Annual Report 2007 - Clariant

54 Clariant Chemicals (India) LimitedVII.VIII.IX.Impairment of AssetsThe carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment basedon internal/external factors. An impairment loss will be recognised wherever the carrying amount of an asset exceedsits estimated recoverable amount. The recoverable amount is greater of the asset’s net selling price and value in use.In assessing the value in use, the estimated future cash flows are discounted to the present value using the weightedaverage cost of capital. Previously recognised impairment loss is further provided or reversed depending on changes incircumstances.InventoriesInventories are valued at the lower of cost and estimated net realisable value after providing for obsolescence. The costof inventories is generally arrived at on the following basis :Raw materials, packing materials, trading items and stores and spares — Weighted average cost.Finished goods and work-in-progress— Absorption costing at works cost.Sundry Debtors/Loans and AdvancesSundry debtors and loans and advances are stated after making adequate provision for doubtful debts/advances.X. InvestmentsLong term investments are stated at cost less provision for permanent diminution in value of such investments. Currentinvestments are stated at the lower of cost and fair value. Dividends are accounted for when the right to receive thedividend payment is established.XI.XII.XIII.XIV.LeasesLeases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased assets areclassified as operating leases. Operating lease payments are recognised as an expense in the Profit and Loss Accounton a straight-line basis over the lease term.Foreign Currency Translations(a) Monetary items denominated in foreign currency are translated at the exchange rate prevailing on the last dayof the accounting year. In respect of items covered by forward contracts, the premium or discount arising at theinception of such a forward exchange contract is amortised as expense or income over the life of the contract. Anyprofit or loss arising on cancellation of such a forward exchange contract is recognised as income or expense forthe period. Foreign currency transactions are accounted at the rate prevailing on the date of transaction.(b) Non monetary items which are carried in terms of historical cost denominated in a foreign currency are reportedusing the exchange rate at the date of transaction.(c) Gain or loss arising out of translation/conversion is taken credit for or charged to the Profit and Loss Account.Income TaxIncome-tax expense comprises current tax and deferred tax charge or credit. The current tax is determined as theamount of tax payable in respect of the estimated taxable income for the period. The deferred tax charge or credit isrecognised using prevailing enacted or substantively enacted tax rates. Where there is unabsorbed depreciation or carryforward losses, deferred tax assets are recognised only if there is virtual certainty of realisation of such assets. Otherdeferred tax assets are recognised only to the extent there is reasonable certainty of realisation in future. Deferred taxassets/liabilities are reviewed at each Balance Sheet date based on developments during the year and available caselaws, to reassess realisation/liabilities.Contingencies/ProvisionsProvision is recognised when the Company has a present obligation as a result of past event; it is probable that anoutflow of resources embodying economic benefit will be required to settle the obligation, in respect of which a reliableestimate can be made. Provisions except in respect of employee benefits are not discounted to its present value andare determined based on best estimate of the expenditure required to settle the obligation at the Balance Sheet date.These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimate. A contingent liabilityis disclosed, unless the possibility of an outflow of resources embodying the economic benefit is remote.