Page 151 - Tata_Chemicals_yearly-reports-2017-18

derecognised if the Company has not retained control whether the hedging instrument is expected to
of the financial asset. Where the Company retains offset changes in cash flows or fair values of hedged
control of the financial asset, the asset is continued to items. The Company documents its risk management
be recognised to the extent of continuing involvement objective and strategy for undertaking various
in the financial asset. hedge transactions at the inception of each hedge
relationship.
2.11.2 Debt and equity instruments
Derivatives are initially recognised at fair value on
Debt and equity instruments are classified as either
the date the derivative contract is entered into and
financial liabilities or as equity in accordance with the
substance of the contractual arrangement. are subsequently remeasured to their fair value at
the end of each reporting period. The accounting for
An equity instrument is any contract that evidences subsequent changes in fair value depends on whether
a residual interest in the assets of an entity after the derivative is designated as a hedging instrument,
deducting all of its liabilities. Equity instruments and if so, the nature of the item being hedged and the
issued by the Company are recorded at the proceeds type of hedge relationship designated.
received, net of direct issue costs. Integrated Report
Cash flow hedges that qualify for hedge
2.11.3 Financial liabilities accounting
The Company’s financial liabilities comprise The effective portion of changes in the fair value of
borrowings, trade payables and other liabilities. These derivatives that are designated and qualify as cash
are initially measured at fair value, net of transaction flow hedges, is recognised through OCI and as cash
costs, and are subsequently measured at amortised flow hedging reserve within equity, limited to the
cost using the EIR method. The EIR is a method of cumulative change in fair value of the hedged item on
calculating the amortised cost of a financial liability a present value basis from the inception of the hedge.
and of allocating interest expense over the relevant The gain or loss relating to the ineffective portion is
period at effective interest rate. The effective interest recognised immediately in the Statement of Profit and
rate is the rate that exactly discounts estimated Loss.
future cash payments through the expected life of
the financial liability, or, where appropriate, a shorter Amounts accumulated in equity are reclassified to the
Statement of Profit and Loss on settlement. When the
period.
hedged forecast transaction results in the recognition
Changes to the carrying amount of a financial liability of a non-financial asset, the amounts accumulated Statutory Reports
as a result of renegotiation or modification of terms in equity with respect to gain or loss relating to the
that do not result in derecognition of the financial effective portion of the spot component of forward
liability, is recognised in the Statement of Profit and contracts, both the deferred hedging gains and losses
Loss. and the deferred aligned forward points are included
Derecognition of financial liabilities within the initial cost of the asset. The deferred
amounts are ultimately recognised in the Statement
The Company derecognises financial liabilities of Profit and Loss as the hedged item affects profit or
when, and only when, its obligations are discharged, loss.
cancelled or they expire.
When a hedging instrument expires, is sold or
Presentation
terminated, or when a hedge no longer meets the
Borrowings are classified as current liabilities unless criteria for hedge accounting, then hedge accounting
the Company has an unconditional right to defer is discontinued prospectively and any cumulative
settlement of the liability for at least 12 months after deferred gain or loss and deferred costs of hedging in
the reporting period. equity at that time remains in equity until the forecast
Trade and other payables are presented as current transaction occurs. When the forecast transaction is no Financial Statements
liabilities unless payment is not due within 12 months longer expected to occur, the cumulative gain or loss
after the reporting period. and deferred costs of hedging that were reported in
equity are immediately transferred to the Statement of
2.11.4 Derivatives and hedging activities
Profit and Loss.
In the ordinary course of business, the Company uses
Derivatives that are not designated as hedges
certain derivative financial instruments to reduce
business risks which arise from its exposure to foreign When derivative contracts to hedge risks are not
exchange and interest rate fluctuations associated designated as hedges, such contracts are accounted
with borrowings (cash flow hedges). When the through FVTPL.
Company opts to undertake hedge accounting, the As at the year end, there were no designated
Company documents, at the inception of the hedging accounting hedges.
transaction, the economic relationship between
hedging instruments and hedged items including

Standalone Financial Statements 149