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Bajaj Auto
BSE: 532977|NSE: BAJAJ-AUTO|ISIN: INE917I01010|SECTOR: Auto - 2 & 3 Wheelers
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« Mar 13
Notes to Accounts Year End : Mar '14
Basis of preparation
 
 These financial statements have been prepared in accordance with the
 generally accepted accounting principles in India under the historical
 cost convention on accrual basis. Consequent to the clarification from
 the Ministry of Corporate Affairs, vide General Circular 08/2014 dated
 4 April 2014, these financial statements have been prepared in
 accordance with the relevant provisions/Schedules/Rules of the
 Companies Act, 1956. Accordingly, these financial statements have been
 prepared to comply in all material aspects with the accounting
 standards notified under section 211(3C) [Companies (Accounting
 Standards) Rules, 2006, as amended] and the other relevant provisions
 of the Companies Act, 1956.
 
 All assets and liabilities have been classified as current or
 non-current as per the Company''s normal operating cycle and other
 criteria set out in the Revised Schedule VI to the Companies Act, 1956.
 Based on the nature of products and the time between the acquisition of
 assets for processing and their realisation in cash and cash
 equivalents, the Company has ascertained its operating cycle as 12
 months for the purpose of current or non-current classification of
 assets and liabilities.
 
 a.  Of the above:-
 
 i.  144,683,510 equity shares were allotted as fully paid bonus shares
 by capitalisation of General reserve by the Company on 13 September
 2010.
 
 ii.  101,183,510 equity shares were allotted as fully paid up pursuant
 to the scheme of arrangement for demerger of erstwhile Bajaj Auto Ltd.
 (now Bajaj Holdings & Investment Ltd.) by the Company on 3 April 2008.
 
 iii. 1,805,071 equity shares thereof (excluding 1,805,071 equity shares
 allotted as bonus shares thereon) are deemed to be issued by way of
 Euro Equity Issue represented by Global Depository Receipts (GDR)
 evidencing Global Depository Shares outstanding on the record date.
 Outstanding GDRs at the close of the year were 60,044 (66,196)
 
 b.  Terms/rights attached to equity shares
 
 The Company has only one class of equity shares having a par value of Rs.
 10 per share. Each holder of equity shares is entitled to one vote per
 share. The dividend proposed by the Board of Directors and approved by
 the shareholders in the annual general meeting is paid in Indian
 rupees. In the event of liquidation of the Company, the holders of
 equity shares will be entitled to receive remaining assets of the
 Company, after distribution of all preferential amounts.  The
 distribution will be in proportion to the number of equity shares held
 by the shareholders.
 
 1 Derivative hedging instruments
 
 The Company has adopted the accounting treatment and disclosures in
 accordance with the principles laid down in AS 30 and AS 32 on foreign
 currency derivative contracts.
 
 The Company holds foreign currency derivatives to hedge its foreign
 currency exposure. Derivatives are initially recognised at fair value
 on the date a derivative contract is entered into and are subsequently
 re-measured at their fair value. The Company designates foreign
 currency derivatives as hedges of foreign currency risk associated with
 a highly probable forecast transaction (cash flow hedge).
 
 The Company has entered into simple forward contracts and par forward
 contracts to hedge highly probable forecast export transactions. These
 instruments meet the Management''s foreign exchange risk management
 objectives and also qualify for hedge accounting as per the principles
 of hedge accounting. The market value of instruments outstanding at the
 close of the year is a gain of Rs. 1.95 crore as against Rs. Nil in the
 previous year.
 
 The Company has also entered into range forward contracts to hedge
 highly probable forecast transactions, where the export realisations of
 the Company are protected below a minimum pre-determined foreign
 exchange rate whereas the realisation advantages are available to the
 Company there from upto a higher pre-determined foreign exchange rate.
 The Company does not benefit by rupee depreciating beyond the
 pre-determined foreign exchange rate. These instruments meet the
 Management''s foreign exchange risk management objectives and also
 qualify for hedge accounting as per the principles of hedge accounting.
 MTM losses in respect of effective hedges is carried to the Hedge
 reserve and ineffectiveness, if any, including the time value of option
 contracts is recognised in the results, as per the principles of AS-30.
 The market value of instruments outstanding at the close of the year
 indicate a gain aggregating Rs. 71.76 crore as against a gain in the
 previous year aggregating Rs. 15.96 crore.
 
 The time value of option contracts from the current year aggregating a
 net loss of Rs. 76.81 crore after reversals, has been recognised as
 Other expense being recurring in nature, against a net gain of Rs.
 131.92 crore in the previous year recognised as Other income.
 
 Risk management policy and other disclosures
 
 The exports of the Company, presently constituting substantial portion
 of the turnover, are at prices pre-determined for each product in each
 region. These prices are fixed in USD based on an assumed USD/ INR
 rate. (Budgeted rate of realisation).  Exports are then effected at
 such price and hence it is desirable for the Company to shield itself
 from adverse movements in forex rates at a future date.
 
 The Company also imports raw materials and components for its
 motorcycles etc. However, the value of such imports is not material as
 compared to the value of exports. Nevertheless, the Company may wish to
 secure its procurement prices in terms of INR to be able to forecast
 its pricing and profitability. Consequently, the Company may wish to
 hedge such exposures, future and current, to achieve the aforesaid
 objective.
 
 The exchange rate between the Indian rupee and foreign currencies has
 changed substantially in recent periods and may continue to fluctuate
 substantially in the future. Consequently, the Company uses derivative
 financial instruments, such as foreign exchange forward and option
 contracts, to mitigate the risk of changes in foreign currency exchange
 rates in respect of its forecasted cash flows and trade receivables.
 
