106 / 236
Atul Ltd | Annual Report 2016-17
ii) Cash flow hedge
The Company designates certain foreign exchange forward and options contracts as cash flow hedges to mitigate the
risk of foreign exchange exposure on firm commitment and highly probable forecast transactions. It designates certain
Interest rate swaps as cash flow hedge to mitigate the risk of foreign exchange exposure on variable interest loans.
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value
of the derivative is recognised in Other Comprehensive Income and accumulated in the cash flow hedging reserve.
Any ineffective portion of changes in the fair value of the derivative is recognised immediately in the net profit in
the Statement of Profit and Loss. If the hedging instrument no longer meets the criteria for hedge accounting, then
hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised,
the cumulative gain | (loss) on the hedging instrument recognised in cash flow hedging reserve till the period the
hedge was effective remains in cash flow hedging reserve until the forecasted transaction occurs. The cumulative
gain | (loss) previously recognised in the cash flow hedging reserve is transferred to the Statement of Profit and Loss
upon the occurrence of the related forecasted transaction.
If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging
reserve is reclassified to net profit in the Statement of Profit and Loss.
r) Borrowings:
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at
amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised
in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of
loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility
will be drawn down. In this case, the fee is deferred until the draw down occurs.
Borrowings are removed from the Balance Sheet when the obligation specified in the contract is discharged, cancelled or
expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to
another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in
profit or loss as other income | (expense).
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period.
s) Borrowing costs:
General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a
qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended
use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended
use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalisation. Other borrowing costs are expensed in
the period in which they are incurred.
t) Biological assets:
The oil palm trees are bearer plants and are therefore presented and accounted for as property, plant and equipment.
However, the oil palm fresh fruit bunches (FFB) growing on the trees is accounted for as biological assets until the point of
harvest. Harvested oil palm FFBs are transferred to inventory at fair value less costs to sell when harvested.
Biological assets are measured at fair value less cost to sell. Costs to sell include the incremental selling costs, including
auction charges, commission paid to brokers and dealers and estimated costs of transport to the market but excludes
finance costs and income taxes.
Changes in fair value of oil palm FFB on trees are recognised in the Statement of Profit and Loss.
Measurement technique:
The fair value of growing oil palm FFB is determined using a discounted cash flow model based on the expected yield by
plantation size, the market price for the produce | sampling and after allowing for harvesting costs, contributory asset
charges for the land and bearer plants owned by the entity and other costs yet to be incurred in getting the fruit bunches
to maturity or sampling ready for sale.
u) Provisions and contingent liabilities:
Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, it is
probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.
These are reviewed at each year end and reflect the best current estimate. Provisions are not recognised for future
operating losses.
Note 1 Significant Accounting Policies
(continued)
Notes
to the Financial Statements