Page 253 - BCML AR 2019-20

BALRAMPUR CHINI MILLS LIMITED

Notes forming part of the Consolidated Financial Statements

Note No. : 2 Significant accounting policies (contd.)

Financial liabilities at amortized cost
After initial recognition, financial liabilities are subsequently measured at amortized cost using the EIR method. Gains and losses
are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Discount or premium on acquisition and fees or costs forms an integral part of the EIR.
(c) De-recognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
Derivative financial instruments
Initial recognition and subsequent measurement
A derivative financial instrument, such as foreign exchange forward contracts are used to hedge foreign currency risks. Such
derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into
and are subsequently re-measured at fair value.
Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities including derivative instruments are offset and the net amount is reported in the balance
sheet if there is currently an enforceable legal right to offset the recognized amounts and there is an intention to settle on a net
basis or to realize the assets and settle the liabilities simultaneously.
Equity share capital
An equity instrument is a contract that evidences a residual interest in the assets of the Company after deducting all of its
liabilities. Incremental costs directly attributable to the issuance of new equity shares are recognized as a deduction from equity,
net of any tax effects.
2.16 Impairment of Assets
(a) Non-financial assets
An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
To assess impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-
generating units).
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset.
If at the balance sheet date, there is an indication that a previously assessed impairment loss no longer exists, the recoverable
amount is reassessed and the impairment loss previously recognized is reversed so that the asset is recognized at its recoverable
amount but not exceeding the value which would have been reported in this respect if the impairment loss had not been
recognized.
(b) Financial assets
The Company recognizes loss allowances using the Expected Credit Loss (“ECL”) model for financial assets measured at amortized
cost and fair value through other comprehensive income.
The Company recognizes lifetime expected credit losses for trade receivables.
Loss allowance equal to the lifetime expected credit losses, are recognized if the credit risk of the financial asset has significantly
increased since initial recognition.
2.17 Taxes
Income tax expense comprises current tax and deferred tax and is recognized in the consolidated statement of profit and loss except
to the extent it relates to items directly recognized in Equity or Other comprehensive income (OCI).

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