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Consolidated Financials
177
CORPORATE OVERVIEW (1-31)
STATUTORY REPORTS (46-122)
FINANCIALS
(f )
Transactions in foreign currencies andaccountingof derivatives
(i)
Exchangedifferences
Transactions in foreign currencies are recorded at the exchange rates prevailing on the date of the transaction. Foreign currencymonetary assets and
liabilities are translated at year end exchange rates.
(1)
Exchange differences arising on settlement of transactions and translation of monetary items other than those covered by (2) below are
recognised as income or expense in the year in which they arise. Exchange differences considered as borrowing cost are capitalised to the
extent these relate to the acquisition / construction of qualifying assets and the balance amount is recognised in the Profit & Loss Statement.
(2)
Exchange differences relating to long term foreign currency monetary assets / liabilities are accounted for with effect fromApril 1, 2007 in the
following manner:
-
Differences relating to borrowings attributable to the acquisition of the depreciable capital asset are added to / deducted from the cost
of such capital assets.
-
Other differences are accumulated in Foreign Currency Monetary Item Translation Difference Account, to be amortised over the period,
beginning April 1,2007 or date of inception of such item, as applicable, and ending onMarch 31, 2011 or the date of its maturity,whichever
is earlier.
-
Pursuant to notification issued by theMinistry of Corporate Affairs, on December 29, 2011, the exchange differences on long term foreign
currency monetary items (other than those relating to acquisition of depreciable asset) are amortised over the period till the date of
maturity or March 31, 2020, whichever is earlier.
(3)
On consolidation, the assets, liabilities and goodwill or capital reserve arising on the acquisition,of the Group’s overseas operations are translated
at exchange rates prevailing on the balance sheet date. Income and expenditure items are translated at the average exchange rates for the year/
month. Exchange differences arising in case of integral foreign operations are recognised in the Profit and Loss Statement and exchange
differences arising in case of non integral foreign operations are recognised in the Group’s Translation Reserve classified under Reserves and
surplus.
(ii)
Hedgeaccounting
The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to highly probable
forecast transactions. With effect fromApril 1, 2008, the Company designates such forward contracts in a cash flow hedging relationship by applying
the hedge accounting principles set out in Accounting Standard 30- Financial Instruments: Recognition and Measurement.
These forward contracts are stated at fair value at each reporting date. Changes in the fair value of these forward contracts that are designated and
effective as hedges of future cash flows are recognised directly in Hedging Reserve Account under Reserves and surplus, net of applicable deferred
income taxes and the ineffective portion is recognised immediately in the Profit and Loss Statement.
Amounts accumulated in Hedging Reserve Account are reclassified to profit and loss in the same periods during which the forecasted transaction
affects Profit and Loss Statement.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge
accounting. For forecasted transactions, any cumulative gain or loss on the hedging instrument recognised in Hedging Reserve Account is retained
there until the forecasted transaction occurs.
If the forecasted transaction is no longer expected to occur, the net cumulative gain or loss recognised in Hedging Reserve Account is immediately
transferred to the Profit and Loss Statement for the year.
( i i i )
Premium or discount on forward contracts other than those covered in (ii) above is amortised over the life of such contracts and is recognised as
income and expense. Foreign currency options and other derivatives are stated at fair value as at the year end with change in fair value recognised
in the Profit and Loss Statement.
(g)
Productwarrantyexpenses
The estimated liability for product warranties is recordedwhen products are sold. These estimates are established using historical information on the nature,
frequency and average cost of warranty claims and management estimates regarding possible future incidence based on corrective actions on product
failures. The timing of outflows will vary as and when warranty claimwill arise - being typically upto five years.
(h)
Incomeonvehicle loan
Interest income from loan contracts in respect of vehicles and income from plant given on lease, are accounted for by using the Internal Rate of Return
method. Consequently, a constant rate of return on the net outstanding amount is accrued over the period of contract. The Company and its subsidiary
provides an allowance for finance receivables that are in arrears for more than 11months, to the extent of an amount equivalent to the outstanding principal
and amounts due but unpaid considering probable inherent loss including estimated realisation based on past performance trends. In respect of loan
contracts that are in arrears for more than 6months but not more than 11months, allowance is provided to the extent of 10%of the outstanding and amount
due but unpaid.
(i)
Sale of finance receivables
The Company and its subsidiary sells finance receivables to Special Purpose Entities (“SPE”) in securitisation transactions. Recourse is in the form of the
Company and its subsidiary’s investment in subordinated securities issued by these special purpose entities, cash collateral and bank guarantees.The loans
are derecognised in the balance sheet when they are sold and consideration has been received by the Company and its subsidiary. Sales and transfers that
do not meet the criteria for surrender of control are accounted for as secured borrowings.
NOTESFORMINGPARTOFCONSOLIDATEDFINANCIALSTATEMENTS
FINANCIAL HIGHLIGHTS (32-45)