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NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
(continued)
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 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:
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 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:
Where 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) 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