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contract for an earlier period) are recognised in the Profit
and Loss Account for the period/year.
Other Derivative Instruments, not in the nature of AS
11, ‘The Effects of Changes in Foreign Exchange Rates’
The Group enters into various foreign currency option
contracts & interest rate swap contracts that are not in the
nature of forward contracts designated under AS 11 as
such and contracts that are not entered to establish the
amount of the reporting currency required or available at
the settlement date of a transaction; to hedge its risks
with respect to foreign currency fluctuations and interest
rate exposure arising out of import of capital goods using
foreign currency loan. At every year end all outstanding
derivative contracts are fair valued on a marked-to-market
basis and any loss on valuation is recognised in the Profit
and Loss Account, on each contract basis. Any gain on
marked-to-market valuation on respective contracts is not
recognised by the Company, keeping in view the principle
of prudence as enunciated in AS 1, ‘Disclosure of
Accounting Policies’. Any reduction to fair values and any
reversals of such reductions are included in Profit and Loss
statement of the period/year.
Embedded Derivative Instruments
The Group occasionally enters into contracts that do not in
their entirety meet the definition of a derivative instrument
that may contain “embedded” derivative instruments –
implicit or explicit terms that affect some or all of the cash
flow or the value of other exchanges required by the
contract in a manner similar to a derivative instrument. The
Group assesses whether the economic characteristics and
risks of the embedded derivative are clearly and closely
related to the economic characteristics and risks of the
remaining component of the host contract and whether a
separate, non-embedded instrument with the same terms
as the embedded instrument would meet the definition of a
derivative instrument. When it is determined that (1) the
embedded derivative possesses economic characteristics
and risks that are not clearly and closely related to the
economic characteristics and risks of the host contract and
(2) a separate, stand-alone instrument with the same terms
would qualify as a derivative instrument, the embedded
derivative is separated from the host contract, carried at fair
value as a trading or non-hedging derivative instrument. At
every period/year end, all outstanding embedded derivative
instruments are fair valued on marked-to-market basis and
any loss on valuation is recognised in the Profit & Loss
account for the period/year. Any reduction in mark-tomarket
valuations and reversals of such reductions are
included in profit and loss statement of the period/year.
Translation of Integral and Non-Integral Foreign
Operation
The financial statements of an integral foreign operation
are translated as if the transactions of the foreign
operation have been those of the Group itself.
In translating the financial statements of a non-integral
foreign operation for incorporation in financial
statements, the assets and liabilities, both monetary and
non-monetary are translated at the closing rate; income
and expense items are translated at exchange rate at the
date of transaction for the year; and all resulting exchange
differences are accumulated in a foreign currency
translation reserve until the disposal of the net
investment.
Foreign exchange contracts for trading and speculation
purpose
Foreign exchange contracts intended for trading and/or
speculation are fair valued on a mark-to- market basis and
any loss on such valuation is recognised in the Profit & Loss
Account for the year.
11.EMPLOYEE BENEFITS
(a) Short term employee benefits are recognised in the
year during which the services have been rendered.
(b) All employees of the Group are entitled to receive
benefits under the Provident Fund, which is a defined
contribution plan. Both the employee and the
employer make monthly contributions to the plan at a
predetermined rate (presently 12%) of the employees’
basic salary. These contributions are made to the fund
administered and managed by the Government of
India. In addition, some employees of the Group are
covered under the employees’ state insurance
schemes, which are also defined contribution
schemes recognised and administered by the
Government of India.
The Group’s contributions to both these schemes are
expensed in the Profit and Loss Account. The Group
has no further obligations under these plans beyond
its monthly contributions.
(c) Some employees of the Group are entitled to
superannuation, a defined contribution plan which is
administered through Life Insurance Corporation of
India (“LIC”). Superannuation benefits are recorded as
an expense as incurred.
(d) Short term compensated absences are provided for
based on estimates. Long term compensated
absences are provided for based on actuarial
valuation. The actuarial valuation is done as per
projected unit credit method.
(e) The Group provides for gratuity obligations through a
defined benefit retirement plan (the ‘Gratuity Plan’)
covering all employees. The Gratuity Plan provides a
lump sum payment to vested employees at retirement
or termination of employment based on the
respective employee salary and years of employment
with the Group. The Group provides for the Gratuity
Plan based on actuarial valuation as per the Projected
Unit Credit Method in accordance with Accounting