96 / 168
Atul Ltd | Annual Report 2014-15
c) ‘Cost’ comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventory
to the present location and condition.
d) Due allowances are made for slow moving and obsolete inventories based on estimates made by the
Company.
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 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 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 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 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.
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
Notes
to the Financial Statements
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
(continued)