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Hindalco Industries
BSE: 500440|NSE: HINDALCO|ISIN: INE038A01020|SECTOR: Aluminium
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« Mar 13
Accounting Policy Year : Mar '14
A.  Accounting Convention
 
 The financial statements are prepared under the historical cost
 convention, on an accrual basis and in accordance with the generally
 accepted accounting principles in India, the applicable mandatory
 Accounting Standards as notifi ed by the Companies (Accounting
 Standard) Rules, 2006, and the relevant provisions of the Companies
 Act, 1956, of India.
 
 B.  Use of Estimates
 
 The preparation of financial statements requires estimates and
 assumptions to be made that affect the reported amount of assets and
 liabilities on the date of the financial statements and the reported
 amount of revenues and expenses during the reporting period. Difference
 between the actual results and estimates are recognized in the period
 in which the results are known/materialized.
 
 C.  Fixed Assets
 
 (a) Tangible Assets are stated at cost less accumulated depreciation
 and impairment loss, if any. Cost comprises of purchase price and any
 directly attributable cost of bringing the assets to its working
 condition for its intended use.
 
 (b) Intangible Assets are stated at cost less accumulated amortization
 and impairment loss, if any. Cost includes any directly attributable
 expenditure on making the asset ready for its intended use.
 
 (c) Machinery spares, which can be used only in connection with an item
 of Tangible Asset and whose use is not of regular nature, are written
 off over the estimated useful life of the relevant asset.
 
 (d) Certain directly attributable pre-operative expenses during
 construction period are included under Capital Work-in-Progress. These
 expenses are allocated to the cost of Fixed Assets when the same are
 ready for intended use.
 
 D.  Depreciation and Amortization
 
 (a) Depreciation on Tangible Assets, except leasehold land, has been
 provided using Straight Line Method at the rates and manner prescribed
 under Schedule XIV of the Companies Act, 1956, of India. Leasehold
 lands are amortized over the period of lease on straight-line basis.
 
 (b) Intangible Assets, except mining rights, are amortized over their
 estimated useful lives on straight-line basis. Mining Rights are
 amortized over the period of lease on straight-line basis.
 
 E.  Impairment
 
 An asset is treated as impaired when the carrying cost of the asset
 exceeds its recoverable value being higher of value in use and net
 selling price. Value in use is computed at net present value of cash fl
 ow expected over the balance useful life of the assets. An impairment
 loss is recognized as an expense in the Statement of Profi t and Loss
 in the year in which an asset is identifi ed as impaired. The
 impairment loss recognized in prior accounting period is reversed if
 there has been an improvement in recoverable amount.
 
 F.  Leases
 
 Lease payments under an operating lease are recognized as expense in
 the Statement of Profi t and Loss as per terms of lease agreement.
 
 G.  Investments
 
 (a) Long-term investments are carried at cost after deducting
 provision, if any, for diminution in value considered to be other than
 temporary in nature.
 
 (b) Current investments are stated at lower of cost and fair value.
 
 H.  Inventories
 
 (a) Inventories of stores and spare parts are valued at or below cost
 after providing for cost of obsolescence and other anticipated losses,
 wherever considered necessary. Inventory of other items are valued ''At
 Cost or Net Realizable Value, whichever is lower''. Cost is generally
 determined on weighted-average cost basis and wherever required,
 appropriate overheads are taken into account. Net Realizable Value is
 the estimated selling price in the ordinary course of business less the
 estimated cost of completion and the estimated costs necessary to make
 the sale. However, materials and other supplies held for use in the
 production of inventories are not written down below cost if the fi
 nished products in which they will be used are expected to be sold at
 or above cost.
 
 (b) Fair value hedges are mainly used to hedge the exposure to change
 in fair value of commodity price risks.  The fair value adjustment
 remains part of the carrying value of inventory and enters into the
 determination of earnings when the inventory is sold.
 
 I.  Foreign Currency Transactions
 
 Transactions in foreign currency are recorded at the rate of exchange
 prevailing on the date of transaction. Year end balance of foreign
 currency monetary item is translated at the year end rates. Exchange
 differences arising on settlement of monetary items or on reporting of
 monetary items at rates different from those at which they were
 initially recorded during the period or reported in previous financial
 statements are recognized as income or expense in the period in which
 they arise. Foreign currency monetary items, those are used as hedge
 instruments or hedged items, are accounted as per accounting policy on
 derivative financial instruments.
 
 J.  Employee benefits
 
 Employee benefits of short term nature are recognized as expense as
 and when these accrue. Long-term employee benefits and post-employment
 benefits, whether funded or otherwise, are recognized as expense based
 on actuarial valuation at the year end using the projected unit credit
 method. For discounting purpose, market yield of Government Bonds, at
 the Balance Sheet date, is used. Actuarial gains or losses are
 recognized immediately in the Statement of Profi t and Loss.
 
 K.  Employee Share-Based Payments
 
 Equity settled stock options granted to employees, pursuant to the
 Company''s stock options scheme, are accounted for as per the intrinsic
 value method prescribed by Employee Stock Options Scheme and permitted
 by the SEBI guidelines, 1999, and the Guidance Note on Share-Based
 Payment issued by the Institute of Chartered Accountants of India
 (ICAI). The intrinsic value of the option, being excess of market value
 of the underlying share at the date of grant of option over its
 exercise price, is recognised as deferred employee compensation with a
 credit to Employee''s Stock Options Outstanding Account. The deferred
 employee compensation is amortized to the Statement of Profi t and Loss
 on straight-line basis over the vesting period of the option. In case
 of forfeiture of option, which is not vested, the amortized portion is
 reversed by credit to employee compensation expense. In a situation
 where the stock option expires unexercised, the related balance
 standing to the credit of the Employee''s Stock Options Outstanding
 Account is transferred to the General Reserve.
 
