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Essar Oil Ltd. Accounting Policies | Accounting Policy of Essar Oil Ltd.
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Union Budget 2017-18
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Accounting Policies of Essar Oil Ltd. Company

Mar 31, 2015

1. CORPORATE INFORMATION

Essar Oil Limited (the Company) is a public limited company domiciled in India and incorporated under the provisions of the Companies Act, 1956. The equity shares of the Company are listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The Company is primarily engaged in the business of refining and marketing of petroleum products in domestic and overseas markets. It is also engaged in oil and gas exploration and production activities.

2. BASIS OF PREPARATION

The financial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards specified under Section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014 and the relevant provisions of the Companies Act, 2013 / Companies Act, 1956, as applicable. Attention is invited to note (7) (ii) (a) and (c).

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a) Use of estimates

The preparation of financial statements in conformity with Indian GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosures relating to contingent liabilities, at the end of the reporting period. Actual results could differ from these estimates and adjustments are recognised in the periods in which the results are known / materialise.

b) Tangible fixed assets and depreciation (other than oil and gas exploration and production assets)

Tangible fixed assets are recorded at cost of acquisition or construction less accumulated depreciation and impairment loss, if any.

Cost of acquisition comprises of all costs incurred to bring the assets to their location and working condition up to the date the assets are put to their intended use. Costs of construction are composed of those costs that relate directly to specific assets and those that are attributable to the construction or project activity in general and can be allocated to specific assets up to the date the assets are put to their intended use.

Depreciation on tangible fixed assets including assets whose ownership vests with a third party is provided, pro-rata for the period of use, by the straight line method, as specified in schedule II of Companies Act, 2013.

c) Intangible fixed assets and amortisation (other than oil and gas exploration and production assets)

Intangible fixed assets are recognised when it is probable that the future economic benefits that are attributable to the assets will flow to the Company and the cost of the assets can be measured reliably. Intangible assets are stated at cost less accumulated amortisation and impairment loss, if any.

Intangible assets are amortised over the best estimate of their useful lives, subject to a rebuttable presumption that such useful lives will not exceed ten years.

Company has estimated the useful life of software and licenses ranging from 3 - 5 years from the date of acquisition.

d) Oil and gas exploration and production assets

The company follows the full cost method of accounting for its oil and gas exploration and production expenditures as laid out in the guidance note on Accounting for Oil and Gas Producing Activities issued by the ICAI.

Costs incurred are accumulated under cost pools (cost centers) and accounted for initially as capital work in progress/ intangible assets under development. Costs comprise all costs incurred on acquisition of interest (including land cost) in oil and gas blocks, exploration, development and related ancillary cost.

Upon a well being ready to commence commercial production, the accumulated costs in that cost pool are transferred to gross block of assets as tangible/intangible assets, under the head "producing properties".

Development costs incurred thereafter in respect of the corresponding proved reserves are capitalized as incurred. In respect of reserves in the cost pool that are proved subsequently, the accumulated costs corresponding to such reserves are capitalized, when proven. Expenditure incurred which does not result in discovery of proved reserves are deemed dry and capitalized when so determined, over the costs of proved reserves.

Depreciation (depletion) on capitalized assets is calculated by unit-of-production method on the basis of the ratio that oil and gas production bears to the balance proved reserves at commencement of the year.

Oil and gas joint ventures are in the nature of jointly controlled assets. Accordingly, assets and liabilities as well as income and expenditures are accounted on a line-by-line basis with similar items in the company's financial statements, according to the participating interest of the company.

e) Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of profit and loss. If at the balance sheet date, there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount but limited to the carrying amount that would have been determined (net of depreciation / amortisation) had no impairment loss been recognised in prior accounting periods.

f) Lease Operating lease

Lease expenses and lease income are recognised on a straight line basis over the lease term in the statement of profit and loss or expenditure during construction / pre-production activities as applicable.

Finance lease- As lessee

Assets taken on lease are capitalised at fair value or net present value of the minimum lease payments, whichever is lower. Depreciation on the assets taken on lease is charged over the lower of useful life of the asset specified in Schedule II to the Companies Act, 2013 and the lease period.

g) Investments

Investments are classified into long term and current investments. Long term investments are carried at cost. Diminution in value of long term investments is provided for when it is considered as being other than temporary in nature. Current investments are carried at the lower of cost and fair value.

h) Valuation of inventories

Inventories (other than crude oil extracted) are valued at the lower of cost and net realisable value.

Cost of inventories comprise of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The cost of crude oil and coal inventory is determined on a first in first out basis and the cost of all other inventories is determined on a weighted average basis.

Closing stock of crude oil extracted is valued at net realisable value.

i) Revenue recognition

Revenue is recognized when it is earned and no significant uncertainty exists as to its realization or collection.

Revenue from sale of goods is recognised when property in the goods is transferred to the buyer for a price, when significant risks and rewards of ownership have been transferred to the buyer and no effective control, to a degree usually associated with ownership, is retained by the Company. Sale of goods are stated net of trade discounts and include duty draw back, recoverable sales tax / Value added tax (VAT) and excise duty. Revenue from sale of services is recognised under the completed service contract method.

