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Bajaj Auto
BSE: 532977|NSE: BAJAJ-AUTO|ISIN: INE917I01010|SECTOR: Auto - 2 & 3 Wheelers
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« Mar 14
Notes to Accounts Year End : Mar '15
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. Pursuant to section 133 of the
 Companies Act, 2013 read with rule 7 of Companies (Accounts) Rules,
 2014, till the standards of accounting or any addendum thereto are
 prescribed by Central Government in consultation and recommendation of
 the National Financial Reporting Authority, the existing Accounting
 Standards notified under the Companies Act, 1956 shall continue to
 apply. Consequently, these financial statements have been prepared to
 comply in all material aspects with the Accounting Standards notified
 under section 211(3C) of the Companies Act, 1956 [Companies (Accounting
 Standards) Rules, 2006, as amended] and other relevant provisions of
 the Companies Act, 2013.
 
 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 Schedule III to the Companies Act, 2013. 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.
 
 b. Terms/rights attached to equity shares
 
 The Company has only one class of equity shares having a par value of B
 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.
 
 2 Derivative hedging instruments
 
 The Company has adopted the accounting treatment and disclosures in
 accordance with the principles laid down in Accounting Standards 30 and
 32 on foreign currency derivative contracts.
 
 The Company holds foreign currency derivative 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. 2.92 crore as against a gain of Rs. 1.95
 crore 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 gains/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
 Accounting Standard 30. The market value of instruments outstanding at
 the close of the year indicate a gain aggregating to Rs. 53.22 crore as
 against a gain of Rs. 71.76 crore in the previous year.
 
 The time value of option contracts aggregating a net loss of Rs. 50.22
 crore after reversals, (previous year net loss of Rs. 76.81 crore) has
 been recognised as ''Other expenses''.
 
 Risk Management Policy and other disclosures
 
 The exports of the Company, presently constituting substantial portion
 of the turnover, are at prices predetermined 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. These contracts are due for maturity 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 2015:
 
 For import transactions: Rs.Nil
 
 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 2015-16 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. 2.92 crore and Rs. 1.95 crore, as a component of equity (Hedge
 reserve) as at 31 March 2015 and 2014 respectively and a net gain of Rs.
 8.40 crore and a net loss of Rs. 13.53 crore as part of revenue during
 the year ended 31 March 2015, and 2014 respectively and Rs. Nil (previous
 year loss of Rs. 2.60 crore) to the Statement of Profit and Loss on a
 break in the designation
 
 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. 182.32 crore and Rs. 150.65 crore, as a component of equity
 (Hedge reserve) as at 31 March 2015 and 2014 respectively and a net
 gain of Rs. 85.10 crore and a net loss of Rs. 114.35 crore as part of
 revenue during the year ended 31 March 2015 and 2014 respectively and B
 Nil (previous year gain of Rs. 0.49 crore) 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 2015 and 2014 in respect of forecast
 transaction for which hedge accounting had previously been used, but
 which is no longer expected to occur is Rs. Nil and and a loss of Rs. 2.11
 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. 129.10 crore as on 31 March
 2015.
 
 In respect of the Company''s foreign currency derivative contracts
 outstanding as on 31 March 2015, a 10% increase in the exchange rates
 of the currency, underlying such contracts, as given by the banks would
 have resulted in an adverse movement by approximately Rs. 466.04 crore in
 the fair value of outstanding contracts.
 
 In respect of the Company''s foreign currency derivative contracts
 outstanding as on 31 March 2015, a 10% decrease in the exchange rates
 of the currency, underlying such contracts, as given by the banks would
 have resulted in a positive movement by approximately Rs. 666.07 crore 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 predetermined parameters. The Company does not expect any
 losses from non-performance by these counter-parties.
 
 The Company''s policy is to transact with creditworthy 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:
 
 3 Contingent liabilities
 
                                                 (Rs.In Crore)
 
                                                As at 31 March
 
 Particulars                                      2015     2014
 
 a Claims against the Company not acknowledged 
 as debts                                         450.51  446.41
 
 b Guarantees given by the Company to Housing 
   Development Finance Corporation Ltd. -
   for loans to employees (B 28,529)                        0.02
 
 c 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                            486.11  392.08
 
 d Income tax matters - Appeal by Company         454.17   98.56
 
 e Value Added Tax (VAT)/Sales Tax matters 
   under dispute                                  126.30  116.11
 
 f 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/                                   Liability Liability
 adjudicating authorities and not necessarily 
 likely to be influenced by the Supreme 
 Court''s order                            unascertained unascertained
 
 4 Previous year figures
 
 Previous year figures have been regrouped wherever necessary to make
 them comparable with those of the current year.
 
 5 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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