14. Provisions, Contingent Liabilities & Contingent Assets
Provisions for contingent liabilities are accounted for as follows:
Provisions for contingent liabilities are accounted for as follows:
• Recognition: A provision is recognized when:
o The company has a present obligation (legal or constructive) as a result of a past event.
o It is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation.
o A reliable estimate can be made of the amount of the obligation, in accordance with AS 29, Provisions,
Contingent Liabilities, and Contingent Assets.
• Contingent Liabilities:
o Contingent liabilities are disclosed, but not recognized, in the financial statements. These are potential
obligations that arise from past events whose existence will only be confirmed by the occurrence or
non-occurrence of one or more uncertain future events not wholly within the control of the company.
o Contingent liabilities are disclosed in the financial statements unless the possibility of an outflow of
resources is remote.
• Contingent Assets:
o Contingent assets are not recognized in the financial statements. They are disclosed when an inflow of
economic benefits is probable.
15. Cash and Cash Equivalents
Cash and cash equivalents are accounted for as follows:
• Definition: Cash and cash equivalents include cash on hand, demand deposits with banks, and
short-term, highly liquid investments that are readily convertible into known amounts of cash and are
subject to an insignificant risk of changes in value, as per AS 3, Cash Flow Statements.
• Recognition and Measurement:
o Cash and cash equivalents are initially recognized at cost.
o They are measured at face value or amortized cost, where appropriate, and reported on the
balance sheet under current assets.
• Cash Flow Statements:
o The company prepares a cash flow statement to provide information about the cash inflows and outflows
from operating, investing, and financing activities. This statement is presented using the indirect method,
adjusting net profit or loss for the effects of non-cash transactions and changes in working capital.
16. Earnings Per Share
• The earnings in ascertaining the Company's EPS comprises the net profit after tax attributable to equity
shareholders and includes the post-tax effect of any extraordinary items. The number of shares used in
computing basic EPS is the weighted average number of shares outstanding during the year. Diluted
earnings per share is computed by dividing the profit/(loss) after tax attributable to Equity Shareholders
(including the post-tax effect of extra ordinary items, if any) as adjusted for dividend, interest and other
charges to expense or income relating to the dilutive potential equity shares, by the weighted average
number of equity shares which could have been issued on conversion of all dilutive potential equity
shares. Potential equity shares are deemed to be dilutive only if their conversion to equity shares would
decrease the net profit per share from continuing ordinary operations. Potential dilutive equity shares
are deemed to be converted as at the beginning of the period, unless they have been issued at a later
date. Dilutive potential equity shares are determined independently for each period.
17. Investments
a) In Foreign Subsidiaries Investments in foreign subsidiaries are accounted for as follows:
• Initial Recognition: Investments in foreign subsidiaries are initially recognized at cost, which includes the
purchase price and any directly attributable costs, in accordance with AS 13, Accounting for Investments.
• Subsequent Measurement:
• These investments are carried at cost less any impairment losses. The cost of investments includes the
amount paid for acquisition and any costs directly attributable to the acquisition.
• The carrying amount of these investments is adjusted for any foreign currency translation differences, as
required by AS 11, The Effects of Changes in Foreign Exchange Rates.
• Foreign Currency Translation:
• The financial statements of the foreign subsidiaries are translated into Indian Rupees for consolidation
purposes. Assets and liabilities are translated at the closing rate, while income and expenses are translated
at the average rate for the period.
• Exchange differences arising from the translation of foreign subsidiary financial statements are recognized
in other comprehensive income and are accumulated in a separate component of equity until the disposal
of the subsidiary.
• Dividends: Dividends received from wholly-owned foreign subsidiaries are recognized as income in the
period they are declared.
• Impairment: The Company assesses its investments in wholly-owned foreign subsidiaries for impairment
whenever there is an indication that the investment may be impaired. An impairment loss is recognized if
the carrying amount of the investment exceeds its recoverable amount.
* Disclosures:
* The financial statements disclose the nature of the relationship with the foreign subsidiaries, the nature
and extent of significant restrictions on the ability of the subsidiary to transfer funds to the
* parent in the form of cash dividends or repaying loans, and the parent's interest in the foreign subsidiar¬
ies.
* Additional disclosures include the amount of any foreign exchange differences recognized in other
comprehensive income and a summary of the financial position and results of operations of the foreign
subsidiaries.
b) In Indian Subsidiaries
Recognition
* Investments in other subsidiaries are recognized at cost.
Measurement
* Initial Measurement: At cost, which includes the purchase price and any directly attributable costs.
* Subsequent Measurement: Investments are accounted for using the cost method or equity method:
* Cost Method: Recorded at cost and not subsequently adjusted.
* Equity Method: Adjusted for the parent's share of the subsidiary's profit or loss, and other
comprehensive income.
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