 L.  Revenue Recognition
 
 Sales revenue is recognized on transfer of significant risk and
 rewards of the ownership of the goods to the buyer and stated at net of
 trade discount and rebates. Dividend income on investments is accounted
 for when the right to receive the payment is established. Export
 incentive, certain insurance, railway and other claims, where quantum
 of accruals cannot be ascertained with reasonable certainty, are
 accounted on acceptance basis.
 
 M.  Borrowing Costs
 
 Borrowing costs directly attributable to the acquisition or
 construction of qualifying assets are capitalized.  Other borrowing
 costs are recognized as expenses in the period in which they are
 incurred. In determining the amount of borrowing costs eligible for
 capitalization during a period, any income earned on the temporary
 investment of those borrowings is deducted from the borrowing costs
 incurred.
 
 N.  Taxation
 
 Provision for current income tax is made in accordance with the
 Income-tax Act, 1961. Deferred tax assets and deferred tax liabilities
 are recognized at substantively enacted tax rates, subject to the
 consideration of prudence, on timing difference, being the difference
 between taxable income and accounting income that originate in one
 period and are capable of reversal in one or more subsequent periods.
 
 O.  Derivative Financial Instruments
 
 (a) The Company uses derivative financial instruments such as
 Forwards, Swaps, Options, etc., to hedge its risks associated with
 foreign exchange fl uctuations. Risks associated with fl uctuations in
 the price of the Company''s products (Copper, Alumina, Aluminium and
 precious metals) are minimized by undertaking appropriate hedging
 transactions. Derivatives embedded in other financial instruments or
 other host contracts are treated as separate derivatives when their
 risks and characteristics are not closely related to their host
 contracts. In some cases, the embedded derivatives may be designated in
 a hedge relationship.  The fair values of all such derivative fi
 nancial instruments are recognized as assets or liabilities at the
 Balance Sheet date. Such derivative financial instruments are used as
 risk management tools only and not for speculative purposes.
 
 (b) For derivative financial instruments and foreign currency monetary
 items designated as Cash Flow hedges, the effective portion of the fair
 value of the derivative financial instruments are recognized in
 Hedging Reserve and reclassifi ed to ''Revenue from Operations'', ''Cost
 of Raw Materials Consumed'' or ''Other Expenses'' in the period in which
 the Statement of Profi t and Loss is impacted by the hedged items or in
 the period when the hedge relationship no longer qualifi es as cash fl
 ow hedge. In cases, where the exposure gives rise to a non-financial
 asset, the effective portion is reclassifi ed from Hedging Reserve to
 the initial carrying amount of the non-financial asset as a ''basis
 adjustment'' and recycled to the Statement of Profi t and Loss when the
 respective non-financial asset affects the Statement of Profi t and
 Loss in future periods. The ineffective portion of the change in fair
 value of such instruments is recognized in the Statement of Profi t and
 Loss in the period in which they arise. If the hedging relationship
 ceases to be effective or it becomes probable that the expected
 transaction will no longer occur, hedge accounting is discontinued and
 the fair value changes arising from the derivative financial
 instruments are recognized in Other Expenses in the Statement of Profi
 t and Loss.
 
 (c) For derivative financial instruments designated as Fair Value
 hedges, the fair value of both the derivative financial instrument and
 the hedged item are recognized in ''Revenue from Operations'', ''Cost of
 Raw Materials Consumed'' or ''Other Expenses'' in the Statement of Profi t
 and Loss till the period the relationship is found to be effective. If
 the hedging relationship ceases to be effective or it becomes probable
 that the expected transaction will no longer occur, future gains or
 losses on the derivative financial instruments are recognized in
 ''Other Expenses'' in the Statement of Profi t and Loss.
 
 (d) If no hedging relationship is designated, the fair value of the
 derivative financial instruments is marked to market through the
 Statement of Profi t and Loss and included in ''Other Expenses''.
 
 P.  Research and Development
 
 Expenditure incurred during research and development phase is charged
 to revenue when no intangible asset arises from such research. Assets
 procured for research and development activities are generally
 capitalized.
 
 Q.  Government Grants
 
 Government Grants are recognized when there is a reasonable assurance
 that the same will be received.  Revenue grants are recognized in the
 Statement of Profi t and Loss. Capital grants relating to specifi c fi
 xed assets are reduced from the gross value of the respective fi xed
 assets. Other capital grants are credited to Capital Reserve.
 
 R.  Provisions, Contingent Liabilities and Contingent Assets
 
 Provision is recognized when there is a present obligation as a result
 of a past event that probably requires an outfl ow of resources, and a
 reliable estimate can be made of the amount of the obligation.
 Disclosure for contingent liability is made when there is a possible
 obligation or a present obligation that may, but probably will not,
 require an outfl ow of resources. No provision is recognized or
 disclosure for contingent liability is made when there is a possible
 obligation or a present obligation and the likelihood of outflow of
 resources are remote. Contingent Asset is neither recognized nor
 disclosed in the financial statements.
 
Source : Dion Global Solutions Limited
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