2007-08 - Aditya Birla Nuvo, Ltd

SCHEDULES FORMING PART OF CONSOLIDATED FINANCIAL STATEMENTS(ii)Defined Benefit PlanThe Group’s liabilities under Payment of Gratuity Act (funded), long term compensated absences and pensionare determined on the basis of actuarial valuation made at the end of each financial year using the projectedunit credit method except for short term compensated absences, which are provided for based on estimates.Actuarial gain and losses are recognised immediately in the statement of the Profit and Loss Account asincome or expense. Obligation is measured at the present value of estimated future cash flows using adiscounted rate that is determined by reference to market yields at the Balance Sheet Date on Governmentbonds where the currency and terms of the Government bonds are consistent with the currency and estimatedterms of the defined benefit obligation.17. EMPLOYEE STOCK-BASED COMPENSATIONThe Group measures the compensation costs relating to employee stock options using the intrinsic value method.The compensation cost is amortised on a straight line basis over the total vesting period of the employee stockoptions.In case of ITeS business, the difference between fair value (computed using proportionate earnings for the year)and the grant price has been accounted as ESOP expenses and charged to Profit and Loss Account.18. TAXATIONCONSOLIDATED ACCOUNTSTax expense comprises of current, deferred and fringe benefit tax.Provision for current tax is made on the basis of estimated taxable income for the current accounting year.The deferred tax for timing differences between the book and tax profits for the year is accounted for, using theprevailing enacted or substantially enacted tax rates and laws as of the Balance Sheet Date. Deferred tax assetsarising from timing differences are recognised to the extent there is reasonable certainty that these would berealised in future. Deferred tax assets in case of unabsorbed losses and unabsorbed depreciation are recognisedonly if there is virtual certainty that such deferred tax asset can be realised against future taxable profits.Fringe Benefit Tax is provided in accordance with the provisions of the Income Tax Act, 1961.19. OPERATING LEASESLeases where significant portion of risk and reward of ownership are retained by the Lessor are classified asOperating Leases and lease rentals thereon are charged to Profit and Loss Account.20. FINANCE LEASEFinance Lease, which effectively transfers to the Group substantially all the risks and benefits incidental to ownershipof the leased item, are capitalised at lower of fair value and present value of the minimum lease payments at theinception of the lease term and disclosed as leased assets. Lease payments are apportioned between the financecharges and reduction of the lease liability, based on implicit rate of return. Finance charges are charged directlyagainst income. Lease management fees, lease charges and other initial direct costs are capitalised.21. CONTINGENT LIABILITIES AND PROVISIONSContingent Liabilities are possible but not probable obligation as on the Balance Sheet date, based on the availableevidence.Department appeals, in respect of cases won by the Group, are also considered as Contingent Liabilities.Provisions are recognised when there is a present obligation, as a result of past event, and it is probable that anoutflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made.Provisions are determined based on best estimate required to settle the obligation at the Balance Sheet Date.(136)