Interest income is recognised on a time proportion basis.

j) Government grants

Government grants are recognised when there is reasonable assurance that the conditions attached to the grants will be complied with and where such benefits have been earned and it is reasonably certain that the ultimate collection will be made.

k) Employee benefits

In respect of Defined Contribution Plans/ Defend Benefit Plans

The Company's contributions paid/payable during the year to employee state insurance scheme are recognized in the statement of profit and loss or expenditure during construction / pre-production activities, as applicable.

Employee benefits under defined benefit plans, such as gratuity, compensated absences and provident fund, are measured by the projected unit credit method, on the basis of actuarial valuations carried out by third party actuaries at each balance sheet date. The company's obligations recognized in the balance sheet represents the present value of obligations as reduced by the fair value of plan assets, where applicable. Actuarial gains and losses are recognized immediately in the statement of profit and loss or expenditure during construction / pre-production activities, as applicable.

Short term employee benefits are recognised as an expense at the undiscounted amounts in the statement of profit and loss or expenditure during construction / pre- production activities, as applicable, of the year in which the related service is rendered.

ii. In respect of Employee Stock Options Scheme

Stock options granted to employees under the Employees' Stock Option Scheme (ESOS) are accounted by adopting the intrinsic value method in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on accounting for employee share based payments issued by the Institute of Chartered Accountants of India (ICAI). Accordingly the excess of market price of the shares over the exercise price is recognised as deferred employee compensation and is charged to statement of profit and loss account or expenditure during construction / pre-production activities, as applicable on straight-line basis over the vesting period.

l) Foreign currency transactions

Foreign currency transactions are recorded at the exchange rate prevailing on the transaction date.

Monetary items denominated in foreign currency are translated at the exchange rate prevailing at the balance sheet date. Exchange differences relating to long term monetary items are accounted for as under:

(i) in so far as they relate to the acquisition of a depreciable capital asset, these are added to / deducted from the cost of the asset and depreciated over the balance useful life of the asset;

(ii) in other cases such differences are accumulated in the "Foreign Currency Monetary Item Translation Difference Account" and amortised in the statement of profit and loss over the balance life of the long term monetary item.

All other exchange differences are dealt with in the statement of profit and loss or expenditure during construction / pre- production activities, as applicable.

Premia or discounts arising on forward exchange contracts, are recognized as finance costs over the life of the contracts.

m) Derivative instruments

In order to manage its exposure to certain commercial risks associated with commodity price, foreign exchange and interest rate fluctuations, the Company enters into derivative contracts.

Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at each balance sheet date.

The Company applies the hedge accounting principles set out in "Accounting Standard 30 (AS 30) - Financial Instruments: Recognition and Measurement" and accordingly designates certain derivatives as hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges). The Company does not enter into derivative contracts for trading or speculative purposes.

Derivative liabilities / assets are presented under trade payables (note 9) and other current liabilities / other long term liabilities (note 10) or other current assets / other non-current assets (note 19).

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in a "Hedging Reserve Account". The gain or loss relating to the ineffective portion is recognised immediately in statement of profit and loss. Amounts deferred in the Hedging Reserve Account are recycled in statement of profit and loss in the periods when the hedged item is recognized in the statement of profit and loss, in the same line as the hedged item.

Hedge accounting is discontinued when the Company revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. In case of cash flow hedges any cumulative gain or loss deferred in the Hedging Reserve Account at that time is retained and is recognized when the forecast transaction is ultimately recognized in the statement of profit and loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred is recognized immediately in the statement of profit and loss.

Derivative contracts which are not designated for hedge accounting (in terms of AS 30) and not covered under Accounting Standard (AS) 11: The Effects of Changes in Foreign Exchange Rates, the gains / losses arising from settled derivative contracts and net marked to market (MTM) losses in respect of outstanding derivative contracts as at balance sheet date are recognised in the same line as the hedge item in the statement of profit and loss or expenditure during construction / pre-production activities, as applicable. The net MTM gains in respect of outstanding derivatives contracts are not recognised adopting the principles of prudence.

n) Borrowing Costs

Borrowing costs attributable to the acquisition or construction of qualifying assets, as defined in Accounting Standard 16 on "Borrowing Costs" are capitalized as part of the cost of such asset up to the date when the asset is ready for its intended use. Other borrowing costs are expensed as incurred.

o) Taxation

Tax expense comprises current and deferred taxes.

Current tax is measured at the amount expected to be paid to revenue authorities using, applicable rates and tax laws.

Minimum Alternative Tax (MAT) credit entitlement available under section 115JAA of the Income Tax Act, 1961 is recognized in accordance with the principles laid down in the Guidance Note on Accounting for credit available in respect of MAT under the Income Tax Act, 1961 issued by the ICAI, to the extent the credit will be available for discharge of future normal tax liability.

Deferred tax is recognised on timing differences between the accounting and the taxable income for the year and quantified using the tax rates and laws enacted or substantively enacted as on the reporting date.

