Page 255 - BCML AR 2019-20

BALRAMPUR CHINI MILLS LIMITED

Notes forming part of the Consolidated Financial Statements

Note No. : 3 Use of critical estimates, judgments and assumptions

The preparation of the consolidated 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 consolidated 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 the 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.

Annual Report 2019-20 | 253