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Atul Ltd | Annual Report 2015-16
Note 1 Significant Accounting Policies
(continued)
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.
4.10 Revenue recognition:
Revenue from sales are recognised when all significant risks and rewards of ownership have been
transferred to the buyer and no significant uncertainty exists regarding the amount of the consideration
that will be derived from the sale of goods.
a) Sale of goods and services:
i) Domestic sales are recognised on dispatch from the point of sale, where property in goods are
transferred to the buyer.
ii) Export sales are recognised when significant risk and rewards are transferred to the buyer as
per terms of contract.
iii) Service income is recognised, net of service tax, when the related services are rendered.
b) Other revenue:
i) Eligible export incentives are recognised in the year in which the conditions precedent are met
and there is no significant uncertainty about the collectability.
ii) Lease rental income is recognised on accrual basis.
iii) Dividend income is accounted for in the year in which the right to receive the same is established.
iv) Interest income is recognised on a time proportion basis taking into account the amount
outstanding and the rate applicable.
4.11 Provisions, contingent liabilities and contingent assets:
Provisions involving a substantial degree of estimation in measurement are recognised when there is a
present obligation as a result of past events and it is probable that there will be an outflow of resources.
Provision is not discounted to its present value and is determined based on the best estimate required to
settle an obligation at the year end. These are reviewed every year end and adjusted to reflect the best
current estimate. Contingent liabilities are not recognised but are disclosed in the Financial Statements.
Contingent assets are neither recognised nor disclosed in the Financial Statements.
Notes
to the Consolidated Financial Statements