Deferred tax assets are recognised only when there is a reasonable or virtual certainty, as relevant, in accordance with the principles laid down in Accounting Standard 22 on Accounting for Taxes on Income, that sufficient future taxable income will be available against which they will be realised.

p) Measurement of EBIDTA

The Company has elected to present earnings before interest (including finance costs), depreciation and amortisation expenses and tax (EBIDTA) as a separate line item on the face of the statement of profit and loss. The Company measures EBIDTA on the basis of profit / (loss) and does not include interest (including finance costs), depreciation and amortisation expenses, exceptional and extraordinary items and tax.

q) Earnings per share (EPS)

The Company reports basic and diluted EPS in accordance with Accounting Standard 20 "Earnings per Share". Basic EPS is computed by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. Diluted EPS is computed by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year as adjusted for the effects of all dilutive potential equity shares, except where the results are anti- dilutive.

r) Cash Flow Statement

The Cash Flow Statement is prepared using the "indirect method" as set out in Accounting Standard 3 "Cash Flow Statements" and presents the cash flows by operating, investing and financing activities of the Company.

Cash and Cash equivalents presented in the Cash Flow Statement consist of cash on hand and unencumbered, highly liquid bank balances.

s) Provisions, contingent liabilities and contingent assets

A provision is recognised when there is a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Contingent liabilities are not recognised but disclosed unless the probability of an outflow of resources is remote. Contingent assets are neither recognised nor disclosed.


Mar 31, 2014

A) Use of estimates

The preparation of financial statements in conformity with Indian GAAP requires the management of the Company to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosures relating to contingent liabilities, at the end of the reporting period. Though the management believes that the estimates used are prudent and reasonable and are based on management''s knowledge of current events and actions, actual results could differ from these estimates resulting in material adjustments to be recognised in the periods in which the results are known / materialise.

b) Revenue recognition

Revenue on sale of goods is recognised when property in the goods is transferred to the buyer for a price or when all significant risks and rewards of ownership have been transferred to the buyer and no effective control is retained by the Company in respect of the goods transferred to a degree usually associated with ownership and no significant uncertainty exists regarding the amount of consideration that will be derived from the sale of goods.

Revenue on transactions of rendering services is recognised under the completed service contract method. Contract is regarded as completed when no significant uncertainty exists regarding the amount of consideration that will be derived from rendering the services.

Interest income is recognised on time proportion basis taking into account the amount outstanding and rate applicable.

c) Government grants

Government grants are recognised only when there is reasonable assurance that the conditions attached to the grants will be complied with and where such benefits have been earned and it is reasonably certain that the ultimate collection will be made.

d) Tangible assets and depreciation

i. Tangible assets

Tangible assets are recorded at cost less accumulated depreciation and impairment loss, if any. Cost is inclusive of non-recoverable duties and taxes, cost of construction including erection, installation, commissioning, know how and expenditure during construction including borrowing costs and results of trial run operations.

ii. Depreciation

Depreciation on plant and machinery is provided as per straight line method. All other assets are depreciated as per written down value method. Depreciation is computed at the rates based on the estimated useful lives of the assets or at the rates provided under Schedule XIV of the Companies Act, 1956, whichever is higher.

Depreciation on additions / deductions to fixed assets made during the year is provided on a pro-rata basis from / upto the date of such additions / deductions, as the case may be.

Cost of assets purchased and/or constructed by the Company whose ownership vests with others by virtue of a contract or otherwise, are amortised at the higher of rates based on the estimated useful lives of the assets or the contract period, or at the rates provided under Schedule XIV of the Companies Act, 1956.

e) Work in progress and expenditure during construction period

Direct expenditure on projects or assets under construction or development is shown under capital work-in-progress.

Expenditure incidental to the construction of projects or assets under construction or development that take substantial period of time to get ready for their intended use is accumulated as expenditure during construction, pending allocation to fixed assets and other relevant accounts, as applicable.

f) Intangible assets and amortisation (other than oil and gas exploration and development of assets)

Intangible assets are recognised only when it is probable that the future economic benefits that are attributable to the assets will flow to the Company and the cost of the assets can be measured reliably. Intangible assets are stated at cost less accumulated amortisation and impairment loss, if any.

Intangible assets are amortised over the best estimate of their useful lives, subject to a rebuttable presumption that such useful lives will not exceed ten years.

g) Oil and gas exploration and development of assets

The company follows full cost method of accounting for its oil and gas exploration and development expenditures. It has identified two cost centers (known as "cost pool"), namely India CBM (Coal Bed Methane) pool and India Oil & Gas pool under which all such expenditures are captured.

All acquisition, exploration and development costs remain in capital-work-in-progress/intangible assets under development until determination of commercial reserves or otherwise. When any well in a cost pool is ready to commence commercial production, the accumulated costs in that cost pool are transferred from capital-work-in-progress/ intangible assets under development to gross block of assets as tangible/intangible assets, under the head "Producing Properties".

Acquisition costs, geological and geophysical (G&G) expenses and unsuccessful exploratory drilling costs are classified as intangible assets or intangible assets under development, depending on completion status. Exploratory oil and gas wells in progress are classified as intangible assets under development while coal bed methane wells are shown under capital work in progress, unless proved unsuccessful. Producing wells, development drilling expenses and surface equipment & facilities are shown under tangible fixed assets or capital work in progress, as the case may be.

In respect of oil and gas reserves proved subsequently, the capital work in progress / intangible assets under development corresponding to such reserves are transferred to gross block of assets at the time when the said reserves are proved. The expenditure which does not result in discovery of proved oil and gas reserves are transferred from capital work in progress/ intangible assets under development to the gross block of assets as and when so determined.

