Page 208 - Tata_Chemicals_yearly-reports-2017-18

2.15.4 Derivatives and hedging activities equity are immediately transferred to the Consolidated
Statement of Profit and Loss.
In the ordinary course of business, the Group uses
certain derivative financial instruments to reduce Derivatives that are not designated as hedges
business risks which arise from its exposure to
When derivative contracts to hedge risks are not
foreign exchange, fuel and interest rate fluctuations
designated as hedges, such contracts are accounted
associated with borrowings (cash flow hedges). When
through FVTPL.
the Group opts to undertake hedge accounting, the
Group documents, at the inception of the hedging The entire fair value of a hedging derivative is classified
transaction, the economic relationship between as a non-current asset or liability when the remaining
hedging instruments and hedged items including maturity of the hedged item exceeds 12 months;
whether the hedging instrument is expected to it is classified as a current asset or liability when the
offset changes in cash flows or fair values of hedged remaining maturity of the hedged item does not
items. The Group documents its risk management exceed 12 months.
objective and strategy for undertaking various
2.15.5 Financial guarantee contracts
hedge transactions at the inception of each hedge
relationship. Financial guarantee contracts are recognised as a
financial liability at the time of issuance of guarantee.
Derivatives are initially recognised at fair value on
The liability is initially measured at fair value and are
the date the derivative contract is entered into and
subsequently measured at the higher of the amount
are subsequently remeasured to their fair value at
of loss allowance determined, or the amount initially
the end of each reporting period. The accounting for
recognised less, the cumulative amount of income
subsequent changes in fair value depends on whether
recognised.
the derivative is designated as a hedging instrument,
and if so, the nature of the item being hedged and the 2.15.6 Offsetting of financial instruments
type of hedge relationship designated.
Financial assets and financial liabilities are offset
Cash flow hedges that qualify for hedge when the Group has a legally enforceable right (not
accounting contingent on future events) to off-set the recognised
amounts either to settle on a net basis, or to realise the
The effective portion of changes in the fair value of
assets and settle the liabilities simultaneously.
derivatives that are designated and qualify as cash
flow hedges, is recognised through OCI and as cash 2.15.7 Fair value of financial instruments
flow hedging reserve within equity, limited to the
cumulative change in fair value of the hedged item In determining the fair value of its financial
on a present value basis from the inception of the instruments, the Group uses a variety of methods and
hedge. The gain or loss relating to the ineffective assumptions that are based on market conditions and
portion is recognised immediately in the Consolidated risks existing at each reporting date. The methods
Statement of Profit and Loss. used to determine fair value include discounted cash
flow analysis, available quoted market prices and
Amounts accumulated in equity are reclassified to dealer quotes. All methods of assessing fair value result
the Consolidated Statement of Profit and Loss on in general approximation of value.
settlement. When the hedged forecast transaction
results in the recognition of a non-financial asset, the 2.16 Impairment
amounts accumulated in equity with respect to gain Financial assets (other than at fair value)
or loss relating to the effective portion of the spot
component of forward contracts, both the deferred The Group assesses on a forward looking basis the
hedging gains and losses and the deferred aligned expected credit losses associated with its assets
forward points are included within the initial cost carried at amortised cost and debt instruments carried
of the asset. The deferred amounts are ultimately at FVTOCI. The impairment methodology applied
recognised in the Consolidated Statement of Profit depends on whether there has been a significant
and Loss as the hedged item affects profit or loss. increase in credit risk. In respect of trade receivables
the Group applies the simplified approach permitted
When a hedging instrument expires, is sold or by Ind AS 109 - Financial Instruments, which requires
terminated, or when a hedge no longer meets the expected lifetime losses to be recognised upon initial
criteria for hedge accounting, then hedge accounting recognition of the receivables.
is discontinued prospectively and any cumulative
deferred gain or loss and deferred costs of hedging in PPE, CWIP and intangible assets
equity at that time remains in equity until the forecast
The carrying values of assets / CGUs at each Balance
transaction occurs. When the forecast transaction is no
Sheet date are reviewed to determine whether there
longer expected to occur, the cumulative gain or loss
is any indication that an asset may be impaired. If any
and deferred costs of hedging that were reported in
206 Annual Report 2017-18