Page 175 - BCML AR 2019-20

BALRAMPUR CHINI MILLS LIMITED

Notes forming part of the Standalone Financial Statements

Note No. : 3 Use of critical estimates, judgments and assumptions
The preparation of the financial statements in conformity with the measurement principle under Ind AS requires the management to make
estimates, judgments and assumptions. These estimates, judgments and assumptions affect the application of accounting policies and the
reported amounts of revenue, expenses, assets and liabilities including the accompanying disclosures and the disclosure of contingent assets
and liabilities.
The estimates, judgments and associated assumptions are based on historical experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in
which the estimate is revised and future periods affected.
The application of accounting policies that require critical judgments and accounting estimates involving complex and subjective judgments
and the use of assumptions in these financial statements have been disclosed herein below.
(i) Estimated useful life of property, plant and equipment
Property, plant and equipment represent a significant proportion of the asset base of the Company. The charge in respect of periodic
depreciation is derived after determining an estimate of an asset’s expected useful life and expected residual value at the end of its
life. The useful lives and residual value of the asset are determined by the management when the asset is acquired and reviewed
periodically including at each financial year end. The lives are based on technical evaluation, technological obsolesces and historical
experience with similar assets as well as anticipation of future events, which may impact their lives. This re-assessment may result in a
change in depreciation and amortization expense in future periods.
(ii) Current taxes and deferred taxes
Significant judgment is required in the determination of the taxability of certain income and deductibility of certain expenses
during the estimation of the provision for income taxes and option to be exercised for application of reduced rates of taxation on
possible cessation of tax deduction and exhaustion of MAT credit entitlement in future years based on estimates of future taxable
profits.
Deferred tax assets are recognized for unused losses (carry forward of prior years’ losses) and unused tax credit to the extent that
taxable profit would probably be available against which the losses could be utilized. Significant judgment is required to determine
the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together
with future tax planning strategies. The Company reviews the carrying amount of deferred tax assets and liabilities at each balance
sheet date with consequential change being given effect to in the year of determination.
(iii) Retirement benefit obligations
The Company’s retirement benefit obligations cost of the defined benefit gratuity plan and the present value of the gratuity obligation
are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual
developments in the future. These include the determination of the discount rate, inflation, future salary increases and mortality rates.
Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes
in these assumptions. All assumptions are reviewed at every financial year end.
(iv) Fair value measurements of financial instruments

The fair values of financial instruments that are not traded in an active market and cannot be measured based on quoted prices in
active markets are determined using valuation techniques including the Discounted Cash Flow (DCF) model. The Company uses its
judgment to select a variety of methods and make assumptions that are mainly based on market conditions at regular intervals.
The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is
required in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes
in assumptions about these factors could affect the reported fair value of financial instruments.

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