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Atul Ltd | Annual Report 2010-11

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 the derivative contracts such as Interest Rate Swaps, Currency

Swaps, Forward Contracts and Currency Options, to hedge against risks of adverse movements in interest

rates, foreign currencies of values of the hedged items 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 profit and loss account. Changes in the fair value of derivative financial

instruments that do not qualify for hedge accounting are recognised in the profit and loss account 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 profit and loss account for the period.

9. 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 Bill of Lading and | or Air Way Bill.

c. Benefit on account of entitlement to import goods free of duty under the “Duty Entitlement Pass Book

under Duty Exemption Scheme” is accounted in the year of export.

d. Lease rental income is recognised on accrual basis.

e. Dividend income is accounted for in the year in which the right to receive the same is established.

f. Interest income is recognised on a time proportion basis taking into account the amount outstanding and

the rate applicable.

10. Provisions:

A provision is recognised when an enterprise has a present obligation as a result of past event and it is probable

that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can

be made.

Provisions are not discounted to its present value and are determined based on Management estimate required

to settle the obligation at the balance sheet date and adjusted to reflect the current Management estimates.

11. Research & Development Expenditure:

Research & Development expenditure is charged to revenue under the natural heads of account in the year in

which it is incurred. However, Research & Development expenditure on fixed assets is treated in the same way

as expenditure on other fixed assets.