised to offset foreign exchange fluctuation differences on such long-term foreign currency borrowings. f) C hanges in fair value of derivative instruments intended to hedge future exposures resulting out of ‘highly probable forecast transactions’ such as exports, is determined as effective hedges of future cash flows, which are recognised directly under ‘Hedging reserve’ in Shareholders’ funds, and the ineffective portion, if any, is recognised immediately in the Consolidated 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 Consolidated Statement of Profit and Loss. H edge 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 Consolidated Statement of Profit and Loss for the period. Notes to the Consolidated Financial Statements