Expenditures (both tangible and intangible) carried under producing property (including future development cost) separately under each cost pool is depleted on a unit-of-production basis, with depletion computed on the basis of the ratio that oil and gas production bears to the balance proved reserves at commencement of the year.

Oil and Gas Joint Ventures are in the nature of Jointly Controlled Assets. Accordingly, assets and liabilities as well as income and expenditures are accounted on a line-by-line basis with similar items in the Company''s financial statements, according to the participating interest of the Company.

h) Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of profit and loss. If at the balance sheet date, there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount but limited to the carrying amount that would have been determined (net of depreciation / amortisation) had no impairment loss been recognised in prior accounting periods.

i) Valuation of inventories

Inventories (other than crude oil extracted by exploration and production segment) are valued at the lower of cost and net realisable value. The value of crude and coal inventory is determined using the first in first out cost formula and the value of finished goods inventory, work-in-progress, stores and spares and other consumables are determined using the weighted average cost formula. Finished goods and work-in-progress include costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Closing stock of crude oil extracted and in saleable condition is valued at net realisable value.

j) Foreign currency transactions

Foreign currency transactions are accounted at the rate normally prevailing on the transaction date.

Monetary items denominated in foreign currency other than net investment in non-integral foreign operations are translated at the exchange rate prevailing at the balance sheet date. In case of non-integral foreign operations, all the assets and liabilities are translated at the closing rate whereas the income and expense items are translated at average exchange rate during the period.

Exchange differences arising in a non-integral operation are accumulated in a foreign currency translation reserve until the disposal of the net investment, at which time the same is recognised in the statement of profit and loss.

Exchange differences arising on settlement or conversion of short term monetary items are recognised in the statement of profit and loss or expenditure during construction / capital work-in- progress / fixed asset, as applicable. Exchange differences relating to long term monetary items are accounted as under:

(i) in so far as they relate to the acquisition of a depreciable capital asset is added to / deducted from the cost of the asset and depreciated over the balance useful life of the asset;

(ii) in other cases such differences are accumulated in "Foreign Currency Monetary Item Translation Difference Account" and amortised in the statement of profit and loss over the balance life of the long term monetary item.

In respect of forward contracts entered to hedge foreign currency exposure in respect of recognised monetary items, premia or discounts arising on forward exchange contracts entered into for the purpose of hedging currency risk, are recognized as finance cost in the statement of profit and loss or expenditure during construction, as applicable, over the life of the contract.

The impact of exchange rate differences between the rates prevailing on the date of forward exchange contracts and the rate prevailing on the balance sheet date or on the dates of settlement of forward exchange contracts whichever is earlier, is recognised in the statement of profit and loss or expenditure during construction / fixed asset, as applicable.

k) Derivative instruments

In order to hedge its risks associated with certain commodity price risk, foreign exchange fluctuations risk and interest rate risk etc., the Company enters into non-speculative derivative contracts such as forwards, options, swaps, interest rate swaps and other appropriate derivative instruments.

The Company designates such derivative contracts in a cash flow hedging relationship by applying the hedge accounting principles set out in "Accounting Standard 30 - Financial Instruments: Recognition and Measurement", gains / losses on these contracts arising from changes in fair value, to the extent the hedge is effective, or settled are recognised directly in "cash flow hedge reserve" under Reserves and surplus. Amounts accumulated in the "cash flow hedge reserve" are recycled to the statement of profit and loss and credited for gains or charged for losses to raw material consumed in so far as it relates to the commodity derivative instruments taken to hedge risk of movement in price of crude oil, credited for gains or charged for losses to sales in so far as it relates to the derivative instruments (including margin cracks) taken to hedge risk of movement in price of finished products, credited for gains or charged for losses to exchange differences (net) in so far as it relates to the derivative instruments taken to hedge risk of movement in foreign exchange rate and credited for gains or charged for losses to finance cost in so far as it relates to the derivative instruments taken to hedge interest rate risk in the same periods during which the transaction affects profit and loss. To the extent that the hedge is ineffective, changes in fair value are recognised in raw material consumed / sales / exchange differences (net) / finance cost as applicable to the statement of profit and loss. Hedge accounting is discontinued, if the hedging instrument no longer meets the criteria for hedge accounting, gets expired or is sold, terminated or exercised before the occurrence of the forecasted transaction.

Derivative contracts which are not designated for hedge accounting and not accounted under Accounting Standard (AS) 11: The Effects of Changes in Foreign Exchange Rates, the gains / losses arising from settled derivative contracts and net marked to market (MTM) losses in respect of outstanding derivative contracts as at balance sheet date are recognised in raw material consumed / sales / exchange differences (net) / finance cost as applicable to the statement of profit and loss or expenditure during construction, as applicable. The net MTM gains in respect of outstanding derivatives contracts are not recognised adopting the principles of prudence.

l) Lease

Operating lease

Lease expenses and lease income on operating leases are recognised on a straight line basis over the lease term in the statement of profit and loss or expenditure during construction, as applicable.

