By Himanshu V. Kishnadwala, Chartered Accountant
From Published AccountsTata Motors Ltd.
2. Net Loss after tax of Rs.26,326 lakhs for the quarter
ended December 31, 2008 includes notional exchange loss (net) of Rs.22,652 lakhs
on revaluation of foreign currency borrowings, deposits and loans given. Net
Profit after tax of Rs.40,984 lakhs for the nine months ended December 31, 2008
includes notional exchange loss (net) of Rs.63,255 lakhs on revaluation of
foreign currency borrowings, deposits and loans given.
4. Effective from April 1, 2008 the Company has applied hedge
accounting principles in respect of forward exchange contracts as set out in
Accountings Standards (AS) 30 — Financial Instruments : Recognition and
Measurement, issued by the Institute of Chartered Accountants of India.
Accordingly, all such contracts outstanding as on December 31, 2008 are marked
to market and a notional loss aggregating to Rs.16,481 lakhs (net of tax)
arising on contracts that were designated and effective as hedges of future cash
flows, has been directly recognised in the Hedging Reserve Account to be
ultimately recognised in the Profit and Loss Account depending on the exchange
rate fluctuation till and when the underlying forecasted transaction occurs.
Earlier such notional loss/gain was recognised in the Profit and Loss Account on
the basis of exchange rate on the reporting date.
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GMR Infrastructure Ltd.
The foreign exchange loss (Net) of Rs.2,524 lakhs for the
quarter ended December 31, 2008 (2007 : Gain of Rs.96 lakhs) and Rs.12,986 lakhs
for the nine months period ended December 31, 2008 (2007 : Gain of Rs.1,829
lakhs), accounted pursuant to Accounting Standard 11 on the Effects of Changes
in Foreign Exchange Rates include the following :
(a) Vemagiri Power Generation Limited (VPGL), a notional
loss of Rs.477 lakhs for the quarter ended December 31, 2008 (2007 : Gain of
Rs.122 lakhs) and Rs.2,639 lakhs for the nine months period ended December 31,
2008 (2007 : Gain of Rs.1,392 lakhs)
(b) GMR Hyderabad International Airport Limited (GHIAL), a
notional loss of Rs.2,501 lakhs for the quarter ended December 31, 2008
(2007 : NIL) and Rs.11,012 lakhs for the nine months period ended December 31,
2008 (2007 : NIL)
The above notional foreign exchange losses of these two
subsidiaries have been accounted on the conversion of their project loans
denominated in foreign currency into Indian Rupees, using closing rates as at
the reporting date. However, both these subsidiaries have adequate foreign
currency revenues to provide hedge against any currency fluctuation risks that
may arise as and when the interest payments and principal repayments of these
loans are made and hence forex risks associated with these loans will not have
any bearing on the profitability of these two subsidiaries.
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Reliance Industries Ltd.
The Company has continued to adjust the foreign currency
exchange differences on amounts borrowed for acquisition of fixed assets, to the
carrying cost of fixed assets in compliance with Schedule VI to the Companies
Act, 1956 as per legal advice received which is at variance to the treatment
prescribed in Accounting Standards (AS-11) on ‘Effects of Changes in Foreign
Exchange Rates’ notified in the Companies (Accounting Standards) Rules 2006. Had
the treatment as per the AS-11 been followed, the net profit after tax for the
nine months period ended 31st December 2008 would have been lower by Rs.1,177
crore (US $ 242 million).
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The Great Eastern Shipping Co. Ltd.
1. Even though not yet mandatory, in accordance with the
recommendations of the Institute of the Chartered Accountants of India, the
Company has with effect from April 01, 2008 adopted the principles enunciated in
Accounting Standard (AS) 30, Financial Instruments : Recognition and Measurement
in respect of hedge accounting and recognition and measurement of derivatives.
Consequently, the revaluation gain/(loss) on designated hedging instruments that
qualify as effective hedges has been appropriately recorded in the hedging
reserve account. Designated hedging instruments include foreign currency loan
liabilities and currency, interest rate and bunker derivatives. Earlier, the
revaluation gain/(loss) on the foreign currency loan liabilities was recognised
in the profit and loss account, whereas the gain/(loss) on currency, interest
rate and bunker derivatives was recognised on settlement. Consequent to the
designation of foreign currency loan liabilities as hedging instruments, the
profit of the Company for the quarter and nine months ended December 31, 2008 is
higher by Rs.62.60 crores and Rs.252.18 crores, respectively. Gain/(loss) on
revaluation of ineffective hedge transactions and on settlement of hedge
transactions is recognised in the Profit and Loss Account.
2. Exceptional item includes :
(a) Net Compensation (paid)/received on cancellation of
vessel construction/sale contracts for the quarter and nine months ended
December 31, 2008 was Rs.(14.85) crores. (for the quarter and nine moths ended
December 31, 2007 the corresponding amount was Rs. ‘Nil’).
(b) Exchange gain/(loss) on revaluation of foreign currency
loan liabilities in accordance with As-11 for the quarter and nine months
ended December 31, 2008 were Rs. ‘Nil’ and Rs.(138.57) crores,
respectively. (For the quarter and nine months ended December 31, 2007 the
corresponding amounts were Rs.22.42 crores and Rs.186.49 crores,
respectively.)
Tata Steel Ltd.
