hi badar,
Did you look at the wiki web link, I posted?
Gray code encoder units are commonly used for positioning or weighing applications, the worst case 'bit jitter' error is one bit.
You could consider how precise the actual switch coding of the rotating disc would have to be if a binary code was imprinted on the encoder disc.
A minor misalignment of the disc/detectors could result in a major error.
What part of the logic Binary to Gray logic have you designed so far?
Can you post your diagram?
EDIT:
Extract from wikiweb, you should be able to draw up a truth table from this listing??
0000
0001
0011
0010
0110
0111
0101
0100
1100
1101
1111
1110
1010
1011
1001
1000