Finance lease As lessee:

Assets taken on lease are capitalised at fair value or net present value of the minimum lease payments, whichever is lower. Depreciation on the assets taken on lease is charged at the rate applicable to similar type of fixed assets as per accounting policy of the Company on depreciation. If the leased assets are returnable to the lessor on the expiry of the lease period, depreciation is charged over its useful life or lease period, whichever is shorter. Lease payments made are apportioned between the finance charges and reduction of the outstanding liability in respect of assets taken on lease. The leases are generally recognised in the books of account at the inception of the lease term. The leases of assets under construction are recognized on commencement of the lease term in accordance with International Accounting Standard (IAS) 17 - Leases, as there is no specific guidance available under Indian Accounting Standard (AS) 19 - Leases.

As lessor:

The assets given under a finance lease are recognised as a receivable in the balance sheet at an amount equal to the net investment in the lease. The recognition of finance income is based on a pattern reflecting a constant periodic rate of return on the net investment outstanding in respect of the finance lease.

m) Employee benefits i. Post-employment benefit plans

Contribution to defined contribution retirement benefit schemes are recognised as expense in the statement of profit and loss / expenditure during construction, as applicable, when employees have rendered services entitling them to contributions.

For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the statement of profit and loss / expenditure during construction, as applicable, in the period in which they occur. Past service cost is recognised immediately to the extent that the benefits are already vested, and is otherwise amortised on a straight-line basis over the average period until the benefits become vested.

The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation and is adjusted both for unrecognised past service cost, and for the fair value of plan assets. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions to the scheme, if lower.

ii. Short-term employee benefits

The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the services. These benefits include compensated absences such as paid annual leave, and performance incentives.

iii. Long-term employee benefits

Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognised as a liability at the present value of the defined benefit obligation determined actuarially by using Projected Unit Credit Method at the balance sheet date.

iv. Employee Stock Options Scheme:

Stock options granted to employees under the Employees'' Stock Option Scheme (ESOS) are accounted by adopting the intrinsic value method in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on accounting for employee share based payments issued by the Institute of Chartered Accountants of India (ICAI). Accordingly, the excess of market price of the shares over the exercise price is recognised as deferred employee compensation and is charged to statement of profit and loss account on straight-line basis over the vesting period.

The number of options expected to vest is based on the best available estimate and are revised, if necessary, if subsequent information indicates that the number of stock options expected to vest differs from previous estimates.

n) Valuation of investments

Investments are classified into long term and current investments. Long term investments are carried at cost. Diminution in value of long term investments is provided for when it is considered as being other than temporary in nature. Current investments are carried at the lower of cost and fair value.

o) Borrowing costs

Borrowing costs that are attributable to the acquisition, construction or development of qualifying assets (i.e. assets that take substantial period of time to get ready for its intended use) are charged to expenditure during construction / Capital work in progress.

Other borrowing costs are recognised in the statement of profit and loss.

p) Taxation

Provision for current taxation is computed in accordance with the relevant tax laws and regulations. Deferred tax is recognised on timing differences between the accounting and the taxable income for the year and quantified using the tax rates and laws enacted or substantively enacted as on the reporting date. Deferred tax assets are recognised only when there is a reasonable certainty that sufficient future taxable income will be available against which they will be realised. Where there is a carry forward of losses or unabsorbed depreciation, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence of availability of taxable income against which such deferred tax assets can be realised in future.

Minimum alternative tax (MAT) paid in accordance with tax laws, which gives rise to future economic benefit in form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal tax after the tax holiday period. Accordingly it is recognised as an asset in the balance sheet when it is probable that future economic benefit associated with it will flow to the company and the asset can be measured reliably.

q) Provisions, contingent liabilities, contingent assets and commitments

A provision is recognised when there is a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Contingent liabilities in respect of show cause notices are considered only when converted into demand. Contingent liabilities are not recognised but disclosed unless the probability of an outflow of resources is remote. Contingent assets are neither recognised nor disclosed.

Contingent Liabilities and commitments are assessed and reported only for items exceeding Rs. 0.10 crore in each case.

r) Measurement of EBIDTA

The Company has elected to present earnings before interest (including finance costs), depreciation / amortisation expenses and tax (EBIDTA) as a separate line item on the face of the statement of profit and loss. The Company measures EBIDTA on the basis of profit / (loss) from continuing operations and does not include interest (including finance costs), depreciation / amortisation expenses, exceptional and extraordinary items and tax.


Mar 31, 2013

A) Use of estimates

The preparation of financial statements in conformity with Indian GAAP requires the management of the Company to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosures relating to contingent liabilities, at the end of the reporting period. Though the management believes that the estimates used are prudent and reasonable and are based on management''s knowledge of current events and actions, actual results could differ from these estimates resulting in material adjustments to be recognized in the periods in which the results are known / materialise.

b) Revenue recognition

Revenue on sale of goods is recognised when property in the goods is transferred to the buyer for a price or when all significant risks and rewards of ownership have been transferred to the buyer and no effective control is retained by the Company in respect of the goods transferred to a degree usually associated with ownership and no significant uncertainty exists regarding the amount of consideration that will be derived from the sale of goods.

Revenue on transactions of rendering services is recognised under the completed service contract method. Contract is regarded as completed when no significant uncertainty exists regarding the amount of consideration that will be derived from rendering the services.

