Page 238 - Hitachi IR 2025

NOTES TO THE FINANCIAL STATEMENTS
2.12 Inventories
Inventories consist of raw materials, work-in-progress, finished goods, stock-in-trade and stores and spares.
Inventories are measured at the lower of cost and net realisable value. However, materials and other items
held for use in the production of inventories are not written down below cost if the finished goods in which
they will be incorporated are expected to be sold at or above cost.
The cost of various categories of inventories is arrived at as follows:
•
 Stores, spares, raw materials, components and stock-in-trade - at rates determined on the moving weighted
average method.
• Goods in Transit – at actual cost.
•
 Work-in-progress and finished goods - at full absorption cost method which includes direct materials, direct
labour and manufacturing overheads. Cost is determined on weighted average method.
Cost includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs
incurred in bringing them to their existing location and condition.
Provision for obsolescence is made wherever necessary.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of
completion and the estimated costs necessary to make the sale.
The factors that the Company considers in determining the provision for slow moving, obsolete and other
non-saleable inventory include estimated shelf life, planned product discontinuances, price changes, ageing
of inventory and introduction of competitive new products, to the extent each of these factors impact the
Company’s business and markets. The Company considers all these factors and adjusts the inventory provision
to reflect its actual experience on a periodic basis.
2.13 Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or
equity instrument of another entity.
2.13.1 Initial recognition
The Company recognizes financial assets and financial liabilities when it becomes a party to the contractual
provisions of the instrument. All financial assets and liabilities are recognised at fair value on initial recognition,
except for trade receivables which are initially measured at transaction price. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and financial liabilities, that are not at fair value through
profit or loss, are added to the fair value on initial recognition.
2.13.2 Subsequent measurement
a. Non-derivative financial instruments
(i) Financial assets carried at amortised cost
A financial asset is subsequently measured at amortised cost if it is held within a business where the
objective is to hold the asset in order to collect contractual cash flows and the contractual terms of
the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
(ii) Financial assets at fair value through other comprehensive income
A financial asset is subsequently measured at fair value through other comprehensive income if it is
held within a business where the objective is achieved by both collecting contractual cash flows and
selling financial assets and the contractual terms of the financial asset give rise on specified dates
to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The Company has made an irrevocable election for its investments which are classified as equity
instruments to present the subsequent changes in fair value in other comprehensive income based
on its business model. Further, in cases where the Company has made an irrevocable election based
on its business model, for its investments which are classified as equity instruments, the subsequent
changes in fair value are recognised in other comprehensive income.
236 Hitachi Energy India Limited