 The details in respect of the outstanding foreign exchange forward
 contracts including range forward and par forward contracts are given
 below. The forward exchange contracts mature between one to twelve
 months. The table below summarises the notional amounts (amounts of
 contracts booked and outstanding) of foreign currency forward contracts
 into relevant maturity groupings based on the remaining period as at
 the 31 March 2014:
 
 The fair value of forwards and foreign currency option contracts is
 determined based on the appropriate valuation techniques as given by
 the banks.
 
 The cash flows from the hedges are expected to occur over the financial
 year 2014-15 and will accordingly flow to the Statement of Profit and
 Loss.
 
 In respect of foreign currency derivative contracts designated as cash
 flow hedges for par forward contracts, the Company has recorded a net
 gain of Rs. 1.95 crore and net loss of Rs. 16.32 crore, as a component of
 equity (Hedge reserve) as at 31 March 2014, and 2013, respectively and
 a net loss of Rs. 13.53 crore and a net loss of Rs. 207.67 crore as part 
 of revenue during the year ended 31 March 2014, and 2013 respectively and
 a loss of Rs. 2.60 crore (previous year Rs. 69.22 crore) to the Statement
 of Profit and Loss on a break in the designation of the hedge.
 
 In respect of foreign currency derivative contracts designated as cash
 flow hedges for range forward contracts, the Company has recorded a net
 gain of Rs. 150.65 crore and net gain of Rs. 18.04 crore, as a component
 of equity (Hedge reserve) as at 31 March 2014, and 2013, respectively and
 a net loss ofRs. 114.35 crore and a net loss of Rs. 394.74 crore as part 
 of revenue during the year ended 31 March 2014, and 2013 respectively and
 a gain of Rs. 0.49 crore (previous year Rs. Nil) to the Statement of Profit 
 and Loss on a break in the designation of the hedge.
 
 Amount that was removed from appropriate equity account (Hedge reserve
 account) during the year ended 2014 and 2013 in respect of forecast
 transaction for which hedge accounting had previously been used, but
 which is no longer expected to occur is a loss of Rs. 2.11 crore and Rs.
 69.22 crore respectively.
 
 Amount that was removed from appropriate equity account (Hedge reserve
 account) during the period and included in the initial cost or other
 carrying amount of a non-financial asset or non-financial liability
 whose acquisition or incurrence was a hedged highly probable forecast
 transaction is Rs. Nil.
 
 Amount in respect of the ineffectiveness which relates to time value of
 option contracts recognised in the Statement of Profit and Loss that
 arises from cash flow hedges is a loss of Rs. 78.89 crore as on 31 March
 2014.
 
 In respect of the Company''s foreign currency derivative contracts
 outstanding as on 31 March 2014, a 10% increase in the exchange rates
 of the currency underlying such contracts as given by the banks would
 have resulted in an approximately Rs. 270.87 crore decrease in the fair
 value of outstanding contracts.
 
 In respect of the Company''s foreign currency derivative contracts
 outstanding as on 31 March 2014, a 10% decrease in the exchange rates
 of the currency underlying such contracts as given by the banks would
 have resulted in an approximately Rs. 402.40 crore increase in the fair
 value of outstanding contracts.
 
 Counter-party risk
 
 Counter-party risk encompasses settlement risk on foreign currency
 derivative contracts. Exposure to these risks is closely monitored and
 kept within pre-determined parameters. The Company does not expect any
 losses from non-performance by these counter-parties.
 
 The Company''s policy is to transact with credit worthy banks, which are
 reviewed on an on-going basis. The following table depicts that the
 majority of the foreign currency derivatives are placed in highly rated
 banks:
 
 2 Contingent liabilities
 
                                                   (Rs. In Crore) 
 
                                                     As at 31 March
 
 Particulars                                        2014        2013
 
 a.  Claims against the Company not 
 acknowledged as debts                            446.41      418.88
 
 b.  Guarantees given by the Company to 
 banks, on behalf of its subsidiary,
 PT. Bajaj Auto Indonesia                            -         27.14
 
 c.  Guarantees given by the Company to 
 Housing Development Finance
 Corporation Ltd. -
 for loans to employees                             0.02        0.04
 
 d.  Excise and Customs demand - matters 
 under dispute and claims for
 refund of Excise Duty, if any, against 
 Excise Duty Refund received in the earlier
 year                                             392.08      293.31
 
 e.  Income tax matters - Appeal by Company        98.56       54.13
 
 f.  Value Added Tax (VAT)/Sales Tax matters 
 under dispute                                    116.11      377.48
 
 g.  Claims made by temporary workmen
 Pending before various judicial/appellate 
 authorities in respect of similar matters
 adjudicated by the Supreme Court. The matter is 
 contingent on the facts and evidence
 presented before the courts/adjudicating 
 authorities and not necessarily likely to be      Liability   Liability
 influenced by the Supreme Court''s order           unascer
                                                   -tained     unascer
                                                              -tained
 
 3 Previous year figures
 
 Previous year figures have been regrouped wherever necessary to make
 them comparable with those of the current year.
 
 4 Miscellaneous
 
 a.  Rs. 1 crore is equal to Rs. 10 million.
 
 b.  Amounts less than Rs. 50,000 have been shown at actual against
 respective line items statutorily required to be disclosed.
Source : Dion Global Solutions Limited
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