Interest income is recognized on time proportion basis taking into account the amount outstanding and rate applicable.

c) Government grants

Government grants are recognised only when there is reasonable assurance that the conditions attached to the grants will be complied with and where such benefits have been earned and it is reasonably certain that the ultimate collection will be made.

d) Tangible assets and depreciation

i. Tangible Assets

Tangible assets are recorded at cost less accumulated depreciation and impairment loss, if any. Cost is inclusive of non-recoverable duties and taxes, cost of construction including erection, installation, commissioning, know how and expenditure during construction including borrowing costs and results of trial run operations.

ii. Depreciation

Depreciation on plant and machinery is provided as per straight line method. All other assets are depreciated as per written down value method. Depreciation is computed at the rates based on the estimated useful lives of the assets or at the rates provided under Schedule XIV of the Companies Act, 1956, whichever is higher.

Depreciation on additions / deductions to fixed assets made during the year is provided on a pro-rata basis from / upto the date of such additions / deductions, as the case may be.

Cost of assets purchased and/or constructed by the Company whose ownership vests with others by virtue of a contract or otherwise, are amortised at the higher of rates based on the estimated useful lives of the assets or the contract period, or at the rates provided under Schedule XIV of the Companies Act, 1956.

e) work in progress and Expenditure during construction period

Direct expenditure on projects or assets under construction or development is shown under capital work-in-progress.

Expenditure incidental to the construction of projects or assets under construction or development that take substantial period of time to get ready for their intended use is accumulated as expenditure during construction, pending allocation to fixed assets and other relevant accounts, as applicable.

f) Intangible assets and amortisation

Intangible assets are recognised only when it is probable that the future economic benefits that are attributable to the assets will flow to the Company and the cost of the assets can be measured reliably. Intangible assets are stated at cost less accumulated amortisation and impairment loss, if any.

Intangible assets are amortised over the best estimate of their useful lives, subject to a rebuttable presumption that such useful lives will not exceed ten years.

g) Oil and gas exploration and development of assets

The Company follows the full cost method of accounting for its oil and gas exploration and development activities whereby, all costs associated with acquisition, exploration and development of oil and gas reserves, are capitalised under capital work-in-progress, irrespective of success or failure of specific parts of the overall exploration activity within or outside a cost centre (known as ''cost pool'').

Exploration and evaluation expenditure remain outside the cost pool until determination of commercial reserves or otherwise. These costs remain un-depleted, subject to there being no evidence of impairment. When any field in a cost pool is ready to commence commercial production, the accumulated costs in that cost pool are transferred from capital work- in-progress to the gross block of assets under producing properties. Subsequent exploration expenditure in that cost pool is added to the gross block of assets either on commencement of commercial production from a field discovery or failure. In case any block is surrendered, the accumulated exploration expenditure pertaining to such block is transferred to the gross block of assets within the cost pool.

Expenditure carried within each cost pool (including future development cost) is depleted on a unit-of-production basis with reference to quantities, with depletion computed on the basis of the ratio that oil and gas production bears to the balance proved reserves at commencement of the year.

h) Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of profit and loss. If at the balance sheet date, there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount but limited to the carrying amount that would have been determined (net of depreciation / amortisation) had no impairment loss been recognised in prior accounting periods.

i) valuation of inventories

Inventories (other than crude oil extracted by exploration and production segment) are valued at the lower of cost and net realisable value. The cost of crude inventory is determined using the first in first out cost formula and the cost of finished goods inventory, work-in-progress, stores and spares and other consumable including coal inventories are determined using the weighted average cost formula. Finished goods and work-in-progress include costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Closing stock of crude oil extracted and in saleable condition is valued at net realisable value.

j) Foreign currency transactions

Foreign currency transactions are accounted at the rate normally prevailing on the transaction date. Monetary items denominated in foreign currency other than net investment in non- integral foreign operations are translated at the exchange rate prevailing at the balance sheet date. In case of non-integral foreign operations, all the assets and liabilities are translated at the closing rate whereas the income and expense items are translated at average exchange rate during the period.

Exchange differences arising on a monetary item that, in substance, forms part of an enterprise''s net investments in a non-integral operation are accumulated in a foreign currency translation reserve until the disposal of the net investment, at which time the same is recognised in the statement of profit and loss.

Exchange differences arising on settlement or conversion of short term monetary items are recognised in the statement of profit and loss or capital work-in-progress / expenditure during construction, as applicable. Exchange differences relating to long term monetary items are accounted as under:

(i) in so far as they relate to the acquisition of a depreciable capital asset is added to / deducted from the cost of the asset and depreciated over the balance useful life of the asset;

(ii) in other cases such differences are accumulated in "Foreign Currency Monetary Item Translation Difference Account" and amortised in the statement of profit and loss over the balance life of the long term monetary item or March 31, 2020 whichever is shorter.

Premia or discounts arising on forward exchange contracts entered into for the purpose of hedging currency risk, are recognized as finance cost in the statement of profit and loss or expenditure during construction, as applicable, over the life of the contract.

The impact of exchange rate differences between the rates prevailing on the date of forward exchange contracts and the rate prevailing on the balance sheet date or on the dates of settlement of forward exchange contracts whichever is earlier, is recognised in the statement of profit and loss or expenditure during construction, as applicable.

k) Derivative instruments (other than forward exchange contracts)

Commodity derivatives

In order to hedge its exposure to commodity price risk, the Company enters into non- speculative hedges such as forward, option or swap contracts and other appropriate derivative instruments.

