By Himanshu V. Kishnadwala
Chartered Accountant
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From Significant Accounting Policies
Foreign currency transactions
Foreign Currency Transactions (FCT) and forward exchange contracts used to hedge FCT are initially recognised at the spot rate on the date of the transaction/contract. Monetary assets and liabilities relating to foreign currency transactions and forward exchange contracts remaining unsettled at the end of the year are translated at year-end rates.
The company has opted for accounting the exchange differences arising on reporting of longterm foreign currency monetary items in line with Companies (Accounting Standards) Amendment Rules 2009 relating to Accounting Standard 11 (AS- 11) notified by Government of India on 31 March, 2009. Accordingly the effect of exchange differences on foreign currency loans of the Company is accounted by addition or deduction to the cost of the assets so far it relates to depreciable capital assets and in other cases by transfer to ‘Foreign Currency Monetary Items Translation Difference Account’ to be amortised over the balance period of the long-term monetary items or period up to 31 March, 2011, whichever is earlier.
The differences in translation of FCT and forward exchange contracts used to hedge FCT (excluding the long-term foreign currency monetary items accounted in line with Companies (Accounting Standards) Amendment Rules 2009 on Accounting Standard 11 notified by Government of India on 31 March, 2009) and realised gains and losses, other than those relating to fixed assets are recognised in the Profit and Loss Account. The outstanding derivative contracts at the balance sheet date other than forward exchange contracts used to hedge FCT are valued by marking them to market and losses, if any, are recognised in the Profit and Loss Account.
Exchange difference relating to monetary items that are in substance forming part of the Company’s net investment in non-integral foreign operations are accumulated in Foreign Exchange Fluctuation Reserve Account.
From Notes to Accounts
Profit and Loss Account
The Company has opted for accounting the exchange differences arising on reporting of longterm foreign currency monetary items in line with Companies (Accounting Standards) Amendment Rules 2009 relating to Accounting Standard 11 (AS- 11) notified by Government of India on 31 March, 2009 which allows foreign exchange difference on long-term monetary items to be capitalised to the extent they relate to acquisition of depreciable assets and in other cases to amortise over the period of the monetary asset/liability or the period up to 31 March, 2011, whichever is earlier.
As on 31 March, 2011, Rs. Nil (31-3-2010: Credit of Rs.206.95 crores) remains to be amortised in the ‘Foreign Currency Monetary Items Translation Difference Account’ after taking a credit of Rs.261.44 crores (2009-10: Charge of Rs.85.67 crores) in the Profit & Loss Account and Rs 2.07 crores (net of deferred tax Rs.3.57 crores) [2009-10: Rs.47.35 crores (net of deferred tax Rs.24.38 crores)] adjusted against Securities Premium Account during the current financial year on account of amortisation. The Depreciation for the year ended 31 March, 2011 is higher by Rs.0.48 crore (2009-10: Rs.0.41 crore) and the Profit before taxes for the year ended 31 March, 2011 is higher by Rs.208.99 crores (2009-10: Lower by Rs.561.60 crores).
Other Disclosures
25. Derivative Instruments (I) The Company has entered into the following derivative instruments:
(a) The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations. The use of foreign currency forward contracts is governed by the Company’s strategy approved by the Board of Directors, which provide principles on the use of such forward contracts consistent with the Company’s Risk Management Policy. The Company does not use forward contracts for speculative purposes.
Outstanding Short-Term Forward Exchange Contracts entered into by the Company on account of payables:
Outstanding Short-Term Forward Exchange Contracts entered into by the Company on account of receivables:
(Forward exchange contracts outstanding as on 31 March 2011 include Forward Purchase of United States Dollars against Indian National Rupees for contracted imports.)
Outstanding Long-Term Forward Exchange Contracts entered into by the Company:
(Long-Term Forward Exchange Contracts outstanding as on 31 March, 2011 have been used to hedge the Foreign Currency Risk on repayment of External Commercial Borrowings and Export Credit Agency Borrowings of the Company.)
(b) The Company also uses derivative contracts other than forward contracts to hedge the interest rate and currency risk on its capital account. Such transactions are governed by the strategy approved by the Board of Directors which provide principles on the use of these instruments, consistent with the Company’s Risk Management Policy. The Company does not use these contracts for speculative purposes.
Outstanding Interest Rate Swaps to hedge against fluctuations in interest rate changes:
All the above swaps and forward contracts are accounted for as per accounting policies stated in Notes on Balance sheet and Profit and Loss Account, Schedule M 1(f).
(II) The year-end foreign currency exposures that have not been hedged by a derivative instrument of otherwise are given below:
26. Previous year’s figures have been recast/ restated where necessary.
27. Figures in Italics are in respect of the previous year.
