115 / 148
113
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
(contd)
4.10 Foreign Currency Transactions:
a) Initial recognition:
Transactions denominated in foreign currencies are recorded at the rate prevailing on the date of the
transaction.
b) Conversion:
At the year end, monetary items denominated in foreign currencies remaining unsettled are converted
into 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:
All 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:
The 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 contract. Exchange
differences on such contract are being recognised in the Consolidated 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,
and Currency Options, to hedge risk associated with the 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) Changes 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.
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 Consolidated
Statement of Profit and Loss for the period.
Notes
to the Consolidated Financial Statements