The Company designates such derivative contracts in a cash flow hedging relationship by applying the hedge accounting principles set out in "Accounting Standard 30 Financial Instruments: Recognition and Measurement". Gains/ losses on these derivative contracts arising from changes in fair value or settlement are recognized directly in "cash flow hedge reserve" under Reserves and surplus. Amounts accumulated in the "cash flow hedge reserve" are recycled to the statement of profit and loss in the same periods during which the forecasted transaction affects profit and loss. The ineffective portion is recognized immediately in the statement of profit and loss. Hedge accounting is discontinued if the hedging instrument no longer meets the criteria for hedge accounting, gets expired or is sold, terminated or exercised before the occurrence of the forecasted transaction.

For the contracts which are not form part of hedge accounting, the premium and gains / losses arising from settled derivative contracts and mark to market (MTM) losses in respect of outstanding derivative contracts as at balance sheet date are credited for gains or charged for losses to the raw material consumed in so far as it relates to the derivative instruments taken to hedge risk of movement in price of crude oil, and credited for gains or charged for losses to sales in so far as it relates to the derivative instruments (including margin cracks) taken to hedge risk of movement in price of finished products. The net MTM gains in respect of outstanding derivatives contracts are not recognised on conservative basis.

Others

Gains or losses arising on settlement of financial derivative contracts are credited for gains or charged for losses to the statement of profit and loss or expenditure during construction, as applicable, as and when settlement takes place. The net MTM losses in respect of outstanding derivative contracts as at the balance sheet date are provided for. The net MTM gains in respect of outstanding derivative contracts are not recognised on conservative basis.

l) Lease

Operating lease

Lease expenses and lease income on operating leases are recognised on a straight line basis over the lease term in the statement of profit and loss or expenditure during construction, as applicable.

Finance lease As lessee:

Assets taken on lease are capitalised at fair value or net present value of the minimum lease payments, whichever is lower. Depreciation on the assets taken on lease is charged at the rate applicable to similar type of fixed assets as per accounting policy of the Company on depreciation. If the leased assets are returnable to the lessor on the expiry of the lease period, depreciation is charged over its useful life or lease period, whichever is shorter. Lease payments made are apportioned between the finance charges and reduction of the outstanding liability in respect of assets taken on lease. The leases are generally recognised in the books of account at the inception of the lease term. The leases of assets under construction are recognized on commencement of the lease term in accordance with International Accounting Standard 17-Leases, as there is no specific guidance available under Indian Accounting Standard (AS-19) Leases.

As lessor:

The assets given under a finance lease are recognised as a receivable in the balance sheet at an amount equal to the net investment in the lease. The recognition of finance income is based on a pattern reflecting a constant periodic rate of return on the net investment outstanding in respect of the finance lease.

m) Employee benefits

i. Post-employment benefit plans

Contribution to defined contribution retirement benefit schemes are recognised as expense in the statement of profit and loss / expenditure during construction, as applicable, when employees have rendered services entitling them to contributions.

For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the statement of profit and loss / expenditure during construction, as applicable, for the period in which they occur. Past service cost is recognised immediately to the extent that the benefits are already vested, and is otherwise amortised on a straight- line basis over the average period until the benefits become vested.

The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation and is adjusted both for unrecognised past service cost, and for the fair value of plan assets. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions to the scheme, if lower.

ii. Short-term employee benefits

The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the services. These benefits include compensated absences such as paid annual leave, and performance incentives.

iii. Long-term employee benefits

Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognised as a liability at the present value of the defined benefit obligation determined actuarially by using Projected Unit Credit Method at the balance sheet date.

iv. Employee Stock Option Scheme

Stock options granted to employees under the employees'' stock option scheme (ESOS) are accounted by adopting the intrinsic value method in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on accounting for employee share based payments issued by the ICAI. Accordingly, the excess of market price of the shares over the exercise price is recognised as deferred employee compensation and is charged to statement of profit and loss account on straight-line basis over the vesting period.

The number of options expected to vest is based on the best available estimate and are revised, if necessary, if subsequent information indicates that the number of stock options expected to vest differs from previous estimates.

n) valuation of investments

Investments are classified into long term and current investments. Long term investments are carried at cost. Diminution in value of long term investments is provided for when it is considered as being other than temporary in nature. Current investments are carried at the lower of cost and fair value.

o) Borrowing costs

Borrowing costs that are attributable to the acquisition, construction or development of qualifying assets (i.e. the assets that take substantial period of time to get ready for its intended use) are charged to expenditure during construction.

Other borrowing costs are recognised in the statement of profit and loss.

p) Taxation

Provision for current taxation is computed in accordance with the relevant tax laws and regulations. Deferred tax is recognised on timing differences between the accounting and the taxable income for the year and quantified using the tax rates and laws enacted or substantively enacted as on the reporting date. Deferred tax assets are recognised only when there is a reasonable certainty that sufficient future taxable income will be available against which they will be realised. Where there is a carry forward of losses or unabsorbed depreciation, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence of availability of taxable income against which such deferred tax assets can be realised in future.