Notional exchange loss during the period includes an unrealised translation loss of Rs.753.38 crores (Rs.153.56 crores for the quarter) on Convertible Alternate Reference Securities (CARS) issued in September 2007. The liability has been translated at the exchange rate as on 31st December 2008. CARS are convertible into equity shares only between 4th September 2011 and 6th August 2012 and are redeemable in foreign currency only in September 2012, if not converted into equity, and are neither convertible nor redeemable ti114th September 2011.
Bharti Airtel Ltd.
As reported in the last quarter, the Company has followed the accounting policy to adjust foreign exchange fluctuation on loan liability for fixed assets till June 30, 2008, as per requirement of Schedule VI of the Companies Act, 1956 based on legal advice. During the nine months period effective April I, 2008, the Company has adopted the treatment prescribed in Accounting Standard (AS-11) ‘Effect of Changes in Foreign exchange Rates’ notified in the Companies (Accounting Standard) Rules 2006 dated December 7, 2006. Instead of capitalising/ recapitalising such fluctuation as per policy hitherto followed, the Company has changed/ credited such fluctuations directly to the Profit & Loss Account.
Had the Company continued with the earlier policy net profit after tax would have been higher by Rs.245.09 crore and Rs.900.12 crore for the quarter and nine months ended December 31, 2008, respectively, for the Company and the net profit after tax would have been higher by RS.248.42 crore and Rs.929.94 crore for the quarter and nine months ended December 31, 2008, respectively, for the Group.
Reliance Communications Ltd.
The Company is pursuing aggressive capex plans which include significant expansion of nationwide wireless network. The Company has funded these initiatives primarily by long-term borrowings in foreign currency and Foreign Currency Convertible Bonds (‘FCCBs’). In compliance of Schedule VI of the Companies Act, 1956 and on the basis of legal advice received by the Company, short-term fluctuations in foreign exchange rates relate to such liabilities and borrowings related to acquisition of fixed assets are adjusted in the carrying cost of fixed assets. Had the accounting treatment as per Accounting Standard (AS) 11 been continued to be followed by the Company, the net profit after tax for the quarter and nine months ended 31st December 2008 would have been lower by Rs.59,566 lakh and Rs.84,837 lakh for realised and Rs.2,757 lakh and Rs.1,80,359 lakh for unrealised currency exchange fluctuation, respectively. This excludes an amount of Rs.21,048 lakh and Rs.1,14,674 lakh for the quarter and nine months ended on 31st December 2008 on FFCBs for which the Company will not be liable, if FCCBs are converted on or before the due date i.e., 1st May 2011 and 18th February 2012. This matter was referred to by the auditors of the Company in their limited review report.
Jet Airways Ltd.
The Company, based on legal advice has, from the first quarter of the current year, adjusted the foreign currency differences on amounts borrowed for acquisition of fixed assets acquired from outside India aggregating Rs.38,081 lac and Rs.188,454 lac for quarter and nine months ended 31st December 2008 to the carrying cost of the fixed assets, in compliance with Schedule VI of the Companies Act, 1956 which is in variance with the treatment prescribed in Accounting Standard (AS) 11 on ‘Effects of Changes in Foreign Exchange Rates’ notified in the Companies (Accounting Standards) Rules. Had the treatment as per AS-ll been followed, the net loss before tax for the quarter and nine months ended 31st December 2008 would have been higher by Rs.35,791 lac and Rs.185,227 lac, respectively.
Consequent to following this practice from the first quarter of the current year, the foreign currency difference (gain) previously credited to the profit and loss account aggregating Rs.20,727 lac has been reversed from the opening balance of profit and loss account and adjusted to the cost of fixed assets.
These are matters of reference in limited review report of statutory auditors.
Ranbaxy Laboratories Ltd.
3. Foreign exchange Loss/(Gain) on loans represents exchange differences arising during the period(s) on foreign currency borrowings including Foreign Currency Convertible Bonds.
4. (A) Pursuant to ICAI Announcement’ Accounting for Derivatives’ on the early adoption of Accounting Standard (AS) 30 – Financial Instruments: Recognition and Measurement, the Company has early adopted the said Standard with effect from October I, 2008, to the extent that the adoption does not conflict with existing mandatory accounting standards and other authoritative pronouncements, company law and other regulatory requirements. Pursuant to the adoption:
i) Transitional loss mainly representing the loss on fair valuation of foreign currency options, determined to be ineffective cash flow hedges on the date of adoption, amounting to Rs.ll,788 million (net of tax) has been adjusted against the opening balance of revenue reserves as of January I, 2008.
ii) Loss on fair valuation of forward covers, which qualify as effective cash flow hedges amounting to Rs.723 million (net of tax), on the date of adoption, has been recognised in the hedging reserve account.
B) For the quarter, foreign exchange loss arising on account of change in fair value of foreign currency options determined to be ineffective cash flow hedge, amounted to Rs.7,843 million before tax and has been recognised under ‘Exceptional items’. Net of tax the loss is Rs.5,177 million.
Essar Oil Ltd.
2. Exceptional items consist of (a) forex loss of Rs.679 crore on account of unprecedented depreciation in the value of rupee during the quarter, and (b) provision of Rs.524 crore on account of write down of inventory to net realisable value due to steep fall in crude/petroleum product prices during the quarter.
3. The Company has recognised exchange difference on all foreign currency monetary items as at the end of the period. There is no loss (net) on outstanding commodity derivative contracts at the end of the period.