Minimum alternative tax (MAT) paid in accordance with tax laws, which gives rise to future economic benefit in form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal tax after the tax holiday period. Accordingly it is recognised as an asset in the balance sheet when it is probable that future economic benefit associated with it will flow to the Company and the asset can be measured reliably.

q) Provisions, contingent liabilities, contingent assets and commitments

A provision is recognised when there is a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Contingent liabilities in respect of show cause notices are considered only when converted into demand. Contingent liabilities are not recognised but disclosed unless the probability of an outflow of resources is remote. Contingent assets are neither recognised nor disclosed.

Contingent Liabilities and commitments are assessed and reported only for items exceeding Rs. 0.10 crore in each case.

r) Measurement of EBIDTA

The Company has elected to present earnings before interest (including finance costs), depreciation / amortization expenses and tax (EBIDTA) as a separate line item on the face of the statement of profit and loss. The Company measures EBIDTA on the basis of profit / (loss) from continuing operations and does not include interest (including finance costs), depreciation / amortization expenses, exceptional and extraordinary items and tax.


Mar 31, 2012

1 BASIS OF PREPARATION

These abridged revised financial statements have been prepared on the basis of the complete set of revised financial statements for the year ended March 31, 2012 in accordance with the requirements of Rule 7A of the Companies (Central Government's) General Rules and Forms, 1956.

2[6] FOREIGN CURRENCY COMPULSORY CONVERTIBLE BONDS

The Company had issued FCCBs of USD 115 million on June 15, 2010 and USD 147 million on July 9, 2010 which were convertible into 38,833,443 and 45,016,372 equity shares or into 253,813 and 294,224 GDSs at a fixed price of Rs. 138 per share and Rs. 153 per share at the option of the holders of the FCCBs until their maturity dates of June 15, 2028 and September 30, 2028 respectively. The bonds bear interest of 5% per annum, subject to certain conditions, on the outstanding principal amount of the bonds from (and including) January 1, 2016 payable semi- annually.

During the year, the terms of the bonds have been amended whereby the above bonds have now become compulsorily convertible into equity shares / GDSs on the same terms and conditions as above.

3[7(ii)(a)&(c)] REPAYMENT AND OTHER TERMS:

a) Secured redeemable non - convertible debentures ("NCDs") of Rs. 105/- each consists of : 16,918,250 (Previous year 16,918,250) - 12.50% NCDs of Rs. 105/- each amounting to Rs. 177.64 crore (Previous year Rs. 177.64 crore) with repayments starting from December 2014 ending in June 201 8.

700,000 (Previous year 700,000)- 12.5% NCDs, of Rs. 100 each on private placement basis partly paid up at Rs. 93.86 per debenture amounting to Rs. 6.57 crore (Previous year Rs. 6.57 crore), with repayments starting from December 2014 ending in June 2018.

The Hon'ble High Court of Gujarat has, in response to the Company's petition, ruled vide its orders dated August 04, 2006 and August 1 1, 2006 that the interest on certain categories of debentures should be accounted on cash basis. In accordance with the said petition / order, funded / accrued interest liabilities amounting to Rs. 428.24 crore (Previous year Rs. 355.95 crore) as at March 31, 2012 have not been accounted for. This amount carries interest rate ranging from 5% to 12.50% and are repayable from December 2014 ending in March 2027

c) The MRA dated December 17, 2004 entered pursuant to Corporate Debt Restructuring Scheme, gives an option, subject to consent of its lenders, to the Company to prepay funded interest loan (FS Loan) of Rs. 2,471.63 crore (Previous year Rs. 2,471.63 crore) at any point in time during their term at a reduced amount computed in accordance with the mechanism provided in the MRA or in full, by one bullet payment in March, 2026. Interest on FS loan was not payable if FS loan was prepaid by April 24, 2012 and therefore considering the plans to prepay FS loan, interest liability on FS was earlier considered as a contingent liability and now recognised as loan as the same is funded. The Company's proposal to exit from Corporate Debt Restructuring (CDR) was approved by CDR Empowered group and recommended to CDR Core Group for final approval during the year. The revised terms proposed for CDR exit, inter alia, includes an option to prepay funded interest on FS Loan amounting to Rs. 684.08 crore as at March 31, 2012 at a reduced amount at any point of time during its term and accelerated repayment schedule of FS Loan with instalments during March 2021 to March 2026. The repayment terms of funded interest on FS loan is in 40 equal quarterly instalments beginning June 30, 2015 as per MRA and there is no change in these terms as per CDR exit proposal.

Similarly, Rs. 206.88 crore (Previous year Rs. 206.88 crore) due to a lender ("other funded interest loan") is payable by a single bullet payment in 2031 with an option to prepay this amount as per the agreed terms at a reduced amount at any point of time during its term.

In order to reflect substance of the above, in terms of presentation in balance sheet, an amount of Rs. 2,260.35 crore (Previous year Rs. 2,088.06 crore) {including Rs. 1,720.28 crore of FS loan (Previous year Rs. 1,909.88 crore ), Rs. 364.87 crore of funded interest on FS Loan (Previous year Rs. Nil) and Rs. 175.20 crore of other funded interest loan (Previous year Rs. 178.18 crore)} being the amount not payable as at Balance Sheet date has been presented as deduction from the funded interest facilities under secured loans/borrowings to reflect the present obligation on the balance sheet date. The changes in the present obligation of the said loans subsequent to capitalisation of the Refinery Project till the date of balance sheet is treated as finance cost/exceptional item in the statement of profit and loss.

 
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